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

© 2022 HEB Manitoba


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