With 12-17% annual returns, it’s an exceptionally successful blueprint for investing, but advisors say their clients are getting in the way of their efforts to duplicate it.
It’s an exceptionally successful blueprint for investing, but advisors say their clients are getting in the way of their efforts to duplicate it.
The Ontario Teachers’ Pension Plan announced Tuesday that it achieved an 11.8 per cent return in 2014, 170 basis points greater than its investment benchmark of 10.1 percent. In early March the Healthcare of Ontario Pension Plan delivered news of a 17.7 per cent return in 2014 and in late February the Caisse de dépôt et placement du Québec announced a 2014 return of 12 percent.
The largest Canadian pension funds are delivering above-average returns, some of the best anywhere, yet it’s extremely difficult for front-line advisors to easily replicate the portfolio construction of some of these same institutions.
WP spoke to Brent Vandermeer, an advisor and portfolio manager in Ottawa, about this very subject. What he had to say is interesting food for thought.
“I have that opportunistic bucket [about 18 per cent of portfolio] that tries to replicate more of these hard assets and these things that the pension plans are typically able to buy like the 407 Highway or a port,” says Vandermeer, “so in there what I’m trying to create is an overweight to infrastructure, real estate, real assets, food and agriculture. Those are the main areas that you see them able to invest in.”
So, in many ways Vandermeer feels that the big problem isn’t the lack of ETFs and other investment products being made available to small retail clients but rather a much shorter time horizon making it difficult to replicate what pension plans are able to do.
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“With retail clients you’re stuck working with ETFs and in the past I’ve dabbled with some Walton land-banking and things like that, which help create more [pension-type assets],” he says. “But you give up liquidity, which is extremely important for people, because as much as they say they have long-term horizons, things happen in their lives; they have cash problems.”
“They don’t have a 20-year time horizon,” says Vandermeer. “That’s as close as we get to it [pension-style allocation].”
At the end of the day, Vandermeer has mixed feelings about getting closer to replicating pension plans because things haven’t always this rosy for OTPP and others.
“It’s not that long ago where pensions were in horrible shape having taken huge losses just like the retail markets in 2007; there was no protection for them back then and people thought they were going to collapse.”
Today, pensions are riding a cyclical train that’s working for them. That’s not going to carry on, forever. Having said that, Vandermeer does see the eloquence of pension plans.
“They do have that beautiful place,” says Vandermeer, “that every investment manager wants where they can quantify what their withdrawals are going to be.”
“I can’t do that. I get these random events with clients… It’s really somewhat impossible for us [advisors] to replicate this exactly.”
It is what it is.
The Ontario Teachers’ Pension Plan announced Tuesday that it achieved an 11.8 per cent return in 2014, 170 basis points greater than its investment benchmark of 10.1 percent. In early March the Healthcare of Ontario Pension Plan delivered news of a 17.7 per cent return in 2014 and in late February the Caisse de dépôt et placement du Québec announced a 2014 return of 12 percent.
The largest Canadian pension funds are delivering above-average returns, some of the best anywhere, yet it’s extremely difficult for front-line advisors to easily replicate the portfolio construction of some of these same institutions.
WP spoke to Brent Vandermeer, an advisor and portfolio manager in Ottawa, about this very subject. What he had to say is interesting food for thought.
“I have that opportunistic bucket [about 18 per cent of portfolio] that tries to replicate more of these hard assets and these things that the pension plans are typically able to buy like the 407 Highway or a port,” says Vandermeer, “so in there what I’m trying to create is an overweight to infrastructure, real estate, real assets, food and agriculture. Those are the main areas that you see them able to invest in.”
So, in many ways Vandermeer feels that the big problem isn’t the lack of ETFs and other investment products being made available to small retail clients but rather a much shorter time horizon making it difficult to replicate what pension plans are able to do.
#pb#
“With retail clients you’re stuck working with ETFs and in the past I’ve dabbled with some Walton land-banking and things like that, which help create more [pension-type assets],” he says. “But you give up liquidity, which is extremely important for people, because as much as they say they have long-term horizons, things happen in their lives; they have cash problems.”
“They don’t have a 20-year time horizon,” says Vandermeer. “That’s as close as we get to it [pension-style allocation].”
At the end of the day, Vandermeer has mixed feelings about getting closer to replicating pension plans because things haven’t always this rosy for OTPP and others.
“It’s not that long ago where pensions were in horrible shape having taken huge losses just like the retail markets in 2007; there was no protection for them back then and people thought they were going to collapse.”
Today, pensions are riding a cyclical train that’s working for them. That’s not going to carry on, forever. Having said that, Vandermeer does see the eloquence of pension plans.
“They do have that beautiful place,” says Vandermeer, “that every investment manager wants where they can quantify what their withdrawals are going to be.”
“I can’t do that. I get these random events with clients… It’s really somewhat impossible for us [advisors] to replicate this exactly.”
It is what it is.
