To meet our funding obligation, OPTrust has built an investment portfolio valued at $16 billion at the end of 2013. The Plans assets include Canadian and international equities, fixed income investments, growing real estate, infrastructure and private equity portfolios and an allocation to energy commodities.

Diversification is a key element of our long-term investment strategy. By selecting an appropriate mix of asset types and investing in a range of markets and sectors, we aim to achieve a number of objectives, including:

• managing the Plans exposure to investment risk
• reducing the impact of poor returns from particular markets or asset classes in any given year, and
• maximizing our ability to achieve the Plans funding target return over time.

Diversification strategy

OPTrusts investment strategy is designed to ensure the long-term sustainability of the Plan. This means constructing a diversified portfolio that is able to withstand negative market conditions while generating the returns needed to fund our pension obligations over the long term.

To help manage the Funds investment risk, OPTrust regularly conducts asset/liability studies with the last study completed in 2012. These studies are used to help ensure the portfolio is structured to maximize our ability to meet the funding target return over time, while keeping investment risk within limits established by OPTrusts Board of Trustees.

In 2013, OPTrust continued to improve the diversification of the portfolio by:

• Further increasing the real estate, infrastructure and private equity asset classes towards their long-term target weight. Year-end allocations for these asset classes were 13.5%, 14.5% and 4.9% respectively compared to strategic target weights of 15%, 15% and 10%. Consistent with previous asset/liability studies, the 2012 study recommended the inclusion of these alternative assets in the strategic asset mix due to their potential return premiums and lower correlations to public market assets.
• Further reducing the Canadian real return bonds (RRBs) allocation as more alternative assets were funded. The Funds alternative asset portfolios are expected to provide a hedge against inflation but have much higher yields than RRBs.

In 2013, OPTrust continued to improve the diversification of the Plans asset mix, continuing to increase our positions in the alternative asset classes: real estate, infrastructure and private equity. These changes are designed to reduce investment risk and volatility at the total fund level, while strengthening OPTrusts ability to meet the Plans target return under a range of scenarios.