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00:00Good afternoon. Thank you for being here, Brendan.
00:02Thank you, Chinza.
00:04I guess let's start with how do bond issuances help boost returns for OMERS investment?
00:09Sure. Maybe I'll do a quick introduction about the OMERS pension plan.
00:13We are a member of the Maple 8. We are one of Canada's largest defined benefit pension plans.
00:18We are the exclusive pension provider for municipal employees in the province of Ontario.
00:23We have about 600,000 members who are members of the pension plan,
00:27and we invest across the globe about $140 billion worth of assets.
00:31And what we are as a debt issuer, we're in the SSA space,
00:35and we will issue at a AAA rate and compare that, use that to lower the cost of capital,
00:41to invest in assets like infrastructure and real estate, private credit, and some such across the globe.
00:48And so the way it enhances our returns is exactly because of that spread.
00:51We're borrowing at a AAA rate.
00:52We're investing at our long-term return across the entire pension plan is about 7%,
00:58and so we earn that spread through the lower cost of capital.
01:02When you decide which currency to issue debt in, are you looking at this,
01:07do you swap everything back, or do you try to match your debt with assets in the region?
01:12Yeah.
01:13There are three things that are going to trigger us to be issuing debt.
01:16But principally, it is where are our investment teams able to find opportunities to deploy,
01:21and that is typically in the U.S. and in Europe and in Australia.
01:25Those are the three currencies that we're focused on now as a debt issuance program,
01:29and we have assets in each of those currencies right now.
01:32So we keep it in those currencies to deploy in those currencies and to achieve the natural hedge.
01:37We'll also, of course, issue to refinance, and more and more,
01:40we will use it as a tool, as I said before, just to keep that natural hedge,
01:45even if we don't have immediate deployment plans on that.
01:48Are you programmatic in any of those currencies?
01:51We are programmatic in U.S. dollars.
01:53So the program started in 2019, and from day one,
01:56when we were meeting investors before that in 2018,
01:59our commitment was to investors that you would expect us to do a benchmark issuance
02:04in the spring of every year in U.S. dollars, typically in the three- to five-year range.
02:09We have been true to that, and we continue to expect to be true to that every year U.S. dollar benchmark.
02:14Euros will be a little bit less frequently, Australian dollars even a little bit less than that,
02:19but those will remain our core focus for the next number of years.
02:23What will bring you back to the Canadian market?
02:26Do you have a more direct line of sight with Canadian investors?
02:29Yeah, we've gotten that question, certainly with Canadian investors,
02:32if they're interested in something other than Canadian dollars.
02:34The truth is, as a Canadian pension plan, our contributions are in Canadian dollars.
02:40This is from the members and the employers.
02:43More than that, many of our mature cash-yielding assets are paying us Canadian dollars,
02:49and so we have cash inflow that way.
02:51A lot of our existing liquidity that we have in liquid assets is also in Canadian dollars,
02:56so we don't have a natural need for additional Canadian dollars.
03:00And then if you consider the fact that we limit our leverage, today it's limited to 10% of the plan's net assets,
03:07and we don't really need the Canadian dollars from a natural hedge standpoint,
03:11it's unlikely.
03:12Things can change, but it's unlikely that Canadian dollars will make itself into the top three currencies we focus on.
03:19What are you hearing from investors about what their priorities are at the moment,
03:23and how do you tap into that?
03:25Yeah.
03:26I mean, even as I met with investors one-on-one this morning, uncertainty came up a lot,
03:32so I think their priority is certainty.
03:34OMERS itself cannot provide that to them,
03:36but what we can provide, of course, is that AAA rating with what we consider a very fair spread.
03:43And I think the interesting point that we've heard, especially in the last six to nine months,
03:49is, yes, we are a Canadian issuer, that is, we are Canadian domiciled with a Canadian mandate, Canadian members,
03:57and everything comes back into Canadian dollars,
04:00but distinguish our Canadian-ness from some of the other provinces,
04:04where the balance sheet that we've got that is backing these bonds is truly global.
