Pension Pulse

BCI's Daniel Garant on Private Debt and More

Sarah Rundell of Top1000funds reports on BCI's masterclass in private debt:

British Columbia Investment Management Corporation (BCI), the C$295 billion ($214 billion) asset manager for public sector bodies in Canada’s western most province, oversees a C$20 billion ($14.5 billion) allocation to private debt in a strategy that is defined by a few key characteristics: a large and growing allocation to co-investments, an avoidance of mega deals and an expansion into Europe and APAC.

Around 65 per cent of the private debt allocation is direct or in co-investments via partnerships with external firms, which although not unique, sets BCI apart from many other investors and reaps benefits like diversification, deeper relationships, deal selectivity and lower fees.

“Not everyone can do direct or co-investments but having an overall portfolio of 65 per cent in direct and co-investments is a high number, and we are looking to do more,” says Daniel Garant, executive vice president and global head of public markets, in conversation with Top1000funds.com.

BCI has been doing direct lending in the US ever since the portfolio was launched in 2018. But moribund M&A activity continues to push private credit firms to jump on every opportunity. It’s drawn huge investor flows into US private debt and tightened credit spreads. The fiercely competitive market for lenders has propelled BCI into new geographies – first Europe and more recently, Asia Pacific.

“For the last three years, we have increased our allocation to Europe for the simple reason that credit spreads and returns are currently attractive. Having a portion in Europe, and a growing portion in Asia Pacific, is helping us as these markets will develop over the years. They won’t get to the same size as the US, but private debt in Europe and Asia will get a growing share of this portfolio,” he predicts.

Another important seam to strategy involves avoiding mega deals where “everyone” is bidding. It’s not that these deals aren’t interesting, says Garant, it’s just that they are competitive and tightly priced. Instead, he is focused on transactions that are less crowded to get a better spread, calling on BCI’s strong partners to bring deal flow in the upper middle market and middle market.

Another reason to avoid mega deals in private debt includes competition in the space from broadly syndicated loans (BSLs), which corporate borrowers can tap into as an alternative to private debt. BSLs are usually cheaper, and lenders don’t ask for as much spread as private credit investors. In return, they don’t have the same flexibility.

“A private debt loan is more flexible, but it is more expensive,” he says.

Adjacent opportunities

Another successful seam to strategy includes adjacent opportunities. In one example, the team has broadened its remit and ventured into more asset-backed lending. Garant says it’s less competitive and offers a better risk return, and although deals are more complex, BCI can draw on its deep internal expertise and talent pool for support – around 85 per cent of BCI’s total assets are managed internally.

Traditionally, asset-backed lending where loans are secured against property or equipment, consumer loans or credit card balances, used to be the domain of banks. Unlike direct lending which involves analysis of the corporation, financial projections and strategy, investors in the asset-backed space must also ensure they have the capacity and infrastructure to successfully select the assets that sit behind each deal.

“This is where the secret lies,” he says, adding that managers (and their selection) play a key role in sourcing the assets that back the loans. “Asset-backed lending is usually part of a broad diversified portfolio and that requires technology, including AI tools, to better enable us to see the portfolio behind it because this is where the risk sits.”

Adjacent opportunities also include looking for openings in investment-grade (private) debt where investment-grade corporates go to the private market in search of a more flexible portion of funding.

It’s a strategy that also plays into another inherent strength of the portfolio.

The public markets team oversees both the allocation to private debt and absolute return strategies, alongside more obvious public allocations to passive and active public equities, government and corporate bonds, derivatives, trading and FX and managing portfolio leverage. Garant believes the hybrid portfolio works particularly well given today’s demands on investors to remain flexible, and the fact that the lines that used to define markets are increasingly blurred.

“Investment grade private debt is a hybrid between corporate bonds which are investment grade, and private debt per se, so having the view of both markets is essential in my view to do a good job in terms of capital allocation and risk return.”

Absolute return and synthetic index replication

The C$12 billion ($8.7 billion) absolute return portfolio, the other slight anomaly in BCI’s public markets allocation, seeks opportunities that are uncorrelated to equity – namely unique, idiosyncratic investments that are expected to perform well in all market environments.

The strategy provides a welcome corner of active risk in an equity allocation that has steadily moved into passive.

At 23.6 per cent, BCI’s current allocation to public equities is a smaller proportion of assets under management than it used to be and subjects the portfolio to less volatility than in the past. Of that, the majority is passive in index strategies for rebalancing.

Absolute return investment opportunities have a specific risk-return profile that typically comprises low downside risk and a capped upside, but which is above the market beta return. Absolute return implementation comes via an overlay above public, indexed equities whereby BCI’s clients receive the beta of equities, and a value add over the benchmark from uncorrelated strategies.

“Of course, the quid pro quo is if the downside is capped and limited, the upside is also going to be capped. The key success factor is the right partnership and sourcing, as well as the skill of the team and being agile and nimble to look at opportunities that are a bit different,” he says.

The largest exposure is to a long-short market-neutral credit manager. Other uncorrelated instruments providing strong returns in the overlay strategy include transactions in litigation finance and structured debt instruments with penny warrants. Here, the downside credit protection caps potential losses and the upside comes via the interest rate paid on the debt instrument and potential equity returns from the penny warrants.

In keeping with BCI’s overarching approach, the structure of the overlay is managed internally with capital allocated to partners where BCI will co-invest if the team decide they want more exposure to particular opportunities. “The positions are not short-term, we target transaction maturities to be within five years – we don’t aim for short-term tactical positions that are, say, three months.”

It’s a topical point. As more investors explore tactical asset allocation in the current climate, Garant remains lukewarm.

“I’m not a strong believer in tactical asset allocation. Our strategy is not based off short-term market moves.”

“Tactical asset allocation requires coping with significant mark-to-market volatility with features such as stop losses, and although some firms are good at it, many aren’t because it’s extremely difficult to time market movements. If you want to perform, you need to change positions quickly, and positions need to be large to have a meaningful impact on your return. For example, relative value trades between equity and bonds consume a lot of active risk.”

BCI has no edge investing tactically, he continues. It’s much better to invest the way they are, whereby partners bring opportunities, the internal team hunts for specific returns and risk profiles, and where transactions are less crowded.

A second active equity strategy in addition to absolute return comes via synthetic indexation, where the team move investment between physical and synthetic index replication according to market opportunities.

The physical allocation involves trading a basket of stocks alongside a synthetic index replication exposure via swaps, he explains. Every year, the team has added value by doing synthetic index replication and he concludes that the strategy is important because active equities are difficult in the current market.

“In public equity markets, we have never seen this type of market concentration before. In Canada, we are used to having a few stocks dominating the benchmark, but in the US, this is a new feature in the modern era. It adds complexity for long-only public equity active investors.”

Excellent interview with Daniel Garant, EVP and Global Head of Public Markets at BCI where he goes over their approach to private debt, absolute returns and other strategies.

He also explains why he's not a big believer in tactical asset allocation and how synthetic indexing adds value to the fund.  

How did BCI grow its private debt portfolio to an C$20 billion ($14.5 billion) allocation in seven years? 

They seeded the right funds like Hayfin Capital in Europe which they sold back in February, got an equity stake, negotiated lower fees and co-investment rights and they're continuing on this track. 

BCI recently announced that BCI-backed Brinley Partners secured an additional US$4 billion commitment from a leading US insurance company. 

BCI also recently announced the signing of a strategic minority investment agreement to support Three Hills, a private markets investment firm specialised in providing bespoke capital solutions to entrepreneurs and management teams in Europe and North America to help long-term corporate development and growth objectives

The structure of these deals gives BCI important leverage to negotiate lower fees and co-investment opportunities.

What else did BCI do to grow its private debt portfolio? Early on, it invested in CPP Investments' Antares Capital, a leader in US middle market lending.

But the key point in all of this is they structure their deals intelligently to negotiate better terms (lower fees, more co-investments) and they also get huge upside from their equity stakes in these firms.

Daniel Garant states this:

 “Not everyone can do direct or co-investments but having an overall portfolio of 65 per cent in direct and co-investments is a high number, and we are looking to do more”

That's a huge percentage in direct and co-investment and to do more, they need to structure the right deals with strategic partners.

What else? Similar to what IMCO's Jennifer Hartviksen told ION Analytics (see my recent post here), their credit team is flexible across the capital structure and even does hybrids between corporate bonds and private debt.

The ability to do more directs and co-investments and be flexible across different credit products requires a strong credit team that can gauge opportunities as they arise and solid technical knowledge to provide bespoke investment solutions to capitalize on hybrid opportunities.

Lastly, the time frame for co-investments is three to five years because it increases the probability that they will not get caught in a short-term storm, it's just a smarter risk-adjusted framework than short term tactical asset allocation which is fraught with risks.

Equally important, they avoid mega deals where spreads are tight and look to capitalize in less crowded strategies where spreads are wider (that carries more risk but better returns and if the team knows how to analyze these deals properly, it's a smarter strategy than chasing mega deals where returns are lacklustre).

Alright, let me wrap it up there.

Below, a panel discussion form last year's Milken Institute Global Conference featuring Daniel Garant, EVP and Global Head of Public Markets at BCI. The panel discusses trends in private markets including private debt and you can fast forward to around minute 9 to hear Daniel's insights (there's more, entire panel is worth watching).

Dovish Fed Remarks Revive Animal Spirits on Wall Street

Amalya Dubrovsky, Karen Friar and Laura Bratton of Yahoo Finance report Dow jumps 800 points to record, S&P 500, Nasdaq soar as Powell's Jackson Hole finale fuels bets on September rate cut:

US stocks soared on Friday as Federal Reserve Chair Jerome Powell opened the door to a September rate cut during his highly anticipated speech at Jackson Hole.

The Dow Jones Industrial Average rose 800 points or 1.9% to close at a fresh record, while the S&P 500 moved up about 1.5%, and the tech-heavy Nasdaq Composite climbed 1.9%. Friday's surge came on the heels of a downbeat week for markets, as tech stocks took a hit amid AI trade doubts.

His remarks shook up rate-cut bets, which had been waning after a weak monthly jobs report. Traders on Friday were pricing in about 91.5% odds of a September cut compared to 70% earlier in the morning and 85% a week ago.

Meanwhile, the 10-year and 30-year Treasury yields fell after Powell's remarks. The commentary also spurred a gain in bitcoin and other cryptocurrencies, with ethereum leading the crypto gains.

The White House watched Powell's speech closely, as President Trump has continued to push the Fed and Powell to lower rates. Trump opened a new front in his public pressure campaign on central bank independence by calling for the resignation of Fed governor Lisa Cook for alleged mortgage fraud. On Friday, Trump said he'll "fire" Cook if she doesn't resign, though legally, presidents cannot easily dismiss Fed governors.

On the earnings front, Zoom (ZM) stock popped Friday after reporting an AI boost, and Ross Stores (ROST) jumped as shoppers sought discounts amid tariffs. Intuit (INTU) and Workday (WDAY), meanwhile, slid.

Shares of Intel (INTC) jumped 5% after President Trump said the government will take a 10% stake in the ailing chip giant, calling it a "great deal." 

Pia Sigh and Sarah Min of CNBC also report Dow surges more than 800 points to post record close as Powell speech fuels rally:

The Dow Jones Industrial Average rallied to an all-time high Friday after Federal Reserve Chair Jerome Powell signaled the central bank could begin easing monetary policy next month.

