- Blake Hutcheson (President and incoming CEO) shared some good news stories about how OMERS is contributing to the fight against COVID-19 and provided an update on key strategic initiatives.
- Jonathan Simmons (CFO) provided an overview of 2019 financial results, which was one of OMERS best years ever.
- Satish Rai (CIO) discussed the current investment climate and the specific challenges resulting from COVID-19.
- Michael Rolland (CEO Sponsors Corporation) provided an update about the current review of plan design.
Yesterday afternoon, I had a nice chat with OMERS's new CEO, Blake Hutcheson.
The good news is I had a chance to chat with Blake, he's a really nice guy and offered a ton of great insights across public and private markets and more insights on how they're addressing the pandemic.
The bad news is most of our conversation is off the recordfor now which I respect so I will focus on the 2020 Annual Meeting webcast and sprinkle a few of Blake's comments which I got his blessings to share.
Now, I forgot to mention it to Blake but I wish OMERS posted its annual webcast on its YouTube channel. When you place these webcasts and clips on YouTube, I can easily embed them here.
I told Blake this webcast was really well done and I encourage all of Canada's large pensions to follow the same model as it's the proper way to communicate results and should be the norm in a post-Covid world.
Now, before I go over the 2020 Annual Meeting webcast and share my thoughts, please go read my comment on OMERS 2019 results and take the time to read OMERS 2019 Annual Report which is available here.
I will use information from the 2019 Annual Report but it's important to start with the key figures:
As you can see, OMERS services over half a million members across Ontario and the plan is 97% funded which is fully funded for all intensive purposes and the most important measure of success.
The discount rate is 5.9% which is low, the 5-year annualized performance is 8.5%, there are $109 billion in total assets and the average pension payment is $32,491 a year.
The current average contribution rate paid by members is 10.6% which is matched equally by employers.
Moreover, contribution rates and benefit accruals remain unchanged for 2020 and pension payments to retired members increased by a cost of living adjustment of 2.29% in 2019 and 1.89% in 2020.
Now, as far as the webcast, Blake went over a lot of things. He began by praising Michael Latimer, the previous CEO, for doing an outstanding job. I agree, Michael was shy when it comes to the press (or Pension Pulse) but he did an outstanding job and Blake inherited a solid organization.
Blake spoke briefly about 2019 results, he went over the challenges of the pandemic and said they will communicate a lot more with members given the unprecedented times.
He spoke about the importance of diversity, ESG investing, DB advocacy and getting through this difficult period and making sure they have the liquidity in place to take advantage of opportunities as they arise.
As an aside, I commended Blake for being one the first CEOs to come out on LinkedIn to denounce systemic racism and support the Black Lives Matter (BLM) movement.
When you go to OMERS's website, you'll see a simple message: "To be silent is to be complicit. We are an organization who puts people first. We will continue to come together - to listen, learn and act in support of our communities and against racism. Black Lives Matter."
Other large Canadian pensions and private companies have also come out to support the BLM movement and diversity in light of the horrific events which led to George Floyd's death at the hands of a police officer gone rogue.
Of course, it's not just George Floyd, I was equally horrified watching the disturbing video of Ahmaud Arbery being gunned down while jogging in Georgia.
Over the years, there are countless examples which are equally horrific and people have had enough which is why you're seeing people from all backgrounds come together to denounce systemic racism.
Those of you who know me and read me over the years know I'm a huge proponent of diversity & inclusion and recently posted this on LinkedIn:
"Repeat after me: "Diversity is for bean counters looking to window dress their organization. Inclusion is all about real, substantive change which empowers people at all levels of the organization no matter their race, gender, religion, color of their skin, sexual orientation or disability." Period! I'm tired of reading and hearing empty rhetoric on diversity, do something different, show REAL leadership!"Let me be brutally honest, we all need to have a very hard look in the mirror and have some very hard conversations.
The responsibility is even greater for people in power as they more than anyone can introduce significant changes at their organization.
While diversity has gotten better at Canada's large pensions and private and public organizations, there is tremendous work ahead to improve diversity & inclusion at all levels of the organization, not just at the board level.