04:09So about 20% of our assets are in Canada, about half of them are in the US,
04:13another 15% to 20% are in Europe, and then there's Australia,
04:17and some other pockets of the globe there as well.
04:19So when we express that to investors, they find a real appreciation in that,
04:24the diversity of the balance sheet that they're getting through participating in our term note program.
04:30As a Canadian SSA issuer, who mostly raises funds in overseas markets,
04:36how do you pick which banks to work with?
04:38Great question.
04:39We are looking to partner with banks who are also investor-focused in the way that we are.
04:45What that means is they've got a demonstrated ability in the primary market,
04:49they know where the investors are who are interested in the currency and the tenor that we're looking for.
04:55They help us from an investor relations standpoint,
04:58so they help us stay in front of the investors who are familiar with us
05:02or who have met us but not yet had us approved.
05:04Or, really importantly, as the program grows,
05:07they introduce us to new investors who might not know about the Canadian pension space
05:11and our use for term notes,
05:13and we are able to explain the story and help convince them to participate in the next term note.
05:19And the third thing we look at when we're picking our banks is their secondary performance.
05:24How much are they trading the bonds that are already out there?
05:26Where are they marketing them?
05:28How are they able to explain the fair values that they've got them at,
05:31and are they moving our paper around?
05:33Because that's also a good investor focus as well,
05:35to make sure there is enough liquidity in the secondary market for any bonds that we put out there.
05:40So you don't have any particular commitment to Canadian banks?
05:43Oh, we do not have any particular commitment to Canadian banks,
05:48but I will say we always will look at the Canadian banks first.
05:53Nobody gets a right as of a Canadian necessarily.
05:56They have to demonstrate all of those capabilities.
05:58They have to earn that for sure.
05:59But all of the Canadian banks have demonstrated that they're able to do that,
06:04and all of the Canadian banks have been on our mandates in the past six years.
06:08Great.
06:09How is demand for ESG labels changing?
06:12I think you last issued sustainable bonds in 2022.
06:16Correct.
06:16Will you sell again?
06:18So we have a sustainable bond framework that we keep current.
06:22We annually report against the bonds that you mentioned that we issued in 2022.
06:26When we look in the space, generally, we do see continued pockets of real investor interest
06:33in a labelled bond, sustainable, green, social, what have you.
06:38And so we're going to continue to wash that space.
06:40We're going to continue to keep our framework up to date.
06:42We, as an investor, continue to maintain a sustainable investing policy.
06:47And so absolutely in the future, I would say it's an intention somewhere to keep that going,
06:53but I do not have definitive plans at this point.
06:55And are investors asking for it?
06:57Do you know, candidly, as we've been on the road over the last two years,
07:02the conversation has shifted a little bit more to us as a sustainable investor
07:07and away from a specifically sustainable labelled bond.
07:12And I think that's, you know, you could have a good conversation around the path that that's gone.
07:18As I say, two or three years ago, it used to be, is the bond itself sustainable?
07:23Now it is, Omer's, who are you as a sustainable investor?
07:26I think there's a sign of maturity in that, in that evolution of the conversation.
07:31I see.
07:31So it's not the priorities have shifted.
07:33It's how you demonstrate your commitment.
07:35I think it's how we demonstrate our commitment in a more fulsome sort of way.
07:40Labelling a bond is something.
07:41Us as an investor is something more.
07:43Will you issue in British Pound anytime soon?
07:46Good question.
07:47We are approved to issue in the British Pound.
07:51When you go back to what I said earlier in the conversation,
07:53some of the triggers for what we issue, one of that would be deployment.
07:57And so I think it is feasible that if our real estate teams or infrastructure teams
08:01or some of our other investing teams find a very compelling opportunity in British Pounds,
08:05and then our Treasury team looks and says, we can maybe fund this through cash on hand,
08:10but maybe we want to adopt some leverage for sure.
