{"id":19477,"date":"2020-09-04T08:37:46","date_gmt":"2020-09-04T12:37:46","guid":{"rendered":"https:\/\/www.benefitscanada.com\/news\/plan-sponsor-week-hoopp-looking-to-ldi-strategy-2-0-amid-low-interest-rates-149389"},"modified":"2020-09-04T08:37:46","modified_gmt":"2020-09-04T12:37:46","slug":"plan-sponsor-week-hoopp-looking-to-ldi-strategy-2-0-amid-low-interest-rates","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2020\/09\/04\/plan-sponsor-week-hoopp-looking-to-ldi-strategy-2-0-amid-low-interest-rates\/","title":{"rendered":"Plan Sponsor Week: HOOPP looking to LDI strategy 2.0 amid low interest rates"},"content":{"rendered":"
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Yaelle Gang, the Canadian Investment Review<\/span> | September 4, 2020 <\/p>\n

The Healthcare of Ontario Pension Plan is well-known for its liability-driven investing strategy, which helped it successfully weather the 2008 financial crisis.<\/p>\n

During the coronavirus fallout, in an era of historically low interest rates, the HOOPP is working on developing LDI 2.0. \u201cWe\u2019re very focused on liabilities, but what you do when interest rates are at really extreme lows, in our view, is different than what we did in the past,\u201d said Jeff Wendling, the plan\u2019s president and chief executive officer, during Benefits Canada<\/em> and the Canadian Investment Review<\/em>\u2018s 2020 Plan Sponsor Week in mid-August.<\/p>\n

In 2006 and 2007, the HOOPP had very large fixed income holdings, he said. \u201cWe\u2019ve ridden those fixed income positions all the way down to these lows [in yields] here now and that\u2019s worked out very well for the fund. But at this point, we think fixed income assets provide minimal returns going forward. So that\u2019s a big challenge for us.\u201d<\/p>\n

Read: HOOPP names veteran Jeff Wendling new president and CEO<\/a><\/strong><\/p>\n

For instance, he noted, fixed income assets don\u2019t hedge the plan\u2019s liabilities as well as they did when yields were higher nor do they provide the same kind of diversification benefits. \u201cWe\u2019re really looking right now at what we need to do, or what we can do differently, to generate the returns that we need and manage the risk appropriately.\u201d<\/p>\n

Of late, the biggest change the HOOPP has made is implementing an infrastructure program. \u201cThat is underway now and I think that will be one of the assets that we\u2019ll use to provide a replacement to some of the returns that we\u2019re looking to get out of the fixed income assets. And I think it provides some hedging benefits as well, whether it\u2019s to inflation or to a decline in rates,\u201d said Wendling.<\/p>\n

In addition to infrastructure, the HOOPP has launched an insurance-linked securities program. And although the pension plan has historically been largely internally managed, it\u2019s selectively starting an external manager program focused primarily on hedge fund managers. \u201cWe\u2019re looking at other sources of return \u2014 types of other return that we need that we\u2019re not going to get from those fixed income assets. Infrastructure is a big part of it. There are many other assets there. I think, at the end of the day, we will also own more equities than we have for the last number of years.\u201d<\/p>\n

Read: Jim Keohane reflects on his HOOPP career, LDI strategy<\/a><\/strong><\/p>\n

The pension fund is also changing the mix of its bond portfolio and is looking at diversifying its international exposure to find higher yields, he said.<\/p>\n

While Wendling said he believes deflation is a risk, it\u2019s not the plan\u2019s base scenario. \u201cOur primary scenario is that we\u2019re in a low inflation period of time, a low interest rate period of time for a number of years and then we think you may get inflation at some point after that.\u201d<\/p>\n

That said, he noted the risk of deflation is why the HOOPP doesn\u2019t want a zero nominal bond portfolio weighting. \u201cWe\u2019re going to have significant exposures there and that would actually help us in a deflationary scenario. Those are assets that are very important for liquidity purposes for a fund like HOOPP as well.\u201d<\/p>\n

Read: HOOPP ready to weather market volatility after strong performance in 2019: CEO<\/a><\/strong><\/p>\n

In addition to looking at generating required returns in a low interest environment, Wendling said the HOOPP is also focused on ensuring the fund continues to manage risks well as it grows larger and more complex. \u201cWe\u2019re looking at new risk systems to bring into HOOPP, new tools on the risk side and we\u2019re actually going to be hiring our first-ever chief risk officer.\u201d<\/p>\n

Of note, the HOOPP entered the coronavirus crisis with a very strong funded position and remains fully funded today.<\/p>\n

All of the 2020 Plan Sponsor Week sessions are available on-demand at benefitscanada.com\/webinars<\/a>.<\/strong><\/p>\n

Read the full article at BenefitsCanada.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Yaelle Gang, the Canadian Investment Review | September 4, 2020 The Healthcare of Ontario Pension Plan is well-known for its liability-driven investing strategy, which helped it successfully weather the 2008 financial crisis. During the coronavirus fallout,...<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/19477"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=19477"}],"version-history":[{"count":0,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/19477\/revisions"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=19477"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=19477"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=19477"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}