We Canadians love pointing the finger to our neighbors down south and accusing them of systemic racism, we have a harder time looking at our own shortcomings when it comes to diversity and inclusion.
And let me be even more blunt: lazy leaders will shrug off these issues preferring the status quo but real leaders will find ways to a) have uncomfortable conversations across their organization and b) follow up with concrete and measurable actions which lead to significant changes that bolster diversity & inclusion at their organization.
Now, I did promise to include some insights which Blake shared with me during our conversation:
- OMERS has successfully invested directly in real estate and infrastructure over the years and they believe they can also invest successfully in purely direct private equity investments. It doesn't mean they won't co-invest with their PE partners on large deals when opportunities arise but they also believe they have the platform and right team at OMERS Private Equity to do more purely direct deals. Blake spoke highly about Michael Graham who took over as Global Head of Private Equity.
- He spoke highly of OMERS Infrastructure which has great investments all over the world, including Bruce Power here in Canada which he mentioned in the webcast.
- He said Oxford Properties, their real estate subsidiary which he previously headed, is one of the best real estate companies in the world operating at a very negligible operating expense ratio (MER). Michael Turner is now the President and CEO at Oxford and he has a big job addressing challenges in a post-Covid world.
- I shared some of my thoughts on the paradigm shift going on in real estate and wanted to know his thoughts as he's the real expert. Blake told me their industrial portfolio has done extremely well because of the rise of e-commerce as has their multifamily portfolio because "people need to live somewhere and with unemployment high, rental properties remain very attractive."
- He said retail is suffering due to the pandemic and that will remain a challenging area but they brought it down to 15% of the total portfolio.
- Where I found his comments interesting was in the office space. He said that some companies will need more "elbow room" and increase their rental space, others will not as their employees work from home, and the WeWorks will find it hard to rent rotating office space. But he added "building a culture is very tough" via remote work. He estimates demand for office space will fall by "15% over the next 5 years in a worst case scenario" and reminded me these are long-term leases so the decline in demand won't be felt all at once (maybe 3% a year).
Pandemic will not be the end of office buildings, Brookfield CEO Flatt says - Reuters https://t.co/illWxT92d9— Leo Kolivakis (@PensionPulse) June 11, 2020
Of course, Brookfield has a small conflict of interest in making such statements but Bruce Flatt isn't one to shy away when the going gets tough and he says it like it is. He's also running one of the best alternatives firms in the world so it pays to listen to his views.
One thing is for sure, the retail sector is in shambles and won't get better until this pandemic is under control:
A large number of U.S. retailers were late on their mortgages in May, with some banks reporting delinquency rates as high as 40%. Imagine the problems landlords will have if a similar percentage aren't paying rent.https://t.co/DkmO2F2lhm— American Banker (@AmerBanker) June 11, 2020
Then again, a lot of people have Covid frustration bottled up after weeks of being quarantined and many of them will dawn a mask and go out to shop at the mall, respecting social distancing.
At least that’s the hope but with fears of a second wave (we haven't' gotten the first wave under control) and unemployment sky high, I really doubt people will actually purchase a lot at stores.
As far as the stock market, Blake told me "it's a tale of two markets", the big tech names rallied like crazy but Canadian banks didn't so the broad gains aren't that great despite the Fed's massive liquidity injection.
Anyway, looking at the sharp and broad selloff today, honestly wonder if this is it for the great liquidity bounce:
Stocks suffer their worst day since March, with the Dow plunging more than 1,800 points https://t.co/JDsXVDfpjb— Leo Kolivakis (@PensionPulse) June 11, 2020
We shall see but one thing is for sure, the Fed took out a V-shaped economic recovery in its forecast, not pleasing the Twitter in Chief :
Bro, Jay P has been printing $1 trillion per month since February. He gets it. https://t.co/eGzs5gz8l9— GreekFire23 (@GreekFire23) June 11, 2020
Lastly, earlier this week, I saw a story about OMERS pension plan under attack says local labour leader:
President of the North Bay and District Labour Council, Henri Giroux, is sounding an alarm about changes he believes will have a profound impact on pensioners.Now, I did bring this up with Blake Hutcheson but he referred me to Michael Rolland, the CEO of OMERS Sponsors Corporation and said there is an important vote at the end of this month.