The Dow climbed 846.24 points, or 1.89%, reaching a fresh high and closing at a record level of 45,631.74. The S&P 500 rose 1.52% to end at 6,466.91. At its session high, the broad market index came within three points of its record. The Nasdaq Composite gained 1.88% and settled at 21,496.53.

Shares of megacap technology stocks soared on Powell’s comments. Nvidia added 1.7%, while Meta Platforms jumped more than 2%. Alphabet and Amazon each climbed more than 3%. Tesla shares jumped about 6%.

In a tepid speech at the central bank’s annual conclave in Jackson Hole, Wyo., Powell said that “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” The Fed chief added that “the balance of risks appear to be shifting” between the central bank’s dual mandate of full employment and stable prices. He cited “sweeping changes” in tax, trade and immigration policies.

Expectations for a quarter-point rate cut in September surged to roughly 83% following the speed from about 75% earlier in the week, according to the CME Group’s FedWatch tool.

“The bar is extremely high now for the Fed to leave rates unchanged in less than a month,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

Friday’s performance came in contrast to much more downbeat market action this week. The major averages entered the session lower week to date due to pressure in megacap tech. The latest rally helped investors claw back most of the losses from earlier in the week.

For the week, 30-stock Dow advanced 1.5%, and the S&P 500 gained 0.3%, while the Nasdaq slipped 0.6%.

Jeff Cox of CNBC also reports Powell indicates conditions ‘may warrant’ interest rate cuts as Fed proceeds ‘carefully’:

Federal Reserve Chair Jerome Powell on Friday gave a tepid indication of possible interest rate cuts ahead as he noted a high level of uncertainty that is making the job difficult for monetary policymakers.

In his much-anticipated speech at the Fed’s annual conclave in Jackson Hole, Wyoming, the central bank leader in prepared remarks cited “sweeping changes” in tax, trade and immigration policies. The result is that “the balance of risks appear to be shifting” between the Fed’s twin goals of full employment and stable prices.

While he noted that the labor market remains in good shape and the economy has shown “resilience,” he said downside dangers are rising. At the same time, he said tariffs are causing risks that inflation could rise again — a stagflation scenario that the Fed needs to avoid.

With the Fed’s benchmark interest rate a full percentage point below where it was when Powell delivered his keynote a year ago, and the unemployment rate still low, conditions allow “us to proceed carefully as we consider changes to our policy stance,” Powell said.

“Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” he added.

That was as close as he came during the speech to endorsing a rate cut that Wall Street widely believes is coming when the Federal Open Market Committee next meets Sept. 16-17.

However, the remarks were enough to send stocks soaring and Treasury yields tumbling. The Dow Jones Industrial Average showed a gain of more than 600 points following the public release of Powell’s speech while the policy-sensitive 2-year Treasury note saw a 0.08 percentage point fall to around 3.71%.

In addition to market expectations, President Donald Trump has demanded aggressive cuts from the Fed in scathing public attacks he has lobbed at Powell and his colleagues.

The Fed has held its benchmark borrowing rate in a range between 4.25%-4.5% since December. Policymakers have continued to cite the uncertain impact that tariffs will have on inflation as a reason for caution and believe that current economic conditions and the slightly restrictive policy stance allow for time to make further decisions.

Importance of Fed independence

While not addressing the White House demands for lower rates specifically, Powell did note the importance of Fed independence.

“FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks. We will never deviate from that approach,” he said.

The speech comes amid ongoing negotiations between the White House and its global trading partners, a situation often in flux and without clarity on where it will end. Recent indicators show consumer prices gradually pushing higher but wholesale costs up more rapidly.

From the Trump administration’s view, the tariffs will not cause lasting inflation, thus warranting rate cuts. Powell’s position in the speech was that a range of outcomes is possible, with a “reasonable base case” being that the tariff impacts will be “short lived — a one-time shift in the price level” that likely would not be cause for holding rates higher. However, he said nothing is certain at this point.

“It will continue to take time for tariff increases to work their way through supply chains and distribution networks,” Powell said. “Moreover, tariff rates continue to evolve, potentially prolonging the adjustment process.”

In addition to summarizing the current conditions and potential outcomes, the speech touched on the Fed’s five-year review of its policy framework. The review resulted in several notable changes from when the central bank last performed the task in 2020.

At that time, in the midst of the Covid pandemic, the Fed switched to a “flexible average inflation targeting” regime that effectively would allow inflation to run higher than the central bank’s 2% goal coming after a prolonged period of holding below that level. The upshot is that policymakers could be patient with slightly higher inflation if it meant insuring a more comprehensive labor market recovery.

However, shortly after adopting the strategy, inflation began to climb, ultimately hitting 40-year highs, while policymakers largely dismissed the rise as “transitory” and not needing rate hikes. Powell noted the damaging impacts from the inflation and the lessons learned.

“As it turned out, the idea of an intentional, moderate inflation overshoot had proved irrelevant. There was nothing intentional or moderate about the inflation that arrived a few months after we announced our 2020 changes to the consensus statement, as I acknowledged publicly in 2021,” Powell said. “The past five years have been a painful reminder of the hardship that high inflation imposes, especially on those least able to meet the higher costs of necessities.”

Also during the review, the Fed reaffirmed its commitment to its 2% inflation target. There have been critics on both sides of the issue, with some suggesting the rate is too high and can lead to a weaker dollar, while others seeing a need for the central bank to be flexible.

“We believe that our commitment to this target is a key factor helping keep longer-term inflation expectations well anchored,” Powell said.

Alright, the week ended with a bang but it wasn't such a great week prior to today.

Powell confirmed the Fed will in all likelihood cut rates in September.

I said so last week when I covered top funds' activity in Q2, I expect a "one and done" rate cut in September.

The thing Fed officials are grappling with now is the lagged effects of tariffs on inflation. 

Specifically, there were major inventory buildups as tariffs were announced but as those inventories wear off, producers will have to pass on the tariffs to consumers or eat them and suffer margin compression (ie. less profits).

But the US economy is definitely slowing, Powell is right to highlight the Fed's dual mandate and employment conditions certainly warrant a rate cut next month (fed funds rate is restrictive).

Alright, let me move straight to the stock market action this week in US markets.

As shown below, Energy, Real Estate, Financials and Materials were the top performing sectors this week (data from barchart):

And here are the top performing US large and mid cap stocks this week (data from barchart):


 

And here are the worst performing US large and mid cap stocks this week (data from barchart):


 

A lot of the high flyers like Palantir got clobbered this week.

Among the mid cap, shares of Viking Therapeutics (VKTX) were down more than 40% Tuesday after their phase 2 trial showed a high dropout rate relative to placebo control group.

I'm not going to bore you with the details but the data also showed extremely impressive weight loss results in just 12 weeks where larger competitors take much longer to show same results.

The trial design was too aggressive, the dropout rate was  28% vs 20% for placebo group (which is high) and it was in the highest dose subgroup.

In my opinion, this is THE biotech dip of the year to buy and there's no question in my mind that Pfizer is going to snap this company up (or some other big pharma). 

I would invite you to read this post on X from Hataf Capital:

I also suggest you look at the top institutional holders of Viking shares here.

As I explained last week, I've been trading biotech long enough to know how Wall Street works, they manipulate these shares.

In my humble opinion, the dip in Viking Therapeutics shares this week was not warranted, the data was a lot better than what investors interpreted and this presents a great buying opportunity at these levels: 

[Full disclosure: Viking is my biggest biotech position by far and I will ride it out no matter what.]

Alright, let me wrap it up there.

Below,Ryan Detrick, Carson Group chief market strategist, joins 'The Exchange' to discuss the market rally, Fed Chair Powell's speech and the bond market.

Also, Tom Lee, Fundstrat head of research and chief investment officer of Fundstrat Capital, joins CNBC's 'Squawk on the Street' to discuss his reaction to Fed Chair Powell's speech at Jackson Hole, market expectations, and much more.

Third, Jeremy Siegel, WisdomTree chief economist and Wharton professor emeritus, joins 'Closing Bell' to discuss the emphatic nature of the market response to Powell's Jackson Hole comments, the argument the Fed should cut rates and much more.

Fourth, Aswath Damodaran, NYU professor of finance, joins 'Power Lunch' to discuss if valuations of gotten out of control, if the markets overreacting to the latest Fed news and much more.

Fifth, Warren Pies, 3Fourteen Research co-founder, joins 'Closing Bell' to discuss the market's reaction to the Powell's Jackson Hole comments, if there's downside risk to the macroeconomy and much more.

Lastly, The CNBC Investment committee debate the "Post-Powell Playbook" following Fed Chair Jerome Powell's speech in Jackson Hole.

Dovish Fed Remarks Revive Animal Spirits on Wall Street

Amalya Dubrovsky, Karen Friar and Laura Bratton of Yahoo Finance report Dow jumps 800 points to record, S&P 500, Nasdaq soar as Powell's Jackson Hole finale fuels bets on September rate cut:

US stocks soared on Friday as Federal Reserve Chair Jerome Powell opened the door to a September rate cut during his highly anticipated speech at Jackson Hole.

The Dow Jones Industrial Average rose 800 points or 1.9% to close at a fresh record, while the S&P 500 moved up about 1.5%, and the tech-heavy Nasdaq Composite climbed 1.9%. Friday's surge came on the heels of a downbeat week for markets, as tech stocks took a hit amid AI trade doubts.

His remarks shook up rate-cut bets, which had been waning after a weak monthly jobs report. Traders on Friday were pricing in about 91.5% odds of a September cut compared to 70% earlier in the morning and 85% a week ago.

Meanwhile, the 10-year and 30-year Treasury yields fell after Powell's remarks. The commentary also spurred a gain in bitcoin and other cryptocurrencies, with ethereum leading the crypto gains.

The White House watched Powell's speech closely, as President Trump has continued to push the Fed and Powell to lower rates. Trump opened a new front in his public pressure campaign on central bank independence by calling for the resignation of Fed governor Lisa Cook for alleged mortgage fraud. On Friday, Trump said he'll "fire" Cook if she doesn't resign, though legally, presidents cannot easily dismiss Fed governors.

On the earnings front, Zoom (ZM) stock popped Friday after reporting an AI boost, and Ross Stores (ROST) jumped as shoppers sought discounts amid tariffs. Intuit (INTU) and Workday (WDAY), meanwhile, slid.

Shares of Intel (INTC) jumped 5% after President Trump said the government will take a 10% stake in the ailing chip giant, calling it a "great deal." 

Pia Sigh and Sarah Min of CNBC also report Dow surges more than 800 points to post record close as Powell speech fuels rally:

The Dow Jones Industrial Average rallied to an all-time high Friday after Federal Reserve Chair Jerome Powell signaled the central bank could begin easing monetary policy next month.

The Dow climbed 846.24 points, or 1.89%, reaching a fresh high and closing at a record level of 45,631.74. The S&P 500 rose 1.52% to end at 6,466.91. At its session high, the broad market index came within three points of its record. The Nasdaq Composite gained 1.88% and settled at 21,496.53.

Shares of megacap technology stocks soared on Powell’s comments. Nvidia added 1.7%, while Meta Platforms jumped more than 2%. Alphabet and Amazon each climbed more than 3%. Tesla shares jumped about 6%.