08:12And personally, I mean, it's not about personally.
08:15I think it would be a lot of fun to try a pound bond issuance.
08:19Are you talking to investors there already?
08:21No.
08:22I mean, we go to London.
08:24And when we go to London, it's usually focused on the three currencies I've mentioned.
08:29Pounds haven't really come up.
08:30We've not gone to Ireland or Scotland or anywhere else that way.
08:34Not yet.
08:35You've been in Asia a lot, though.
08:36We have been in Asia, yes.
08:37Our focus in Asia is partly Australian dollars.
08:42We did an inaugural Australian dollar issuance about a year ago,
08:49and there was good Asian participation there.
08:52And of course, U.S. dollars continue to be a focus for Asian investors as well.
08:55So to the extent we keep going back once or twice a year, I think those two currencies will be at the top of mind.
09:03You own 48% of Bruce Power.
09:06Yep.
09:06And last month, we saw a Bruce Power Generation Infrastructure Trust come out with a $1.5 billion issuance.
09:12Yep.
09:13Can you talk about, for an organization like OMERS, how do you decide whether to issue at the plan level or the company level?
09:21I can talk about the parameters that exist around that.
09:26And so I mentioned before, we limit our top-of-the-house leverage, also called our recourse leverage.
09:32Today, our investment risk policy limits that to 10% of the plan's net assets.
09:37Our credit rating agencies consider that when they award us the ratings that they've awarded us, et cetera.
09:41And so at the very top of the house, we're going to make sure that we're using it for those purposes of deploying into the currencies where we find investing opportunities,
09:51achieving the natural hedge, also complementing the commercial paper program that we have as well,
09:56where we have a $5 billion program that can issue across these currencies.
09:59And we'll take it out of that short-dated floating and put it onto the fixed-rate funding.
10:05And that is managed at the top of the house with our top-of-the-house Treasury team as well.
10:09The investment business units then have their mandates and their responsibilities at the asset-specific level
10:16to determine the optimal capital structure for any particular investment and determine the best way to execute that.
10:23And they're able to do things like you mentioned, that bond issuance from a few weeks ago.
10:27So you don't have a heavy hand in that?
10:30I personally, no. The programs are kept separate on that.
10:33How has your hedging strategy evolved?
10:38On the term notes, we've historically not hedged.
10:42We've historically kept them fixed and kept them in the currencies, as I said, that we raised them.
10:47A little bit more as we think about deploying from an asset mix standpoint,
10:52OMERS is shifting more into fixed income.
10:55And as we do that, we want to make sure we're getting the best benefit of those fixed-income investments
11:01through looking at the duration of the book overall.
11:04The term notes, of course, are contra to that.
11:07And so over the last few years, we have on occasion been hedging the rate exposure on the term notes
11:12to make sure that it's just the all-in spread that we're overall exposed to.
11:15That is not a rule that we do every time.
11:18That is something we decide in the moment, again, with our Treasury and Total Portfolio Management teams.
11:23Do you work with other pension funds in terms of when you want to enter a new market
11:30or how much do you work together?
11:33I would say the relationship amongst the Maple Eight in this term note issuance space is collaborative.
11:40I would say we all have our own objectives, our own programs, our own parameters, etc.
11:44I would say there are some who are out there leading, and there are some who are fast followers.
11:49I'd characterize OMERS broadly as a fast follower and looking and seeing and benefiting
11:54from what some of our peers have done before us.
11:57I'd say, you know, we have good connectivity, and we compare notes after any particular transaction.
12:04But I wouldn't say there's a pre-meeting of all the pension plans before we enter into a new market.
12:10That is a lot more individual.
12:12Yeah, well, comparing notes is helpful.
12:13Yes.
12:14Well, I think we're super efficient.
12:19Very good.
12:20Okay, thank you very much.
12:21Thank you so much.
12:21Thanks, Brendan.
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