OMERS has four major investment divisions. We will be looking at each of these OMERS investment divisions in turn. We will be seeking to understand what exactly each investment division does. We will also be seeking to understand what investments OMERS has under each division, and why the people who manage OMERS find it prudent to invest members’ funds in each particular division. Before doing so though, we need to briefly acquaint ourselves with OMERS.

Introduction to OMERS

The initials OMERS in this particular context stand for Ontario Municipal Employees Retirement System. The core role of OMERS is that of managing employment benefits for Ontario Municipal Employees. During their working years, the employees contribute funds to OMERS – directly or indirectly – to finance their pensions when they retire. OMERS receives that money and invests it, for the benefit of the people who contribute it. This way, when they retire, the contributors don’t just gain access to the money they saved, but also the returns brought in by that money over time: thanks to its investment and management by OMERS. Ontario firefighters, policemen and women, teachers, transit system operators and water system operators are amongst the key members of OMERS.

The investment divisions

It is worth noting that OMERS has grown to a level where it is so vibrant that members’ contributions only fund a third (30%) of its pension operations, with the rest (70%) being funded by the investments. The investments arm of OMERS thus ends up managing tens of billions of dollars: big money by all accounts. To ease operations, the investments arm is divided into four divisions, namely:

1. The Oxford Properties Division: this is a relatively recent acquisition of OMERS (it being something that was, apparently, bought as a going concern). It is through the Oxford Properties division that OMERS invests in (and manages investments in) real estate. Most of the real estate holdings of OMERS through Oxford Properties are commercial properties, mainly office blocks and shopping center developments. The relatively high rate of returns against relatively low risk associated with real estate investment is what justifies the investment of members’ funds by OMERS in this particular area, through the Oxford Properties Division.

2. Borealis Infrastructure Division: through this, OMERS is able to invest in things like ports, power production, rail and road transport. These sorts of investments are normally very lucrative and the risk is manageable: hence the justification for investment in this particular area by OMERS through its Borealis infrastructure division.

3. The OMERS Capital Partners Division: through this particular division, OMERS is able to function as a private equity investor (in various, carefully-vetted and promising projects). This helps in the thorough diversification of its portfolio, which in turn secures members’ futures further. The projects invested in here also often turn out to be very lucrative, in terms of the returns they start yielding in the longer run.

4. OMERS Capital Markets Division: through this division, OMERS is able to invest in things like stocks, government securities and so on. This further diversifies its holdings, thus securing its members futures further.

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The Ontario Municipal Employees Retirement System (OMERS) is widely regarded as a model retirement benefits management scheme. We will be making an attempt at figuring why OMERS has come to be regarded as such.

Prudent management

As it turns out, there is actually one major reason as to why OMERS is widely regarded as a model retirement benefits management scheme. The reason is in the fact that OMERS is one retirement benefits management scheme which has managed to invest its members’ monies very prudently. Some of the ways in which the prudence of OMERS’ investment strategy manifests include:

The diversification

This is where we come to learn that the managers of OMERS have, over the years, gone to great lengths to ensure that members’ funds are invested in a wide variety of sectors. As an investor, OMERS has interests in the stock markets, government securities, private equity, real estate, public infrastructure and so on. This way, regardless of what happens in specific sectors of the economy, members are almost assured that their pension checks wouldn’t be affected. And so long as this investment strategy is pursued, the members are assured that their long term security is guaranteed.

To ensure that the investment portfolio diversification is pursued in the right way, OMERS has set up investment divisions. One of those, by the name of ‘Borealis,’ is the one charged with the management of the public infrastructure investments. Another one, which goes by the name of ‘OMERS Capital Partners,’ is the one charged with the management of the private equity investments. Yet another one, which goes by the name of ‘OMERS Capital Markets,’ is the one that is charged with the management of the government securities and stock markets investment. One more division, by the name of ‘Oxford Properties,’ is the one charged with the role of managing OMERS’ real estate investments.

The level of returns from investments

It emerges that OMERS’ investments returns are able to fund it to the tune of 70%, meaning that only 30% of OMERS is funded by direct pension contributions. This is a big deal. We have many other retirement benefits schemes which basically operate like pyramid schemes, with the members who are currently working being the ones who, through their contributions, fully (or almost fully) fund the benefits accruing to their retired counterparts. The current members are in turn supposed to get their benefits funded by those who’ll be working when they retire… Obviously, at some point, that model becomes unsustainable. An ideal retirement benefits scheme is, therefore, one where (currently retired) members’ benefits can be funded by returns from investments. And OMERS meets that criterion.

The healthiness of the returns from OMERS investments is probably attributable to the fact that OMERS’ money is invested in areas that are known to be lucrative, such as infrastructure, real estate and in smaller projects as private equity. The high risk associated with these high-yield investments is evened out by investment in a few secure but low-yield areas such as government securities. Ultimately, OMERS members are able to get decent pension checks, thanks to the considerable prudence with which their pension contributions are managed by OMERS.