In a tepid speech at the central bank’s annual conclave in Jackson Hole, Wyo., Powell said that “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” The Fed chief added that “the balance of risks appear to be shifting” between the central bank’s dual mandate of full employment and stable prices. He cited “sweeping changes” in tax, trade and immigration policies.

Expectations for a quarter-point rate cut in September surged to roughly 83% following the speed from about 75% earlier in the week, according to the CME Group’s FedWatch tool.

“The bar is extremely high now for the Fed to leave rates unchanged in less than a month,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

Friday’s performance came in contrast to much more downbeat market action this week. The major averages entered the session lower week to date due to pressure in megacap tech. The latest rally helped investors claw back most of the losses from earlier in the week.

For the week, 30-stock Dow advanced 1.5%, and the S&P 500 gained 0.3%, while the Nasdaq slipped 0.6%.

Jeff Cox of CNBC also reports Powell indicates conditions ‘may warrant’ interest rate cuts as Fed proceeds ‘carefully’:

Federal Reserve Chair Jerome Powell on Friday gave a tepid indication of possible interest rate cuts ahead as he noted a high level of uncertainty that is making the job difficult for monetary policymakers.

In his much-anticipated speech at the Fed’s annual conclave in Jackson Hole, Wyoming, the central bank leader in prepared remarks cited “sweeping changes” in tax, trade and immigration policies. The result is that “the balance of risks appear to be shifting” between the Fed’s twin goals of full employment and stable prices.

While he noted that the labor market remains in good shape and the economy has shown “resilience,” he said downside dangers are rising. At the same time, he said tariffs are causing risks that inflation could rise again — a stagflation scenario that the Fed needs to avoid.

With the Fed’s benchmark interest rate a full percentage point below where it was when Powell delivered his keynote a year ago, and the unemployment rate still low, conditions allow “us to proceed carefully as we consider changes to our policy stance,” Powell said.

“Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” he added.

That was as close as he came during the speech to endorsing a rate cut that Wall Street widely believes is coming when the Federal Open Market Committee next meets Sept. 16-17.

However, the remarks were enough to send stocks soaring and Treasury yields tumbling. The Dow Jones Industrial Average showed a gain of more than 600 points following the public release of Powell’s speech while the policy-sensitive 2-year Treasury note saw a 0.08 percentage point fall to around 3.71%.

In addition to market expectations, President Donald Trump has demanded aggressive cuts from the Fed in scathing public attacks he has lobbed at Powell and his colleagues.

The Fed has held its benchmark borrowing rate in a range between 4.25%-4.5% since December. Policymakers have continued to cite the uncertain impact that tariffs will have on inflation as a reason for caution and believe that current economic conditions and the slightly restrictive policy stance allow for time to make further decisions.

Importance of Fed independence

While not addressing the White House demands for lower rates specifically, Powell did note the importance of Fed independence.

“FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks. We will never deviate from that approach,” he said.

The speech comes amid ongoing negotiations between the White House and its global trading partners, a situation often in flux and without clarity on where it will end. Recent indicators show consumer prices gradually pushing higher but wholesale costs up more rapidly.

From the Trump administration’s view, the tariffs will not cause lasting inflation, thus warranting rate cuts. Powell’s position in the speech was that a range of outcomes is possible, with a “reasonable base case” being that the tariff impacts will be “short lived — a one-time shift in the price level” that likely would not be cause for holding rates higher. However, he said nothing is certain at this point.

“It will continue to take time for tariff increases to work their way through supply chains and distribution networks,” Powell said. “Moreover, tariff rates continue to evolve, potentially prolonging the adjustment process.”

In addition to summarizing the current conditions and potential outcomes, the speech touched on the Fed’s five-year review of its policy framework. The review resulted in several notable changes from when the central bank last performed the task in 2020.

At that time, in the midst of the Covid pandemic, the Fed switched to a “flexible average inflation targeting” regime that effectively would allow inflation to run higher than the central bank’s 2% goal coming after a prolonged period of holding below that level. The upshot is that policymakers could be patient with slightly higher inflation if it meant insuring a more comprehensive labor market recovery.

However, shortly after adopting the strategy, inflation began to climb, ultimately hitting 40-year highs, while policymakers largely dismissed the rise as “transitory” and not needing rate hikes. Powell noted the damaging impacts from the inflation and the lessons learned.

“As it turned out, the idea of an intentional, moderate inflation overshoot had proved irrelevant. There was nothing intentional or moderate about the inflation that arrived a few months after we announced our 2020 changes to the consensus statement, as I acknowledged publicly in 2021,” Powell said. “The past five years have been a painful reminder of the hardship that high inflation imposes, especially on those least able to meet the higher costs of necessities.”

Also during the review, the Fed reaffirmed its commitment to its 2% inflation target. There have been critics on both sides of the issue, with some suggesting the rate is too high and can lead to a weaker dollar, while others seeing a need for the central bank to be flexible.

“We believe that our commitment to this target is a key factor helping keep longer-term inflation expectations well anchored,” Powell said.

Alright, the week ended with a bang but it wasn't such a great week prior to today.

Powell confirmed the Fed will in all likelihood cut rates in September.

I said so last week when I covered top funds' activity in Q2, I expect a "one and done" rate cut in September.

The thing Fed officials are grappling with now is the lagged effects of tariffs on inflation. 

Specifically, there were major inventory buildups as tariffs were announced but as those inventories wear off, producers will have to pass on the tariffs to consumers or eat them and suffer margin compression (ie. less profits).

But the US economy is definitely slowing, Powell is right to highlight the Fed's dual mandate and employment conditions certainly warrant a rate cut next month (fed funds rate is restrictive).

Alright, let me move straight to the stock market action this week in US markets.

As shown below, Energy, Real Estate, Financials and Materials were the top performing sectors this week (data from barchart):

And here are the top performing US large and mid cap stocks this week (data from barchart):


 

And here are the worst performing US large and mid cap stocks this week (data from barchart):


 

A lot of the high flyers like Palantir got clobbered this week.

Among the mid cap, shares of Viking Therapeutics (VKTX) were down more than 40% Tuesday after their phase 2 trial showed a high dropout rate relative to placebo control group.

I'm not going to bore you with the details but the data also showed extremely impressive weight loss results in just 12 weeks where larger competitors take much longer to show same results.

The trial design was too aggressive, the dropout rate was  28% vs 20% for placebo group (which is high) and it was in the highest dose subgroup.

In my opinion, this is THE biotech dip of the year to buy and there's no question in my mind that Pfizer is going to snap this company up (or some other big pharma). 

I would invite you to read this post on X from Hataf Capital:

I also suggest you look at the top institutional holders of Viking shares here.

As I explained last week, I've been trading biotech long enough to know how Wall Street works, they manipulate these shares.

In my humble opinion, the dip in Viking Therapeutics shares this week was not warranted, the data was a lot better than what investors interpreted and this presents a great buying opportunity at these levels: 

[Full disclosure: Viking is my biggest biotech position by far and I will ride it out no matter what.]

Alright, let me wrap it up there.

Below,Ryan Detrick, Carson Group chief market strategist, joins 'The Exchange' to discuss the market rally, Fed Chair Powell's speech and the bond market.

Also, Tom Lee, Fundstrat head of research and chief investment officer of Fundstrat Capital, joins CNBC's 'Squawk on the Street' to discuss his reaction to Fed Chair Powell's speech at Jackson Hole, market expectations, and much more.

Third, Jeremy Siegel, WisdomTree chief economist and Wharton professor emeritus, joins 'Closing Bell' to discuss the emphatic nature of the market response to Powell's Jackson Hole comments, the argument the Fed should cut rates and much more.

Fourth, Aswath Damodaran, NYU professor of finance, joins 'Power Lunch' to discuss if valuations of gotten out of control, if the markets overreacting to the latest Fed news and much more.

Fifth, Warren Pies, 3Fourteen Research co-founder, joins 'Closing Bell' to discuss the market's reaction to the Powell's Jackson Hole comments, if there's downside risk to the macroeconomy and much more.

Lastly, The CNBC Investment committee debate the "Post-Powell Playbook" following Fed Chair Jerome Powell's speech in Jackson Hole.

Discussing OMERS' Mid-Year Results With CEO & CFO/ CSO

Barbara Shecter of the National Post reports OMERS squeezes out 2.2% return in 'challenging' first half:

The Ontario Municipal Employees’ Retirement System generated a 2.2 per cent investment return in the first half of 2025 while facing down a “challenging environment for investors” amid global economic uncertainty and exposure to the United States.

The pension manager’s $3.1-billion gain for the period of Jan. 1 to June 30 pushed its net assets to $140.7 billion. 

More than half of the fund’s assets, 55 per cent, are in the U.S., where the Donald Trump administration has destabilized global trade with a series of punitive tariffs.

“OMERS had a positive start in what was a particularly challenging environment for investors,” chief executive Blake Hutcheson said. “As we manage through the current short-term challenges, in both public and private investing businesses, this team continues to unlock opportunities that deliver both immediate and long-term value.”

OMERS’ first-half results were hurt by a more than five per cent decline by the U.S. dollar despite some hedging. The pain was partially offset by the strengthening of the British pound and the euro, but currency had a negative impact of 1.2 per cent on its first-half results.

“Active decisions to hedge currencies added almost one per cent to returns, protecting portfolio value,” Jonathan Simmons, the fund’s chief financial and strategy officer, said. 

Over the five years that OMERS has reported mid-year investment results, the average annual net return has been 8.7 per cent. Over 10 years, the pension fund has posted an annual net return of 6.9 per cent for a total gain of $70.2 billion.

Infrastructure and public equities drove returns in the first six months of 2025, though six of the portfolio’s seven asset classes, including credit and bonds, contributed positively. Private investments were the weak spot, with private equity posting a negative return of 1.3 per cent. 

“Private investment valuations and transaction activity, particularly in private equities and real estate, continue to be held back by uncertainty in the global marketplace,” Simmons said.

The real estate portfolio, which represents 15 per cent of the portfolio, posted a return of 1.1 per cent in the first six months of the year. OMERS, along with other Canadian pension funds, owns office buildings hammered by the shift to remote and hybrid work during and in the aftermath of the COVID-19 pandemic.

But OMERS said conditions were improving after a series of challenging years for the industry. 

“Despite market uncertainty, results were supported by strong operating fundamentals, particularly in office and hotels,” it said in a release on Thursday.

The pension fund for municipal workers in Ontario was also a landlord for insolvent retailer Hudson Bay Co.

OMERS’ real estate division, Oxford Properties, went to court this month to argue against transferring some of those leases to an “unvetted and unproven” entrepreneur who is attempting to buy some former locations of the storied Canadian retailer. The court filing said the lease transfer could “jeopardize the stability, reputation, and performance of these assets” in which Oxford has invested hundreds of millions of dollars.

“A diminution in the value or stability of Oxford’s real estate portfolio would negatively impact the performance of OMERS’ investments, and, by extension, adversely affect the long-term interests of millions of current and future pension plan beneficiaries,” the Aug. 9 filing said. 

