The pension plan pays inflation-protected pensions to its members and makes annual pension payments that exceed the amount collected in contributions from plan members, the Ontario government and designated employers each year.
This creates two investment requirements: the need for stable, reliable cash flows that are not correlated to equity and bond market movements, and the need to capture inflation in the fund’s returns.
Recognizing these needs, we initiated an inflation-sensitive asset class several years ago to further diversify the fund and help meet the plan’s long-term pension obligations. This asset class includes real estate, infrastructure and timberland, real-return bonds and commodities.
In recent years, inflation-sensitive investments have played an increasingly important role in meeting our performance objectives and decreasing risk across the total fund. This asset class is now our largest, with 49% of the fund invested in these assets at the end of 2009.