2021 Investment Review

HEPP Investment Returns*

The Healthcare Employees’ Pension Plan’s (HEPP) investments returned 12.4% in 2021, following a 9.0% return in 2020. We exceeded our benchmark returns of 11.1% in 2021 and 7.5% in 2020. Our five and ten year returns were 8.6% and 9.4% and were also in excess of our benchmark returns of 7.7% and 8.5% respectively. All asset classes had positive returns with public equity markets showing very strong results. Our Canadian, International and US equity portfolios returned 27.5%, 8.3% and 22.3% respectively. Our other asset class returns were 14.5% in real estate, 0.2% in fixed income, and 10.0% in infrastructure. Since its inception, HEPP has had positive returns in 21 of 25 years.

The fund achieved its highest value at the end of 2021 at $10.335 billion, up from $9.271 billion at year-end 2020. Over the past 10 years, our investment returns have added $800 million of value when compared to the Plan’s benchmark returns.

Currently a return of 5.9% 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.

*Total fund returns are after external management, custodial, and performance fees, transaction costs and operating expenses. Asset class returns are after transaction costs and performance fees but before external management and custodial fees, and operating expenses.

Major Market Returns

The COVID-19 pandemic hit the capital markets in late February 2020 causing many dislocations, some of which lasted throughout the year. For 2021, public equity markets produced strong returns, with public bond markets showing negative returns as interest rates rose from very low levels evident during 2020. With less uncertainty surrounding the economic outlook in 2021, real estate returns recovered from a negative return in 2020. Returns for Canadian real estate sectors ranged from +30.9% for industrial properties to 1.6% for retail properties. Infrastructure returns remained firm during 2021.

The Canadian equity market returned 25.1% in 2021 following a return of 5.6% in 2020. The US equity market was up 27.6% following a 16.3% return in 2020. International equity also performed well in 2021, returning 10.8% compared to 6.4% in 2020. Emerging markets returned -3.1% in 2021 after rising 16.6% in 2020. Canadian real estate returned 7.9% for the year following a -3.8% return in 2020.

With Government of Canada bond yields remaining low at year end, we expect the returns in our fixed-income portfolio will not meet the discount rate required to fund the Plan’s obligations. While interest rates fell dramatically at the onset of the COVID pandemic resulting in an 8.7% return for the Canadian bond market in 2020, rates rose during 2021 producing a -2.5% return.

2021 Major Market Returns

HEPP Asset Mix

Our overall equity exposure at year-end 2021 was largely unchanged from 2020. We actively monitor 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. Our overall exposure to real estate will not change dramatically, but the allocation between Canada and other markets will shift.

We continue to commit funds for our global infrastructure investment program, which continues to perform as expected. The Board had previously approved allocations to two new asset classes, private equity and private debt. All of our private market investments are invested over time, meaning that it will be several years before we reach our target allocation.

2021 Asset Mix

Detailed Investment Commentary

Public Equity

We have 58% invested in equities. At the end of 2021, most of our equities are publicly traded. We diversify our equity holdings by geography, sector, company size and investment style. At a strategic level, we run Canadian equity, US equity and International equity portfolios. International equity portfolios invest in developed and emerging markets outside of Canada and the US. Within those portfolios, we further diversify by sector, company size and investment style.

Geographic exposure as % of total fund:

  • International equity: 21%
  • US equity: 22%
  • Canadian equity: 15%

Sector exposure as % of total equites:

  • Information Technology: 19%
  • Financials: 19%
  • Industrials: 15%
  • Consumer Discretionary: 10%
  • Health Care: 10%
  • Consumer Staples: 7%
  • Energy 5%
  • Materials: 5%
  • Communication Services: 4%
  • Utilities: 3%
  • Real Estate: 2%

Fixed Income

We have 25% of the fund invested in fixed income securities, the majority of which is held in publicly traded securities.

At year-end 2021, our credit exposure as a % of total fixed income was as follows:

  • Canadian Government: 34%
  • Canadian Investment Grade: 39%
  • US High Yield: 27%

We hold Canadian government bonds primarily for liquidity purposes. When equity markets decline we are able to access ready cash to rebalance the overall portfolio.

We hold Canadian investment grade corporate bonds and US high yield securities, as their yield is higher than government bonds, and provides increased return opportunities. Our holdings in the US high yield market are currency hedged to reduce return volatility.

Within our corporate bond holdings, our credit rating exposure is as follows:

  • BBB and higher: 60%
  • B/BB: 35%
  • Below B/Not Rated: 5%

Real Estate

We have almost 12% invested in direct real estate investments. These are private market transactions, which means that the assets are illiquid. In addition to our invested amounts, we have outstanding commitments of over 1% of total assets, which will be deployed over the next several years.

Geographic exposure as % of total real estate:

  • Canada: 86%
  • USA: 7%
  • Europe: 4%
  • Rest of World: 4%

Sector exposure as % of total real estate:

  • Office: 31%
  • Industrial: 24%
  • Multi-Unit Residential: 22%
  • Retail: 15%
  • Other: 8%


We have over 4% invested in direct infrastructure investments. These are private market transactions, which means that the assets are illiquid. Our long-term target for infrastructure is 10%. As we do with all private market investments, we will invest a certain portion of our allocation each year to minimize what is known as the “vintage year” effect. In addition to our invested amounts, we have outstanding commitments of  over 2% of total assets, which will be deployed over the next several years.

Geographic exposure as % of total infrastructure:

  • Europe: 54%
  • North America: 26%
  • Rest of World: 20%

Sector exposure as % of total infrastructure:

  • Energy & Utilities: 55%
  • Communications: 24%
  • Transportation: 19%
  • Social: 2%

Representative industry groups within each sector include:

  • Energy & Utilities: renewables, midstream/storage, integrated/multi utility, gas transmission/distribution
  • Communications: telecom
  • Transportation: freight logistics, toll roads, ports
  • Social: social housing

Private Debt and Private Equity

We have a 5% allocation to private debt and to private equity, which will be invested over time. Private debt and equity are illiquid and we will manage the rollout of this program over several years to manage our “vintage year” risk. We initiated our private equity investment program in 2021.

Currency Management

Our largest exposure is vs. the US dollar with 37% of investments denominated in USD.

We generally do not hedge foreign currencies for our public equity investments. 

Our non-Canadian fixed income returns are hedged as currency volatility adds unnecessary risk to our returns for an asset class which is generally defensive in nature.

At the present time we are not hedging our non-Canadian real estate holdings.

At the present time we are not hedging our infrastructure holdings.


Costs for managing investments are typically presented as a percentage of assets under management. For 2021, our costs were 0.48%. This includes external management fees (direct and indirect) and custodial costs as well as operating costs. Our ten-year average cost is 0.43%. As the fund’s exposure to private market assets has increased, our overall cost structure has risen, as fees for private market assets are higher than for public market assets.

Like all large plans in Canada, we have a forward-looking strategy to deal with changes to our business model as our assets grow over time. As part of this strategy, we have adjusted our staffing levels accordingly and have transitioned two public equity portfolios and one public fixed income portfolio from being externally managed to internally managed.


© 2023 HEB Manitoba


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