James Bradshaw of the Globe and Mail also reports that governments and institutional investors show alignment on big project financing, OMERS CEO says:

Co-operation among large investors, industry leaders and governments is rapidly increasing as parties discuss how to get major projects off the ground to protect Canada against the threat from tariffs, the CEO of the OMERS pension fund says.

Demand for new infrastructure, energy and defence investment is surging, and so is investors’ willingness to explore big-ticket investments in projects of national importance, Blake Hutcheson, chief executive officer of Ontario Municipal Employees Retirement System, said in an interview.

OMERS earned a 2.2-per-cent return in the first half of 2025, adding $3.1-billion to its assets in spite of a tough start to the year for markets, according to a mid-year update released Thursday. With high volatility in public markets and sluggish dealmaking for public assets, Canadian pension funds are eyeing a growing opportunity to make new investments at home.

“The conversations are at a level that I haven’t seen for at least a decade, where we are exploring some private and public opportunities in earnest,” Mr. Hutcheson said. “This is an all-hands-on-deck moment, in my view, where the governments, the financiers and the pension plans can and should do some meaningful things in Canada.”

Mr. Hutcheson was careful to add a caveat that OMERS has a fiduciary duty to pursue the best returns with the least risk for members, and doesn’t intend to accept weaker investment results. But he said the “dialogue and a willingness to do things” are at a high mark.

“Is it crystal clear, are we ready to jump? The short answer is no,” he said. “Are we optimistic that we can do things in this space? The answer is yes. … And for the sake of the country, we’re hopeful.”

Through the first half of the year, infrastructure investments delivered the strongest gains for OMERS, increasing by 3.6 per cent, while private credit and publicly traded stocks produced solid returns.

The falling value of the U.S. dollar between January and June hampered OMERS’s investment performance, reducing total gains by 1.2 percentage points. But OMERS had hedging positions that it increased late last year, which helped offset some of those currency losses, reducing the potential drag on its overall results by one percentage point.

With widespread uncertainty over tariffs, wars, markets and currencies, “we think it’s a solid start to the year,” Mr. Hutcheson said. “As investors, you really just want to be certain that you know where the goalposts are, and they’ve been moving around a lot lately, so it hasn’t been an easy first half.”

Over 10 years, OMERS has earned an average annual return of 6.9 per cent, adding more than $70-billion to its portfolio. Over the past five years, the average gain has been 8.7 per cent.

OMERS invests on behalf of about 640,000 Ontario public-service workers, including nurses, firefighters and police officers.

Its assets increased to $140.7-billion as of June 30, up from $138.2-billion at the end of 2024.

The OMERS real estate portfolio bounced back with a 1.1-per-cent gain in the first half of 2025, after suffering a loss last year. The performance of office properties has started to rebound from pandemic lows as employers push staff to work from home less frequently.

“We never lost our commitment to high-quality office,” Mr. Hutcheson said. “Even in the worst days during COVID, my view was: Never count that asset class out.”

The lone asset class that produced a half-year loss for OMERS was private equity, down 1.3 per cent. 

Earlier today, OMERS issued a press release stating it earned $3.1 billion in the first six months of 2025:

TORONTO, Aug. 21, 2025 (GLOBE NEWSWIRE) -- OMERS generated a net investment return of 2.2%, a gain of $3.1 billion, for the period of January 1 to June 30, 2025. This result brings the cumulative 10-year net investment income figure to $70.2 billion. Net assets at June 30, 2025 totalled $140.7 billion.

“OMERS had a positive start in what was a particularly challenging environment for investors,” said Blake Hutcheson, OMERS President and CEO. “As we manage through the current short-term challenges, in both public and private investing businesses this team continues to unlock opportunities that deliver both immediate and long-term value. Over the five years that we have reported our mid-year investment update, our talented global team and investment strategies have delivered an average annual net return of 8.7%.”

“Six of our seven asset classes delivered positive results in the first half of 2025. Infrastructure and public equities drove returns, supported by credit and bonds,” said Jonathan Simmons, OMERS Chief Financial and Strategy Officer. “Currency had an overall negative 1.2% impact on our results, driven by a significant decline in the U.S. dollar, and partially offset by strengthening of the British pound sterling and euro. Active decisions to hedge currencies added almost 1% to returns, protecting portfolio value. Private investment valuations and transaction activity, particularly in private equities and real estate, continue to be held back by uncertainty in the global marketplace.”

“While we expect continued market instability for the remainder of 2025, we believe our diversification in quality assets positions us well to see through this cycle, with ample liquidity to pursue opportunities that meet our objective of paying pensions for generations to come,” said Mr. Hutcheson. “We proudly serve 640,000 Ontarians and we work every day to build lasting value that will serve them throughout their retirement.”

About OMERS
OMERS is a jointly sponsored, defined benefit pension plan, with more than 1,000 participating employers ranging from large cities to local agencies, and 640,000 active, deferred and retired members. Our members include union and non-union employees of municipalities, school boards, local boards, transit systems, electrical utilities, emergency services and children’s aid societies across Ontario. OMERS teams work in Toronto, London, New York, Amsterdam, Luxembourg, Singapore, Sydney and other major cities across North America and Europe – serving members and employers, and originating and managing a diversified portfolio of high-quality investments in government bonds, public and private credit, public and private equities, infrastructure and real estate.

Media Contact
Don Peat
Director, Media Relations
1 416.417.7385
dpeat@omers.com

Net Assets
$ Billions

Net Assets

Net Return History
to June 30, 2025

6-month
(January 1, 2025 – June 30, 2025)

2.2%, a gain of $3.1 billion   10-year
(July 1, 2015 – June 30, 2025)

6.9%, a gain of $70.2 billion   

Diversified by Asset Class and Geography
OMERS invests in high-quality assets that are well-diversified by geography and asset type.

Asset Diversification
As at June 30, 2025

Asset Diversification

Geographic Diversification
As at June 30, 2025

Geographic Diversification

Asset Class Investment Performance

Net Returns   Six months ended 
June 30, 2025 Government Bonds 2.1 %Public Credit 1.6 %Private Credit 2.7 %Public Equities 2.4 %Private Equities (1.3 %)Infrastructure 3.6 %Real Estate   1.1 %Total Plan 2.2 %   

Investment Performance Highlights
Over the six months ended June 30, 2025:

  • The more than 5% decline in the U.S. dollar in the first half of the year meaningfully detracted from our returns across asset classes, particularly in public and private equity. Our active decisions to hedge our currency exposure added almost 1% to the portfolio, including an approximate 30-basis point lift from our increase to U.S. dollar hedges at the end of 2024. This currency management strategy, combined with our diversification in the British pound sterling and euro, mitigated the otherwise negative impact on the portfolio.
  • Our strategic focus to deploy into fixed income assets continued to positively contribute to our returns. Government bonds, public and private credit each delivered positive performance primarily due to interest income and a decline in bond yields.
  • Public equities delivered positive performance from core large-cap holdings in financials, communications services and information technology sectors.
  • Private equities were held back as investor confidence remains challenged and markets continue to exhibit very low levels of activity. As a result, valuations continue to be impacted by slow earnings growth and headwinds within certain industry sectors.
  • Infrastructure continues to deliver steady results, with most assets performing in line with expectations.
  • Real estate delivered a positive return after a series of challenging years for the industry. Despite market uncertainty, results were supported by strong operating fundamentals, particularly in office and hotels.

Liquidity
We continue to maintain ample liquidity, with $17.4 billion in liquid assets to pay pension benefits, fund investment opportunities, satisfy potential collateral demands related to our use of derivatives, and to fund expenses.

Long-Term Issuer Credit Ratings

Long-term issuer credit ratings

This Investment Update presents certain non-GAAP measures. These measures are calculated on the same basis as those calculated and presented in our 2024 Annual Report. This Investment Update and the Condensed Interim Consolidated Financial Statements (the “Interim Financial Statements”) are unaudited. OMERS Administration Corporation’s financial performance set out in this Investment Update is only for the period ended June 30, 2025, unless otherwise indicated. Past performance may not indicate future performance because a broad range of uncertainties (including without limitation those related to interest rates and inflation) could have an impact on the performance of various asset classes. The financial information included in this Investment Update should be read in conjunction with the Interim Financial Statements.

Portfolio update
We continue to invest in assets that build strong futures for communities and members alike.
Below is a selection of activities undertaken since January 1, 2025.

  • We acquired full ownership of a high-quality office portfolio in Western Canada that includes seven office properties in Calgary’s and Vancouver's central business districts, totalling 4 million square feet. This portfolio is 95% occupied.
  • We broke ground on 70 Hudson Yards, the first 1 million plus square foot, ground-up office development in New York City in over five years.
  • We sold a 9.995% stake in Transgrid, the largest electricity transmission network in Australia, to Australian sovereign wealth fund, Future Fund. As part of this transaction, OMERS will manage that interest on their behalf in addition to our own 9.995% stake. 
  • We announced a transformative co-investment of over $200 million to retrofit the existing office buildings at Canada Square in midtown Toronto. The redevelopment will deliver 680,000 square feet of highly functional and modernized office space.
  • Our shopping mall investments were recognized as national and regional market leaders in sales performance by the International Council of Shopping Centers. Yorkdale continues to dominate as Canada’s top-performing shopping centre for the second year running with ~$2,300 in sales per square foot. Square One Shopping Centre and Scarborough Town Centre also increased their sales per square foot.
  • We officially opened the doors to the $1.3 billion Parkline Place, celebrating the opening of this new commercial office and retail destination in Sydney, Australia co-owned by Oxford Properties, and which includes the first new office tower in Sydney’s Midtown in almost a decade. 
  • We announced a joint partnership with AustralianSuper that aims to build a significant industrial and logistics venture across Europe. As part of this joint venture, we announced the acquisition of Broadheath Network Centre in Greater Manchester.
  • OMERS Finance Trust (OFT) successfully closed two significant note offerings, a EUR 1 billion, 10-year note and a USD 1 billion, 5-year note. This marks OFT’s third EUR and ninth USD offering.

Subsequent to the end of June:

  • We broke ground on the first major purpose-built housing project in Scarborough in over a generation on the west side of Oxford’s Scarborough Town Centre shopping mall. The development will consist of three residential towers of 1300 units with the aim of delivering critically needed housing in a historically undersupplied area for people at a variety of different price points, including a 21% allocation for affordable housing. 

Alright, this afternoon I had a chance to discuss OMERS' mid-year results with CEO Blake Hutcheson and CFO & CSO Jonathan Simmons.

I want to begin by thanking them both for taking the time to talk to me and also thank Don Peat for setting up the Teams meeting and sending me the relevant documents.

As always, these are mid-year results, in line with what OTPP and CDPQ posted but OMERS has a different asset mix, more tilted to private markets (see asset mix above).

I also want to correct something from last week when I covered CPP Investments' quarterly results,  OMERS and La Caisse do provide asset class performance for mid-year, OTPP does not.

Alright, Blake began by giving me the overview:

The results are self-explanatory. My main message is it's a very volatile world with respect to geopolitics, with respect to tariff conversations, with respect to currency fluctuations, with respect to elections including in this country.

In the context of all that, we feel our results are a solid start to the year, so we go forward from here with strength but it has been a very difficult investment environment.

You know as well as anybody, one thing you want as an investor is a high degree of certainty, where are the goalposts. This has been a period where there's anything but certainty as the mood of the day can swing depending on one utterance or another. 

