2019 Review

HEPP Investment Returns

The Healthcare Employees’ Pension Plan’s (HEPP) investments returned 15.96% in 2019, an increase from the prior year’s return of -1.88%. This is the second highest annual return we have had since the Plan started in 1997. All asset classes had positive returns with public equity markets showing very strong results. Our Canadian, International and US equity portfolios returned 22.43%, 20.28% and 24.86% respectively. Our other asset class returns were 7.75% in real estate, 7.88% in fixed income, and 6.58% in infrastructure. Since its inception, HEPP has had positive returns in 19 of 23 years.

HEPP’s investment horizon is longer term, while remaining cognizant of volatility. The last two years highlight this volatility, with our second highest annual return in 2019 following our third worst annual return in 2018. The fund achieved its highest invested value at the end of 2019 at $8.475 billion, up from $7.386 billion at year-end 2018. 

Our annualized five-year return is 7.22%. Currently a return of 6.15% is required to fund the Plan’s obligations. The Plan’s exposure to equity-type investments has generated strong returns over the history of the fund. Interest rates remain at historically low levels, and over the long term, equity-type investments are expected to outperform fixed-income investments, but equity returns are more volatile. As a result, the Plan’s investment policy has an exposure biased toward equity markets and real estate, as well as an allocation to infrastructure investments.

HEPP Investments Returns - Annual

2019 Investment Returns

HEPP Investment Returns - Annualized

Major Market Returns

2019 proved to be a rewarding year for equity market returns as compared to 2018 when most markets sold off sharply in the 4th quarter. 

The Canadian equity market returned 22.88% in 2019 following a return of -8.89% in 2018. The US equity market was up 24.84% following a 4.23% return in 2018. International and emerging equity markets also performed well in 2019, returning 16.45% and 12.87%, respectively compared to -5.55% and -6.51% in 2018. 

With Government of Canada bond yields remaining low, we expect the returns in our fixed-income portfolio will not meet the discount rate required to fund the Plan’s obligations. While the 2019 return for the Canadian bond market was 6.87% compared to a 1.41% return in 2018, the annualized five-year return for the Canadian bond market is 3.18%.

HEPP Asset Mix

Our overall equity exposure at year-end 2019 was higher than at 2018, which was impacted by the sharp decline in equity markets declining in the 4th quarter of 2018. We are actively monitoring our exposure to equities and our regional allocations to Canadian, US and International equity markets as part of our risk management framework. These allocations will change over time, reflecting fluctuating return expectations and risk profiles.

The Plan has been invested in Canadian real estate since its inception, and we continue to seek opportunities outside of Canada that can provide expected returns that may compensate us for risks inherent in global real estate investments.

We continue to commit funds for our global infrastructure investment program, which is being funded from our fixed-income assets.

In early 2019 our Board of Trustees completed a strategic asset liability modelling study, which confirmed the overall asset mix of the fund in relation to evolving plan liabilities.

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