“Disappointed after contributing to my pension plan for 35 years," Giroux writes in a news release. "OMERS Sponsors Corporation Board (SC) will vote on June 24th 2020 to remove the Guaranteed 100 per cent inflation indexing from OMERS pension plan recipients.”
Giroux says plan members recently received communication from OMERS informing members that OMERS is fully focussed on delivering pension services to members and ensuring the long-term health of the plan "in this unprecedented financial time."
He says he expects that of a major pension plan like OMERS during these difficult times.
“I was disappointed to find out that there are plans for some changes, which would eliminate Guaranteed Indexation after December 31, 2022. As a plan member, I am urging all plan members to discuss this with your Union or Association and speak to your OMERS representative and ask that they notify the OMERS Sponsors Corporation Board to reconsider and not vote to support the suspension of guaranteed indexing.”
Ontario OMERS plan members are on the frontline of the fight to keep Ontarians safe during COVID-19 crisis.
"We are the Public health workers, Paramedics, Long term care workers, Custodians, Maintenance Workers, Child Protections Workers, Police Officers, Firefighters, and other public professions," says Giroux.
According to the OMERS website,"With the OMERS defined benefit pension plan, you can confidently retire knowing that you will have income for life. The money you set aside from every paycheque is matched by your employer, and we carefully invest it in high-quality assets, diversified around the world, to meet the pension promise of a secure retirement."
But the union says "OMERS plan members deserve to know that plan changes, which could eliminate future pension benefits, will not be pushed through during an unprecedented public health crisis when our attention is rightfully focused on ensuring the safety of all Ontarians."
I'm on record stating that OMERS and OPTrust, the two large Canadian pension plans which still have guaranteed inflation protection, need to follow HOOPP, OTPP and CAAT Pension, and adopt conditional inflation protection.
Not only is this the right thing to do from an intergenerational risk point, making sure retired and active members share the risk of plan, it offers another important lever to temporarily curb inflation protection when the going gets tough and the plan is suffering another deficit. Once the plan is fully funded, you can retroactively restore full inflation protection.
In other words, stop listening to these labour leaders who always cry foul and shamelessly use the COVID-19 crisis to make their point, listen to me, conditional inflation protection will make OMERS a lot stronger over the next decades.
And just to be perfectly clear, these are my views and I'm not speaking for anyone at OMERS.
I will call out greedy capitalists when needed as well as greedy unions who think we owe them everything. I am fiercely independent and call it like I see it.
OMERS's members need a reality check and I hope they vote in conditional inflation protection. Not to do so would be grossly unjust to active and future members.
Anyway, take the the time to really watch all of the 2020 Annual Meeting webcast and listen carefully to all the presentations. I wish OMERS posted this and future webcasts on YouTube.
I end by thanking Blake Hutcheson for speaking with me yesterday, I really enjoyed our conversation.
One other interesting thing he said is there will be fewer but longer trips ahead during the pandemic. "I used to fly to London once a month for two or three days as head of Oxford, now it will be once every six months but for three weeks and I'll really get to know the team there working out of our London office."
But he admits his roots remain in Huntsville, Ontario where he was born and has a cabin and will work out of there every Monday as long as he needs to.
Below, earlier this year, Blake Hutcheson, the new CEO of OMERS, talked about staying the course on the fund's investment strategy and how geopolitical issues factor into it with BNN Bloomberg's Amanda Lang.
In April, Blake Hutcheson was part of a Canadian Club panel discussion webinar moderated by Mark Wiseman. Joining them was AIMCo's CEO, Kevin Uebelein, and OTPP's Head of PE, Jane Rowe.
Lastly, in October 2019, Blake Hutcheson joined PSP CEO, Neil Cunningham, and CPPIB's Senior Managing Director of International, Alain Carrier, and Cathay Financial Holding's CIO, Sophia Cheng for an interesting panel discusion on stewarding long-term assets.