The good thing is we have a long view and a diversified portfolio and we really try to separate the headlines form the underlying economic fundamentals and facts. That's our best defence, focus on things we can control: high quality assets, lots of diversification, put our energy into our greatness as opposed to the noise of the day. That's going to continue to be our mantra.

You know me, I started in 2020 so I like to keep track of the 5-year return and the 5-year return since my first month or two has been 8.7% which is a compelling story.

It's been an active semester, diversification is helping.

What you might want to see is the currency hurt us so far this year, it's helped us other years, so you can't have blessings every year. It's cost us 1.2% but we are really proud of our hedging strategy because they protected an additional 100 basis points or thereabouts because it could have been a lot worse if they weren't active. And we took all our hedges off for a number of years after 2020, we were thoughtful and redeployed. It was an overt strategy, it largely paid off.

When we look at our plan, our expectations for the year, our credit book, our equities book, our infrastructure are maybe a little bit behind in some cases but on track to meet our budgets. 

Our other privates are slower. Real estate, the good news is we are in the black now, that's starting to turn the corner. Our mutual friend Dan Fournier has made a major difference in the culture and consideration we've put in that business. 

And our difficult one like many others is our private equity portfolio. We have a new head of private equity, we just finalized the strategy yesterday with our Board as to where that business will go in the future, maybe in the fall we'll take some time to share it with you. We got our arms around where we are strong, where we are weak, where we have to deploy more, where we have to deploy less. That one is a work in progress and we don't see selling or buying, we don't see a lot of activity that gives us data points -- negative or positive -- in the private equity space because again, with all the uncertainty out there, people aren't sellers at prices where we can buy. That business has been our weakest link this half.

I guess the other thing is we remain committed to Canada. The flash numbers say we are down in Canada to 16%, our assets are at about 21% which is where we started the year and it's roughly 55% in the US. The 16% takes into account primarily cash accounts because we used to carry more Canadian cash and we deployed a lot, particularly in real estate the first half. 

But our 21% is constant and we are going to continue to invest heavily in the United States, pretty commensurate with our current book, but we want to do more in this country. We feel this is an all hands on deck moment in Canada, we are seeing really positive and hopeful signs come out of the federal government at this point, more so than we've seen in a decade where government decision makers both federally and provincially in most of the Canadian markets we invest across Canada, there's a harmony that didn't exist, there is a sense of mutual purpose that didn't exist, and I think Canadians are coming together. 

We are hopeful we can do more, particularly in infrastructure and real estate in Canada to be part of the solution in this all hands on deck moment for our country.  

I don't know exactly what that means in terms of allocations -- you know the business well -- we can't give somebody a home court discount, we are a fiduciary, we have to make sure it hits our risk-adjusted expectations and return. It's not that we can -- however big our heart is -- gift anybody when we are responsible for 640,000 people but it does mean we are underwriting more than we have in the past, we are having bigger and more important conversations with various levels of governments than what we had in the last decade.

We want to do more in Canada, we hope to do more in Canada and we want to be part of the go forward success and future of this country.

That's a great overview which covers all the main points.

On infrastructure which had another solid half, Blake added this:

We have 30 assets, it's a broad portfolio, it's a highly concession run asset class for us. With big businesses like Bruce Power, it's been a consistent high single digit asset class for us year in and year out and this year is no exception. It's really the broad shoulders and the consistency of that wide portfolio that continues to get us in the 7-8-9% range and it has less volatility than our other asset classes. You don't see the exit multiples change a lot for those businesses, they stay pretty constant. So it's a steady Eddy business for us, no surprises.

Indeed, the yield is always around 8% or more a year for OMERS and others.

In private equity, I noted that some critics of OMERS purely direct strategy have privately told me that asset class needed to be revamped there but I also note that all pension funds are experiencing a tough slug in PE, not just OMERS, even those that do more fund investments.

Blake responded:

Of our privates, the real estate business not withstanding recent years because it's been difficult, and our infrastructure business  have been really steady long-term producers for us with great teams. And our private equity business has done well for us too and I don't want to diminish the contribution it's made for us in any way.

In the last few years, we have had to rethink our strategy because it's hard to compete with the best players in the world when we are relatively small.  

So, from a buyout perspective, we retreated from direct investing in Europe, we are very much focused on North America. As we cycle out of those assets in Europe, we will use that capital to redeploy into more fund type investments where bigger players with bigger teams can get into assets we couldn't get to.

I don't want to be critical. We have done a detailed assessment, we are at a point and time where we are changing our focus and strategy. We will consistently and deeply invest in Canada and the United States but less so in Europe and the available capital will go to funds.

With our new head of private equity (Alexander Fraser), he just presented the new strategy this week, there will be lots of nuanced changes to that portfolio to right size it and position it well for the future. That is underway, when we are ready, we will be happy to share with you those prospects.

But we have a really good team, we have a really good new leader and I'm actually energized to see their direction of travel. This was a difficult half not just for us but for most people in the marketplace and sometimes when you get those difficult moments, it gives you the motivation to make the changes you need to make and we are making them.   

I noted rates are higher for longer, dampening returns in private equity and real estate and the other thing that worries me is if there will be more inflation in the US, wage inflation can lead to more margin compression in private and publicly listed businesses.

I also noted there was a big Bloomberg article yesterday on how pension funds missed the big tech rally, but pension funds are not there to beat the S&P 500 every year, so while there may be some pressure in privates over the short run, over the long term, they offer more stability and yet people remain focused on the short term.

I asked Blake if they've been feeling this pressure to take risks where they shouldn't be taking risk to deliver higher returns and he responded:

Jonathan and I feel incredibly supported by our board. I can honestly say while short-term results are interesting and certainly people watch our annual results with vigour, we are a long term investor. I don't feel any compulsion to beef up the shorter term at the expense of the longer term.

We all have to be nimble right now. It's an ever changing world. We need to remain on our toes. We need to be assessing all of the inputs from an economic, political and fundamental perspective. You can never be complacent and continue to win in the markets but I don't feel any compulsion to think short term because of the short term pressures, never have, it's not the nature of our board, it's not the nature of the way we approach the business.

And great assets, great management teams, great fundamentals, not in every cycle but they tend to see through cycles, when you compromise asset quality, when you compromise people quality, when you compromise businesses to get some short term yield, it doesn't end so well. 

That's the discipline and that the discipline that has enabled us to deliver our 8.7% return in the last five years.

But the private equity component of our business, this isn't something we picked up this year and decided we needed to have a new direction, this has been a 2-3 year focus and it's going to require a few more years to get it to a place where we expect it to be as part of our asset allocation.

Since Blake is an expert in real estate (he was formerly the head of Oxford Properties prior to becoming CEO of OMERS), I asked him if he's seeing signs of a comeback in offices since more companies are demanding back to the office from their workers.

He responded:

I think you've heard me say this consistently even during Covid, people need to live somewhere, people need to work somewhere.

Even in Covid, when everyone was saying the office is going the way of the dodo bird, we were building office buildings at Oxford. 

The truth is high quality AA, AAA office buildings will continue to do extremely well and didn't even break during Covid.

Secondary and tertiary assets, many of them are in deep trouble because there is a migration to quality.  

Looking at office, our portfolio is best of class in every market we are in around the world. In Toronto, we are 95% leased, across Canada, we are practically 95% leased. We just invested by buying out CPP Investments in seven big office buildings in Canada which put sour conviction where our wallet is.

We just announced a new building we are building in Hudson Yards, 70 Hudson Yards in New York, a large consulting firm is taking 800,000 square feet of 1.4 million, and that will be the first new office building in five years in Manhattan. I'm totally confident it's going to do extremely well.

So in our 62-year history at Oxford but even in the last 10 or 12, when people say thou shouldn't touch and something is going in the wrong direction, we look at the history, high quality great assets, if they're not playing into the fundamentals, we will. 

And I like our odds. We finished a building in Vancouver called The Stack, it's ahead of plan from a lease perspective. 70 Hudson Yards will be great. We are just finishing a new building in Sidney, it's going to take a while but it's going to do great. 

So, a great office is a great office, we like the trends, we never felt that with high quality assets we were in jeopardy and when everybody else said don't build more, we built more

I asked Blake if Logistics and Multi-family continue to be the sectors driving the returns at Oxford and he replied: 

Logistics interesting enough, uncertainty around supply chains, we are not seeing big appetite, a lot of people are sitting on their hands because why take up more space until they see how this game of chess plays out.   

For a while the direction of travel for rates for an industrial building was only one way, it was higher growth than any other sector, that slowed relative to other sectors but we have a great portfolio that's functioning well.  

And multi-family, because it's typically a 97% leased business, you have the ability to finance several. You won't really see an improvement until the cost of funds comes down. Because you have a high level of debt, that has a significant impact on yield and values. It will be better in the next 2-3 years as the Fed rate comes down. Right now, it's an ok sector but until the cost of money comes down, it's not going to be what we hoped.

I shifted my attention to Private Credit and asked Jonathan Simmons what he sees there. 

Jonathan replied:

The private credit strategy, if I look back at the last few years, and we already talked about infrastructure and its contribution, private credit has to be the other one. Very strong returns from that asset class, we've been moving capital into it consistently. It's wheels on a treadmill with private credit because most of these are 5-year deals so the team is very busy with the underwriting. We are so pleased with the risk profile we've seen. A year ago, people asked me a lot of questions about credit quality, bu tit's holding up, the discipline is strong, the returns are very good for our pension plan so it's an asset class to like.

I ended by asking Jonathan and Blake what's keeping them up at night, what are they worried about the most in this uncertain environment.

Jonathan chimed in first: 

I crave for stability. It makes it much easier for decision makers to plan for the future, whether that be taking up more space in one of our buildings, or contracting one of our private equity businesses or getting a new project off the ground that we can invest in from an infrastructure perspective. When that stability comes back to the world, investors will have a much more enjoyable time. And it's been very choppy so that's what I look forward to the most.

Blake then added this:

I've always said, I don't need a competitive advantage, I need a level playing field and please don't break my jaw. And if I can invest in those environments, history has proven OMERS can do that, and my career suggests that's an environment I can excel in.

Because we share more with you than anyone, right now what keeps me up at night is our best friend, our biggest trading partner, our most important strategic alliance, the United States of America, we have deep friendships on both sides of the border. America needs Canada, Canada needs America and we are at a moment in history where that frayed relationship is as sad as it is destructive. 

I think it can be fixed, I think it's going to require deep personal investments by our leaders spending time with their leaders because bees stick to honey. 

It was very difficult to do that until the new government was elected, I think they have a really good shot at it and I think it's really important.  

I don't know if it can be normalized but once we get the terms of engagement finalized, including USMCA over the finish line -- which by the way 93% of the trade of this country is captured by USMCA -- once we get over the finish line, and we remind each other that it's critical for all three parties in that document, it's going to be a difficult time emotionally and financially and economically.

That's what I worry about, how we can fix that relationship or at least improve it, how we get USMCA behind us and how we can work as a unified trading block in in North America to fortify ourselves against whoever the foe may be and make all three nations better because we are better together.  

So those are the things I think about, I think it's an important time in history, and as I said we at OMERS want to be part of the solution by investing in this country if we can a little more and by helping build cross border relations for the best interest of our members and best interests of Canada.

