The Pension Blueprint podcast video transcript

Episode 1: Investing in your pension future

Celine Chiovitti: Hi everyone, and welcome to season two of The Pension Blueprint.

I'm Celine Chiovitti and I'm the Chief Pension Officer here at OMERS. I'm so happy to be co-hosting this season with Jackie DeSouza, who leads our pension communications and engagement team. For this new season of our podcast, we've got 12 all-new episodes with a full slate of incredible guests. We'll be looking at how Canadians are living much longer and what that means for each generation and their retirement journey. We will also look at how OMERS is adapting to ensure that our members' pensions are secure for the long term, and providing great tips that members can use throughout their working and retirement journey.

I can't think of a better way to kick things off than by checking in with OMERS President and CEO, Blake Hutcheson. Since 2018, Blake has been the President of OMERS, and in 2020 he was appointed CEO. That means he's responsible for the overall leadership and performance of the OMERS Administration Corporation. Prior to that, he had a very impressive career, including as President and CEO of Oxford Properties Group, Head of Global Real Estate with Mount Kellett Capital Management, and as Chairman and President of the Canadian, Latin American, and Mexican operations for CB Richard Ellis, the world's largest real estate services company. He's a graduate of Western University, London School of Economics, and Columbia University. Blake sits on the Board of Algoma Central, which trades on the Toronto Stock Exchange and has served on countless other Boards and Committees. And to top it all off, he was named to the Order of Ontario in 2023. I've personally had the privilege of being on Blake's Executive Leadership Team since 2020 and can tell you from personal experience what an inspiring, compassionate, and future-focused leader he is. I think you're going to love hearing Blake's perspective on the global pension landscape and on our investments in Canada, as well as how Canadian funds have positioned themselves to be the envy of many other countries. So let's get to it.

So welcome Mr. Blake Hutcheson to The Pension Blueprint. We are so happy to have you here today. And the last time we had you here, I believe you were actually here about a year ago for our debut episode of The Pension Blueprint. So I'd love to ask you, what's changed in the past year?

Blake Hutcheson: It's a turbulent time, right? And it's geopolitically a turbulent time as Ukraine is not behind us. It's still very real. Middle East is very real. Locally in this continent alone, we had an election this week in Mexico. We have an election this year in the US. Who knows in Canada? Can't be too far away.

And that confuses the whole USMCA agreement. Economies have got some soft spots and some really effervescent spots. So we're finding it's turbulent but not overly problematic. Inflation's high, cost of money's high, but we're figuring out ways to walk between the raindrops. The one thing I know definitively about OMERS is we can't look at what's happening in the short term. And I've lived through so many cycles. I don't get overly concerned about short periods of dislocation. What I do is try to keep my eye on the long horizon because we're a long-term investor. So that means ignoring electoral cycles, it means ignoring data this quarter or next quarter and really trying to remind ourselves why we are here. We've been here for 62 years, paying pensions on time and as planned for 62 straight years. That's our obligation to continue to do it. And often people say, how was the quarter? And I go, I think of a quarter as 25 years, not three months. So I'm going to say yes, it's not an easy time to get it wrong and still be really right. It's not an easy time to navigate some of the heartfelt human things we all feel, but our portfolio is positioned for the long term. I'm trying to see through these short-term blips and really focus on the future of our plan for our amazing 620,000 members. And by the way, thank you for the good work you do on their behalf.

For those of you who don't know, Celine looks after our members day in, day out, she has a team of about 400 people, responding to their every need, every inquiry. You just try to get better and just try to know that if you can make their day better, it makes our whole organization stronger. So keep up the good work.

Celine Chiovitti: Thank you. I appreciate it.

One of my highlights is when we get out on the road together and you do that often, and I know we were just recently in Windsor and in the town of Tecumseh, and I know just being able to see members face-to-face how inspiring it is when you tell them that your pension is safe and you get their stories and are able to sort of move forward. So that's really good.

Blake Hutcheson: No, I love it. I love getting out of our Bay Street office into the streets. Talking to our members, seeing where their pressure points are, hearing their stories. I'm proud to work for them. They're the frontline that run the communities in this great province of Ontario, and those are inspirational moments. And we get asked everywhere I go, it usually goes, nice to meet you. I'm retiring in 10 years, four months, 11 days, six hours. Hey Blake, am I good?