OMERS is doing its part to help all levels of governments in Canada succeed.

Once again, I thank Blake and Jonathan for another great discussion, I really appreciate their time and insights. 

Below, watch Bake Hutcheson at the Canadian Club Toronto discussing his views on leading and investing during these challenging times (April 16, 2025).

Last but not least. I want to sincerely wish Jonathan's daughter Jessica who is fighting cancer for a second time a speedy and full recovery (read Jonathan's post here). 

We are all rooting for you Jessica, stay positive and if you need a little inspiration, watch Isabella Strahan's documentary, Life Interrupted, I highly recommend you do so. 

Discussing OMERS' Mid-Year Results With CEO & CFO/ CSO

Barbara Shecter of the National Post reports OMERS squeezes out 2.2% return in 'challenging' first half:

The Ontario Municipal Employees’ Retirement System generated a 2.2 per cent investment return in the first half of 2025 while facing down a “challenging environment for investors” amid global economic uncertainty and exposure to the United States.

The pension manager’s $3.1-billion gain for the period of Jan. 1 to June 30 pushed its net assets to $140.7 billion. 

More than half of the fund’s assets, 55 per cent, are in the U.S., where the Donald Trump administration has destabilized global trade with a series of punitive tariffs.

“OMERS had a positive start in what was a particularly challenging environment for investors,” chief executive Blake Hutcheson said. “As we manage through the current short-term challenges, in both public and private investing businesses, this team continues to unlock opportunities that deliver both immediate and long-term value.”

OMERS’ first-half results were hurt by a more than five per cent decline by the U.S. dollar despite some hedging. The pain was partially offset by the strengthening of the British pound and the euro, but currency had a negative impact of 1.2 per cent on its first-half results.

“Active decisions to hedge currencies added almost one per cent to returns, protecting portfolio value,” Jonathan Simmons, the fund’s chief financial and strategy officer, said. 

Over the five years that OMERS has reported mid-year investment results, the average annual net return has been 8.7 per cent. Over 10 years, the pension fund has posted an annual net return of 6.9 per cent for a total gain of $70.2 billion.

Infrastructure and public equities drove returns in the first six months of 2025, though six of the portfolio’s seven asset classes, including credit and bonds, contributed positively. Private investments were the weak spot, with private equity posting a negative return of 1.3 per cent. 

“Private investment valuations and transaction activity, particularly in private equities and real estate, continue to be held back by uncertainty in the global marketplace,” Simmons said.

The real estate portfolio, which represents 15 per cent of the portfolio, posted a return of 1.1 per cent in the first six months of the year. OMERS, along with other Canadian pension funds, owns office buildings hammered by the shift to remote and hybrid work during and in the aftermath of the COVID-19 pandemic.

But OMERS said conditions were improving after a series of challenging years for the industry. 

“Despite market uncertainty, results were supported by strong operating fundamentals, particularly in office and hotels,” it said in a release on Thursday.

The pension fund for municipal workers in Ontario was also a landlord for insolvent retailer Hudson Bay Co.

OMERS’ real estate division, Oxford Properties, went to court this month to argue against transferring some of those leases to an “unvetted and unproven” entrepreneur who is attempting to buy some former locations of the storied Canadian retailer. The court filing said the lease transfer could “jeopardize the stability, reputation, and performance of these assets” in which Oxford has invested hundreds of millions of dollars.

“A diminution in the value or stability of Oxford’s real estate portfolio would negatively impact the performance of OMERS’ investments, and, by extension, adversely affect the long-term interests of millions of current and future pension plan beneficiaries,” the Aug. 9 filing said. 

James Bradshaw of the Globe and Mail also reports that governments and institutional investors show alignment on big project financing, OMERS CEO says:

Co-operation among large investors, industry leaders and governments is rapidly increasing as parties discuss how to get major projects off the ground to protect Canada against the threat from tariffs, the CEO of the OMERS pension fund says.

Demand for new infrastructure, energy and defence investment is surging, and so is investors’ willingness to explore big-ticket investments in projects of national importance, Blake Hutcheson, chief executive officer of Ontario Municipal Employees Retirement System, said in an interview.

OMERS earned a 2.2-per-cent return in the first half of 2025, adding $3.1-billion to its assets in spite of a tough start to the year for markets, according to a mid-year update released Thursday. With high volatility in public markets and sluggish dealmaking for public assets, Canadian pension funds are eyeing a growing opportunity to make new investments at home.

“The conversations are at a level that I haven’t seen for at least a decade, where we are exploring some private and public opportunities in earnest,” Mr. Hutcheson said. “This is an all-hands-on-deck moment, in my view, where the governments, the financiers and the pension plans can and should do some meaningful things in Canada.”

Mr. Hutcheson was careful to add a caveat that OMERS has a fiduciary duty to pursue the best returns with the least risk for members, and doesn’t intend to accept weaker investment results. But he said the “dialogue and a willingness to do things” are at a high mark.

“Is it crystal clear, are we ready to jump? The short answer is no,” he said. “Are we optimistic that we can do things in this space? The answer is yes. … And for the sake of the country, we’re hopeful.”

Through the first half of the year, infrastructure investments delivered the strongest gains for OMERS, increasing by 3.6 per cent, while private credit and publicly traded stocks produced solid returns.

The falling value of the U.S. dollar between January and June hampered OMERS’s investment performance, reducing total gains by 1.2 percentage points. But OMERS had hedging positions that it increased late last year, which helped offset some of those currency losses, reducing the potential drag on its overall results by one percentage point.

With widespread uncertainty over tariffs, wars, markets and currencies, “we think it’s a solid start to the year,” Mr. Hutcheson said. “As investors, you really just want to be certain that you know where the goalposts are, and they’ve been moving around a lot lately, so it hasn’t been an easy first half.”

Over 10 years, OMERS has earned an average annual return of 6.9 per cent, adding more than $70-billion to its portfolio. Over the past five years, the average gain has been 8.7 per cent.

OMERS invests on behalf of about 640,000 Ontario public-service workers, including nurses, firefighters and police officers.

Its assets increased to $140.7-billion as of June 30, up from $138.2-billion at the end of 2024.

The OMERS real estate portfolio bounced back with a 1.1-per-cent gain in the first half of 2025, after suffering a loss last year. The performance of office properties has started to rebound from pandemic lows as employers push staff to work from home less frequently.

“We never lost our commitment to high-quality office,” Mr. Hutcheson said. “Even in the worst days during COVID, my view was: Never count that asset class out.”

The lone asset class that produced a half-year loss for OMERS was private equity, down 1.3 per cent. 

Earlier today, OMERS issued a press release stating it earned $3.1 billion in the first six months of 2025:

TORONTO, Aug. 21, 2025 (GLOBE NEWSWIRE) -- OMERS generated a net investment return of 2.2%, a gain of $3.1 billion, for the period of January 1 to June 30, 2025. This result brings the cumulative 10-year net investment income figure to $70.2 billion. Net assets at June 30, 2025 totalled $140.7 billion.

“OMERS had a positive start in what was a particularly challenging environment for investors,” said Blake Hutcheson, OMERS President and CEO. “As we manage through the current short-term challenges, in both public and private investing businesses this team continues to unlock opportunities that deliver both immediate and long-term value. Over the five years that we have reported our mid-year investment update, our talented global team and investment strategies have delivered an average annual net return of 8.7%.”

“Six of our seven asset classes delivered positive results in the first half of 2025. Infrastructure and public equities drove returns, supported by credit and bonds,” said Jonathan Simmons, OMERS Chief Financial and Strategy Officer. “Currency had an overall negative 1.2% impact on our results, driven by a significant decline in the U.S. dollar, and partially offset by strengthening of the British pound sterling and euro. Active decisions to hedge currencies added almost 1% to returns, protecting portfolio value. Private investment valuations and transaction activity, particularly in private equities and real estate, continue to be held back by uncertainty in the global marketplace.”

“While we expect continued market instability for the remainder of 2025, we believe our diversification in quality assets positions us well to see through this cycle, with ample liquidity to pursue opportunities that meet our objective of paying pensions for generations to come,” said Mr. Hutcheson. “We proudly serve 640,000 Ontarians and we work every day to build lasting value that will serve them throughout their retirement.”

About OMERS
OMERS is a jointly sponsored, defined benefit pension plan, with more than 1,000 participating employers ranging from large cities to local agencies, and 640,000 active, deferred and retired members. Our members include union and non-union employees of municipalities, school boards, local boards, transit systems, electrical utilities, emergency services and children’s aid societies across Ontario. OMERS teams work in Toronto, London, New York, Amsterdam, Luxembourg, Singapore, Sydney and other major cities across North America and Europe – serving members and employers, and originating and managing a diversified portfolio of high-quality investments in government bonds, public and private credit, public and private equities, infrastructure and real estate.

Media Contact
Don Peat
Director, Media Relations
1 416.417.7385
dpeat@omers.com

Net Assets
$ Billions

Net Assets

Net Return History
to June 30, 2025

6-month
(January 1, 2025 – June 30, 2025)

2.2%, a gain of $3.1 billion   10-year
(July 1, 2015 – June 30, 2025)

6.9%, a gain of $70.2 billion   

Diversified by Asset Class and Geography
OMERS invests in high-quality assets that are well-diversified by geography and asset type.

Asset Diversification
As at June 30, 2025

Asset Diversification

Geographic Diversification
As at June 30, 2025

Geographic Diversification

Asset Class Investment Performance

Net Returns   Six months ended 
June 30, 2025 Government Bonds 2.1 %Public Credit 1.6 %Private Credit 2.7 %Public Equities 2.4 %Private Equities (1.3 %)Infrastructure 3.6 %Real Estate   1.1 %Total Plan 2.2 %   

Investment Performance Highlights
Over the six months ended June 30, 2025:

  • The more than 5% decline in the U.S. dollar in the first half of the year meaningfully detracted from our returns across asset classes, particularly in public and private equity. Our active decisions to hedge our currency exposure added almost 1% to the portfolio, including an approximate 30-basis point lift from our increase to U.S. dollar hedges at the end of 2024. This currency management strategy, combined with our diversification in the British pound sterling and euro, mitigated the otherwise negative impact on the portfolio.
  • Our strategic focus to deploy into fixed income assets continued to positively contribute to our returns. Government bonds, public and private credit each delivered positive performance primarily due to interest income and a decline in bond yields.
  • Public equities delivered positive performance from core large-cap holdings in financials, communications services and information technology sectors.
  • Private equities were held back as investor confidence remains challenged and markets continue to exhibit very low levels of activity. As a result, valuations continue to be impacted by slow earnings growth and headwinds within certain industry sectors.
  • Infrastructure continues to deliver steady results, with most assets performing in line with expectations.
  • Real estate delivered a positive return after a series of challenging years for the industry. Despite market uncertainty, results were supported by strong operating fundamentals, particularly in office and hotels.

Liquidity
We continue to maintain ample liquidity, with $17.4 billion in liquid assets to pay pension benefits, fund investment opportunities, satisfy potential collateral demands related to our use of derivatives, and to fund expenses.

Long-Term Issuer Credit Ratings

Long-term issuer credit ratings

This Investment Update presents certain non-GAAP measures. These measures are calculated on the same basis as those calculated and presented in our 2024 Annual Report. This Investment Update and the Condensed Interim Consolidated Financial Statements (the “Interim Financial Statements”) are unaudited. OMERS Administration Corporation’s financial performance set out in this Investment Update is only for the period ended June 30, 2025, unless otherwise indicated. Past performance may not indicate future performance because a broad range of uncertainties (including without limitation those related to interest rates and inflation) could have an impact on the performance of various asset classes. The financial information included in this Investment Update should be read in conjunction with the Interim Financial Statements.

Portfolio update
We continue to invest in assets that build strong futures for communities and members alike.
Below is a selection of activities undertaken since January 1, 2025.

  • We acquired full ownership of a high-quality office portfolio in Western Canada that includes seven office properties in Calgary’s and Vancouver's central business districts, totalling 4 million square feet. This portfolio is 95% occupied.
  • We broke ground on 70 Hudson Yards, the first 1 million plus square foot, ground-up office development in New York City in over five years.
  • We sold a 9.995% stake in Transgrid, the largest electricity transmission network in Australia, to Australian sovereign wealth fund, Future Fund. As part of this transaction, OMERS will manage that interest on their behalf in addition to our own 9.995% stake. 
  • We announced a transformative co-investment of over $200 million to retrofit the existing office buildings at Canada Square in midtown Toronto. The redevelopment will deliver 680,000 square feet of highly functional and modernized office space.
  • Our shopping mall investments were recognized as national and regional market leaders in sales performance by the International Council of Shopping Centers. Yorkdale continues to dominate as Canada’s top-performing shopping centre for the second year running with ~$2,300 in sales per square foot. Square One Shopping Centre and Scarborough Town Centre also increased their sales per square foot.
  • We officially opened the doors to the $1.3 billion Parkline Place, celebrating the opening of this new commercial office and retail destination in Sydney, Australia co-owned by Oxford Properties, and which includes the first new office tower in Sydney’s Midtown in almost a decade. 
  • We announced a joint partnership with AustralianSuper that aims to build a significant industrial and logistics venture across Europe. As part of this joint venture, we announced the acquisition of Broadheath Network Centre in Greater Manchester.
  • OMERS Finance Trust (OFT) successfully closed two significant note offerings, a EUR 1 billion, 10-year note and a USD 1 billion, 5-year note. This marks OFT’s third EUR and ninth USD offering.

Subsequent to the end of June:

  • We broke ground on the first major purpose-built housing project in Scarborough in over a generation on the west side of Oxford’s Scarborough Town Centre shopping mall. The development will consist of three residential towers of 1300 units with the aim of delivering critically needed housing in a historically undersupplied area for people at a variety of different price points, including a 21% allocation for affordable housing. 

Alright, this afternoon I had a chance to discuss OMERS' mid-year results with CEO Blake Hutcheson and CFO & CSO Jonathan Simmons.

I want to begin by thanking them both for taking the time to talk to me and also thank Don Peat for setting up the Teams meeting and sending me the relevant documents.

As always, these are mid-year results, in line with what OTPP and CDPQ posted but OMERS has a different asset mix, more tilted to private markets (see asset mix above).

I also want to correct something from last week when I covered CPP Investments' quarterly results,  OMERS and La Caisse do provide asset class performance for mid-year, OTPP does not.

Alright, Blake began by giving me the overview:

The results are self-explanatory. My main message is it's a very volatile world with respect to geopolitics, with respect to tariff conversations, with respect to currency fluctuations, with respect to elections including in this country.

In the context of all that, we feel our results are a solid start to the year, so we go forward from here with strength but it has been a very difficult investment environment.

You know as well as anybody, one thing you want as an investor is a high degree of certainty, where are the goalposts. This has been a period where there's anything but certainty as the mood of the day can swing depending on one utterance or another. 

The good thing is we have a long view and a diversified portfolio and we really try to separate the headlines form the underlying economic fundamentals and facts. That's our best defence, focus on things we can control: high quality assets, lots of diversification, put our energy into our greatness as opposed to the noise of the day. That's going to continue to be our mantra.

You know me, I started in 2020 so I like to keep track of the 5-year return and the 5-year return since my first month or two has been 8.7% which is a compelling story.

It's been an active semester, diversification is helping.

What you might want to see is the currency hurt us so far this year, it's helped us other years, so you can't have blessings every year. It's cost us 1.2% but we are really proud of our hedging strategy because they protected an additional 100 basis points or thereabouts because it could have been a lot worse if they weren't active. And we took all our hedges off for a number of years after 2020, we were thoughtful and redeployed. It was an overt strategy, it largely paid off.

When we look at our plan, our expectations for the year, our credit book, our equities book, our infrastructure are maybe a little bit behind in some cases but on track to meet our budgets. 

Our other privates are slower. Real estate, the good news is we are in the black now, that's starting to turn the corner. Our mutual friend Dan Fournier has made a major difference in the culture and consideration we've put in that business. 

And our difficult one like many others is our private equity portfolio. We have a new head of private equity, we just finalized the strategy yesterday with our Board as to where that business will go in the future, maybe in the fall we'll take some time to share it with you. We got our arms around where we are strong, where we are weak, where we have to deploy more, where we have to deploy less. That one is a work in progress and we don't see selling or buying, we don't see a lot of activity that gives us data points -- negative or positive -- in the private equity space because again, with all the uncertainty out there, people aren't sellers at prices where we can buy. That business has been our weakest link this half.

I guess the other thing is we remain committed to Canada. The flash numbers say we are down in Canada to 16%, our assets are at about 21% which is where we started the year and it's roughly 55% in the US. The 16% takes into account primarily cash accounts because we used to carry more Canadian cash and we deployed a lot, particularly in real estate the first half. 

But our 21% is constant and we are going to continue to invest heavily in the United States, pretty commensurate with our current book, but we want to do more in this country. We feel this is an all hands on deck moment in Canada, we are seeing really positive and hopeful signs come out of the federal government at this point, more so than we've seen in a decade where government decision makers both federally and provincially in most of the Canadian markets we invest across Canada, there's a harmony that didn't exist, there is a sense of mutual purpose that didn't exist, and I think Canadians are coming together. 

We are hopeful we can do more, particularly in infrastructure and real estate in Canada to be part of the solution in this all hands on deck moment for our country.  

I don't know exactly what that means in terms of allocations -- you know the business well -- we can't give somebody a home court discount, we are a fiduciary, we have to make sure it hits our risk-adjusted expectations and return. It's not that we can -- however big our heart is -- gift anybody when we are responsible for 640,000 people but it does mean we are underwriting more than we have in the past, we are having bigger and more important conversations with various levels of governments than what we had in the last decade.

We want to do more in Canada, we hope to do more in Canada and we want to be part of the go forward success and future of this country.

That's a great overview which covers all the main points.

On infrastructure which had another solid half, Blake added this:

We have 30 assets, it's a broad portfolio, it's a highly concession run asset class for us. With big businesses like Bruce Power, it's been a consistent high single digit asset class for us year in and year out and this year is no exception. It's really the broad shoulders and the consistency of that wide portfolio that continues to get us in the 7-8-9% range and it has less volatility than our other asset classes. You don't see the exit multiples change a lot for those businesses, they stay pretty constant. So it's a steady Eddy business for us, no surprises.

Indeed, the yield is always around 8% or more a year for OMERS and others.

In private equity, I noted that some critics of OMERS purely direct strategy have privately told me that asset class needed to be revamped there but I also note that all pension funds are experiencing a tough slug in PE, not just OMERS, even those that do more fund investments.

Blake responded:

Of our privates, the real estate business not withstanding recent years because it's been difficult, and our infrastructure business  have been really steady long-term producers for us with great teams. And our private equity business has done well for us too and I don't want to diminish the contribution it's made for us in any way.

In the last few years, we have had to rethink our strategy because it's hard to compete with the best players in the world when we are relatively small.  

So, from a buyout perspective, we retreated from direct investing in Europe, we are very much focused on North America. As we cycle out of those assets in Europe, we will use that capital to redeploy into more fund type investments where bigger players with bigger teams can get into assets we couldn't get to.

I don't want to be critical. We have done a detailed assessment, we are at a point and time where we are changing our focus and strategy. We will consistently and deeply invest in Canada and the United States but less so in Europe and the available capital will go to funds.

With our new head of private equity (Alexander Fraser), he just presented the new strategy this week, there will be lots of nuanced changes to that portfolio to right size it and position it well for the future. That is underway, when we are ready, we will be happy to share with you those prospects.

But we have a really good team, we have a really good new leader and I'm actually energized to see their direction of travel. This was a difficult half not just for us but for most people in the marketplace and sometimes when you get those difficult moments, it gives you the motivation to make the changes you need to make and we are making them.   

I noted rates are higher for longer, dampening returns in private equity and real estate and the other thing that worries me is if there will be more inflation in the US, wage inflation can lead to more margin compression in private and publicly listed businesses.

I also noted there was a big Bloomberg article yesterday on how pension funds missed the big tech rally, but pension funds are not there to beat the S&P 500 every year, so while there may be some pressure in privates over the short run, over the long term, they offer more stability and yet people remain focused on the short term.

I asked Blake if they've been feeling this pressure to take risks where they shouldn't be taking risk to deliver higher returns and he responded:

Jonathan and I feel incredibly supported by our board. I can honestly say while short-term results are interesting and certainly people watch our annual results with vigour, we are a long term investor. I don't feel any compulsion to beef up the shorter term at the expense of the longer term.

We all have to be nimble right now. It's an ever changing world. We need to remain on our toes. We need to be assessing all of the inputs from an economic, political and fundamental perspective. You can never be complacent and continue to win in the markets but I don't feel any compulsion to think short term because of the short term pressures, never have, it's not the nature of our board, it's not the nature of the way we approach the business.

And great assets, great management teams, great fundamentals, not in every cycle but they tend to see through cycles, when you compromise asset quality, when you compromise people quality, when you compromise businesses to get some short term yield, it doesn't end so well. 

That's the discipline and that the discipline that has enabled us to deliver our 8.7% return in the last five years.

But the private equity component of our business, this isn't something we picked up this year and decided we needed to have a new direction, this has been a 2-3 year focus and it's going to require a few more years to get it to a place where we expect it to be as part of our asset allocation.

Since Blake is an expert in real estate (he was formerly the head of Oxford Properties prior to becoming CEO of OMERS), I asked him if he's seeing signs of a comeback in offices since more companies are demanding back to the office from their workers.

He responded:

I think you've heard me say this consistently even during Covid, people need to live somewhere, people need to work somewhere.

Even in Covid, when everyone was saying the office is going the way of the dodo bird, we were building office buildings at Oxford. 

The truth is high quality AA, AAA office buildings will continue to do extremely well and didn't even break during Covid.

Secondary and tertiary assets, many of them are in deep trouble because there is a migration to quality.  

Looking at office, our portfolio is best of class in every market we are in around the world. In Toronto, we are 95% leased, across Canada, we are practically 95% leased. We just invested by buying out CPP Investments in seven big office buildings in Canada which put sour conviction where our wallet is.

We just announced a new building we are building in Hudson Yards, 70 Hudson Yards in New York, a large consulting firm is taking 800,000 square feet of 1.4 million, and that will be the first new office building in five years in Manhattan. I'm totally confident it's going to do extremely well.