And the truth is, for 62 years we've figured out a way to pay people's pensions as promised and on time and we are going to do everything in our power to make sure that's true. So the answer is, yes, you're good.

Celine Chiovitti: One of the things that we've been talking about here, and we've had this conversation is this sort of phenomena of a greying world. We're getting older and we're living longer. You know our oldest member today is 109 and counting. So going back to the, is my pension going to be here for me? Can you talk a little bit as the CEO of one of the largest Ontario pension plans, how do you think about all that and what are the numbers that you sort of run through your teams?

Blake Hutcheson: Well, the truth is, there is an increasing pressure where we're paying out a little more than we're taking in. And what that means to our portfolio is that we need a little more income than we did five and 10 years ago in the holistic view of how we take in returns. And so returns are calculated by income and appreciation for most assets. And so if you look at a real estate asset, for example, you'll get three or 4% on income and then the appreciation of that asset is six or 7% a year. And the whole return is 10%. But the income component becomes increasingly more important as you manage cash flows for the future. When we look at our plan, what we've been able to do with the portfolio is put more of our equity at work in fixed instruments like bonds, like public credits, like private credits. And that means we get regular dividends, regular interest cheques, and that manages the cash flow day-to-day. We're doing more of that than we used to. And so that's just a slight tilt in the platform to make sure that we're corresponding to the aging population. The good news is this, we've modeled our plan for the next several decades and we don't think there's any scenario. And you can never say never, but there's any foreseeable scenario today that we're going to be anything greater than 2% of our aggregate portfolio in a negative cash position. So if we can generate 2% through our portfolio in cash cash, we can continue to pay pensions through the decades ahead. And that's very manageable given our portfolio, provided we continue to have enough of our assets in the income-producing game, not all value appreciation game. So we've made slight tweaks today, we'll probably make a little larger tweaks 5, 10, 15 years from now. But it's totally a known challenge and it's something we can see through and manage by adjusting our portfolio accordingly.

Celine Chiovitti: I think that is the statement of it's something that you would plan for as a pension plan that naturally wouldn't mature. And the fact that you're thinking about it and know that it's not ever going to be more than 2% and you're actually taking active steps within the investment strategy to manage it.

Blake Hutcheson: No, and it's important and every decision we take is on the strength

of our known liabilities and we know exactly what they are. We run actuarial models and we design our portfolio today to serve those actuarial needs in the future, including in this case cash flow. And as I say, the slight adjustments we're making, will manage our cash flow through the decades ahead.

Celine Chiovitti: So my pension is going to be there when I decide to retire.

Blake Hutcheson: 100%, Celine.

Celine Chiovitti: Amazing.

Blake Hutcheson: Yeah, yours and everybody else's.

Celine Chiovitti: Yes.

I'm going to change trajectories here and talk a little bit about investing in Canada. And so we've heard a lot about this recently about this push for pension plans to invest more in Canada. So I'm going to ask you point blank, do you believe that governments should prescribe more pension plans to invest in Canada?

Blake Hutcheson: Yeah, I think anybody who's been reading the paper lately would know there's a rhetoric or a refrain from a narrow few calling for Canadian pension plans to invest more in this nation. The truth is, Celine, the criticism is not directed at OMERS. If people had done their homework, they would realize that we are very much invested in this province and in this great nation. That we are really a torch-bearer for pension plans in this country for being particularly strong counterparties in the province of Ontario and Canada. And our record speaks for itself and I'm really proud of it. We've got about 25% of our portfolio today in this country. Think about Banff Springs Hotel, Jasper Park Lodge, Chateau Lake Louise, Chateau Whistler. Think about Bruce Power, which we have a 50% investment in, providing 31% of the power to the province of Ontario. We own Teranet, Canada's or Ontario's land registry system and beyond Ontario. It's the definitive land registry system in this province. We own with partners, Yorkdale Shopping Centre, Square One, Scarborough Town Centre, some of the best office assets in Toronto, Calgary, Vancouver. Great businesses through private equity, great investments through ventures. So we have been incredibly supportive of this nation. And by the way, we've been doing well by supporting the best businesses in this country. We have a home court advantage, we really understand this economy. We pay pensions in Canadian dollars, we have deep relationships with the banks, with other partners, with other large investors. So whatever you're reading in the paper, I can honestly say once you do your homework, you'll be proud of OMERS position and nobody, not a government or anybody else, should tell us what we ought to do with our pensions money. Why? Because it's not your money, it's not my money, it's not the government's money, it's our members' money. And that's where it starts and stops. And we will look after our members' money and no one outside should be interceding or telling us how to do that.