So in our 62-year history at Oxford but even in the last 10 or 12, when people say thou shouldn't touch and something is going in the wrong direction, we look at the history, high quality great assets, if they're not playing into the fundamentals, we will. 

And I like our odds. We finished a building in Vancouver called The Stack, it's ahead of plan from a lease perspective. 70 Hudson Yards will be great. We are just finishing a new building in Sidney, it's going to take a while but it's going to do great. 

So, a great office is a great office, we like the trends, we never felt that with high quality assets we were in jeopardy and when everybody else said don't build more, we built more

I asked Blake if Logistics and Multi-family continue to be the sectors driving the returns at Oxford and he replied: 

Logistics interesting enough, uncertainty around supply chains, we are not seeing big appetite, a lot of people are sitting on their hands because why take up more space until they see how this game of chess plays out.   

For a while the direction of travel for rates for an industrial building was only one way, it was higher growth than any other sector, that slowed relative to other sectors but we have a great portfolio that's functioning well.  

And multi-family, because it's typically a 97% leased business, you have the ability to finance several. You won't really see an improvement until the cost of funds comes down. Because you have a high level of debt, that has a significant impact on yield and values. It will be better in the next 2-3 years as the Fed rate comes down. Right now, it's an ok sector but until the cost of money comes down, it's not going to be what we hoped.

I shifted my attention to Private Credit and asked Jonathan Simmons what he sees there. 

Jonathan replied:

The private credit strategy, if I look back at the last few years, and we already talked about infrastructure and its contribution, private credit has to be the other one. Very strong returns from that asset class, we've been moving capital into it consistently. It's wheels on a treadmill with private credit because most of these are 5-year deals so the team is very busy with the underwriting. We are so pleased with the risk profile we've seen. A year ago, people asked me a lot of questions about credit quality, bu tit's holding up, the discipline is strong, the returns are very good for our pension plan so it's an asset class to like.

I ended by asking Jonathan and Blake what's keeping them up at night, what are they worried about the most in this uncertain environment.

Jonathan chimed in first: 

I crave for stability. It makes it much easier for decision makers to plan for the future, whether that be taking up more space in one of our buildings, or contracting one of our private equity businesses or getting a new project off the ground that we can invest in from an infrastructure perspective. When that stability comes back to the world, investors will have a much more enjoyable time. And it's been very choppy so that's what I look forward to the most.

Blake then added this:

I've always said, I don't need a competitive advantage, I need a level playing field and please don't break my jaw. And if I can invest in those environments, history has proven OMERS can do that, and my career suggests that's an environment I can excel in.

Because we share more with you than anyone, right now what keeps me up at night is our best friend, our biggest trading partner, our most important strategic alliance, the United States of America, we have deep friendships on both sides of the border. America needs Canada, Canada needs America and we are at a moment in history where that frayed relationship is as sad as it is destructive. 

I think it can be fixed, I think it's going to require deep personal investments by our leaders spending time with their leaders because bees stick to honey. 

It was very difficult to do that until the new government was elected, I think they have a really good shot at it and I think it's really important.  

I don't know if it can be normalized but once we get the terms of engagement finalized, including USMCA over the finish line -- which by the way 93% of the trade of this country is captured by USMCA -- once we get over the finish line, and we remind each other that it's critical for all three parties in that document, it's going to be a difficult time emotionally and financially and economically.

That's what I worry about, how we can fix that relationship or at least improve it, how we get USMCA behind us and how we can work as a unified trading block in in North America to fortify ourselves against whoever the foe may be and make all three nations better because we are better together.  

So those are the things I think about, I think it's an important time in history, and as I said we at OMERS want to be part of the solution by investing in this country if we can a little more and by helping build cross border relations for the best interest of our members and best interests of Canada.

OMERS is doing its part to help all levels of governments in Canada succeed.

Once again, I thank Blake and Jonathan for another great discussion, I really appreciate their time and insights. 

Below, watch Bake Hutcheson at the Canadian Club Toronto discussing his views on leading and investing during these challenging times (April 16, 2025).

Last but not least. I want to sincerely wish Jonathan's daughter Jessica who is fighting cancer for a second time a speedy and full recovery (read Jonathan's post here). 

We are all rooting for you Jessica, stay positive and if you need a little inspiration, watch Isabella Strahan's documentary, Life Interrupted, I highly recommend you do so. 

IMCO's Jennifer Hartviksen on the Shifts in the Credit Market

On July 23, 2025, IMCO's Jennifer Hartviksen, Managing Director and Head of Global Credit, joined ION Analytics for a fireside chat on shifts in the credit market. She discussed structural changes in lending, outlined key risks and opportunities and emphasized the importance of culture in IMCO’s partner selection process.

 This is a great discussion which I embedded below.

Jennifer goes over her background, working in Brazil, learning about credit investments there ("glass is half full" philosophy) then worked in Los Angleles before coming back to Canada to work at pension funds, Invesco and joining IMCO two months before the pandemic hit back in 2020 (Christian Hensley  hired her, he is no longer with the organization).

What attracted her to IMCO was the opportunity to build a credit strategy from scratch which "encompasses everything from philosophy, process and people."

Jennifer explains how in credit, the questions are always the same and fall in a couple of key buckets:

How are cash flows generated? Focusing always on cash flow generation, asset coverage, and the structuring of the credit papers itself, what are the protections being offered to the borrowers, be it covenants, possible equity upside, downside protections? Those are the questions I was asking then (in Brazil) and that I'm asking now. And understanding each of those dynamics in the context of how we are being compensated for those dynamics and that risk.

If you haven't figured it out yet, credit investors are very different animals than equity investors, it's all about protecting downside risk, delivering the highest possible risk-adjusted returns.  

They're not looking to shoot the lights out, they're looking to deliver consistent high single digit returns with an inflation protection as the rates are variable and adjust with inflation. 

Jennifer explains how they put together a credit strategy that looks across public and private credit and she explains how it’s the same team looking at all credit opportunities across the spectrum.

She states they're not pressured to put money at work in any one segment but where they see the best relative value. 

Their team is flexible and understands issuers who are looking for flexibility to work across public and private markets.

Anyway, take the time to listen to this interview, it's excellent and I'm glad IMCO posted it (interns take note, this is great stuff, I wish other pension funds posted interviews like this with their senior investment professionals).

I'm also bringing this up because Bloomberg came out with a story earlier today on how pensions funds missed the tech rally:

Interestingly, Oaktree’s Howard Marks sees the early days of a bubble, akin to 1997, when there were several more years of gains before big losses. “This is a time to put a little more defense into your portfolio & investing in credit as opposed to equities is one way to do it”:

Of course, things are also frothy in credit markets:

Whether or not we are in a bubble, my own perspective is pension funds learned a painful lesson back in 1999-2002 and in the 2008 GFC and none of them are willing to repeat those mistakes, chasing yield at any cost and then getting slammed hard when assets get clobbered and yields sink during a financial crisis (double whammy especially for pensions that manage assets and liabilities).

Nowadays, pension funds are more willing to miss the upside as long as they remain highly diversified across sectors, strategies, geographies, etc.

They might feel the pain of relative underperformance to the S&P 500 but their goal is to meet their future liabilities with the least possible volatility and that's their main focus.

That's another reason why credit investments have taken off at pension funds.

And at IMCO, like the rest of the big pension funds, they rely heavily on their strategic partners to gain the best exposures across public and private credit.

Alright, let me wrap it up there, please take the time to listen to this excellent interview with Jennifer Hartviksen, Managing Director and Head of Global Credit at IMCO.

Also, Oaktree Capital Management Co-Chairman Howard Marks says he finds stocks expensive “relative to what I call fundamentals, or you might call reality,” but says there’s no reason to think there’s a correction coming. He is joined by Bloomberg's Jonathan Ferro and Lisa Abramowicz on "Bloomberg Surveillance."

IMCO's Jennifer Hartviksen on the Shifts in the Credit Market

On July 23, 2025, IMCO's Jennifer Hartviksen, Managing Director and Head of Global Credit, joined ION Analytics for a fireside chat on shifts in the credit market. She discussed structural changes in lending, outlined key risks and opportunities and emphasized the importance of culture in IMCO’s partner selection process.

 This is a great discussion which I embedded below.

Jennifer goes over her background, working in Brazil, learning about credit investments there ("glass is half full" philosophy) then worked in Los Angleles before coming back to Canada to work at pension funds, Invesco and joining IMCO two months before the pandemic hit back in 2020 (Christian Hensley  hired her, he is no longer with the organization).

What attracted her to IMCO was the opportunity to build a credit strategy from scratch which "encompasses everything from philosophy, process and people."

Jennifer explains how in credit, the questions are always the same and fall in a couple of key buckets:

How are cash flows generated? Focusing always on cash flow generation, asset coverage, and the structuring of the credit papers itself, what are the protections being offered to the borrowers, be it covenants, possible equity upside, downside protections? Those are the questions I was asking then (in Brazil) and that I'm asking now. And understanding each of those dynamics in the context of how we are being compensated for those dynamics and that risk.

If you haven't figured it out yet, credit investors are very different animals than equity investors, it's all about protecting downside risk, delivering the highest possible risk-adjusted returns.  

They're not looking to shoot the lights out, they're looking to deliver consistent high single digit returns with an inflation protection as the rates are variable and adjust with inflation. 

Jennifer explains how they put together a credit strategy that looks across public and private credit and she explains how it’s the same team looking at all credit opportunities across the spectrum.

She states they're not pressured to put money at work in any one segment but where they see the best relative value. 

Their team is flexible and understands issuers who are looking for flexibility to work across public and private markets.

Anyway, take the time to listen to this interview, it's excellent and I'm glad IMCO posted it (interns take note, this is great stuff, I wish other pension funds posted interviews like this with their senior investment professionals).

I'm also bringing this up because Bloomberg came out with a story earlier today on how pensions funds missed the tech rally:

Interestingly, Oaktree’s Howard Marks sees the early days of a bubble, akin to 1997, when there were several more years of gains before big losses. “This is a time to put a little more defense into your portfolio & investing in credit as opposed to equities is one way to do it”:

Of course, things are also frothy in credit markets:

Whether or not we are in a bubble, my own perspective is pension funds learned a painful lesson back in 1999-2002 and in the 2008 GFC and none of them are willing to repeat those mistakes, chasing yield at any cost and then getting slammed hard when assets get clobbered and yields sink during a financial crisis (double whammy especially for pensions that manage assets and liabilities).

Nowadays, pension funds are more willing to miss the upside as long as they remain highly diversified across sectors, strategies, geographies, etc.

They might feel the pain of relative underperformance to the S&P 500 but their goal is to meet their future liabilities with the least possible volatility and that's their main focus.

That's another reason why credit investments have taken off at pension funds.

And at IMCO, like the rest of the big pension funds, they rely heavily on their strategic partners to gain the best exposures across public and private credit.

Alright, let me wrap it up there, please take the time to listen to this excellent interview with Jennifer Hartviksen, Managing Director and Head of Global Credit at IMCO.

Also, Oaktree Capital Management Co-Chairman Howard Marks says he finds stocks expensive “relative to what I call fundamentals, or you might call reality,” but says there’s no reason to think there’s a correction coming. He is joined by Bloomberg's Jonathan Ferro and Lisa Abramowicz on "Bloomberg Surveillance."