Celine Chiovitti: Point well said and well taken. When you think of Canada, are there any, what other opportunities are there that you might be excited about?

Blake Hutcheson: You can always criticize this country. There's 200 countries in the world. On its worst day, Canada's one of the most investible countries in the world. And it is a truly great nation. And when you have top five of oil, top five of gas, top five of any of the primary elements, in agri and food, top five in potable water, top five in most of the critical minerals. And then you say, are we modeling in the world how we can live multiculturally in great contextual ways and demonstrate to the world how we can get along as a society? There are so many reasons why this country is spectacular. And having said all that, there are ways to deploy capital in large markets and small in Canada where I think we can unlock outsized returns and do extremely well. You do that by really understanding your businesses. So we've built an amazing real estate company, as you well know, called Oxford Properties. We built an amazing infrastructure platform, both of which, I'd put these two platforms against the best in the world. We built an amazing private equity ventures and growth team and vertical that's heavily invested in Canada and across Canada. And by being spectacular at what you do and really understanding markets, both dislocations, so you can weigh in and invest in difficult times, but also when to hold back, which we do often. And in this market, we haven't been deploying hand over fist capital because the opportunities don't exist. The bid-asks spread for many assets haven't presented themselves, but we are poised, deeply knowledgeable and very well-disciplined teams who can invest in various pockets. And I think there's opportunity in most provinces and I think there's opportunity in all those asset classes. There's also opportunities in some of Canada's greatest equities. We own significant portions of Canada's banks. We own significant portions of some of Canada's best technology companies.

Celine Chiovitti: Yeah, and you've spoken a lot about the power of diversification, whether it's with asset classes or geographies, and you also invest globally and have teams that are global.

Blake Hutcheson: Yeah, it's funny, somebody early in my investment career said if you want to get wealthy, put all your chips on one square and if you want to stay wealthy, diversify. And so, so much of the philosophy we have for OMERS is to continue as the plan grows to spread our shoulders, to diversify. And so that has meant, we've built, as I say, deep capital markets investment teams, deep fixed instrument bonds, credits, private credits, public credits teams. Deep ventures and growth investment teams, deep real estate, private equity and infrastructure teams. And we've really built, I think, world class platforms. And for the first, from 1962, when the plan started with $4.8 million by the way.

Celine Chiovitti: Ooh, million, million.

Blake Hutcheson: When OMERS started, $4.8 million, 12 employees, 136 different municipalities back in the day, to today, $130 billion, that's with a B, with 3,000 employees, with 1,000 employers, 444 municipalities. We've come a long way.

Celine Chiovitti: We've come a long way.

Blake Hutcheson: And when we first started to invest, we were primarily domestic, and we primarily outsourced and hired others to deploy our capital and we paid them big fees. And then really in the 1990s, we started to develop our own internal strengths and woke up just after the turn of this century with a very strong discipline group here in Canada. And then the question is, to your point, strong in Canada, now we have to go global. So we set up an office in New York, we set up an office in London, we set up an office in Paris, we set up an office in Singapore, we set up an office in Sydney. Today, we have 14 global offices operating in and around 10 time zones. And so that allows us geographic diversity. We've got discipline, vertical diversity. And the longer and better we are competing with the best in the world and broadening our shoulders, the more, as I say, we can weather the storm and see through cycles and make sure we jealously protect the capital of our 620,000 people, which is our job number one.

Celine Chiovitti: I had that privilege of listening to you at the Empire Club where you talked about your career and you gave some lessons learned and also talked about just resilience and leading through over, I think 25 years as a CEO. And so what words of advice would you give others and just how do you get through some of the tough times and some of the noise that's always out in the environment?

Blake Hutcheson: It's funny, we often, you and I, when we talk to our Board, we remind them when you have an enterprise as far flung as ours with literally 850 real estate assets, 30 big infrastructure assets, 25 big private equity assets, 150 investments in various equities of ventures and growth. The list goes on and on. Billions in the markets in any given day, it's like having 1,000 children. And when you have 1,000 children, clearly some are going to be in trouble, some are going to be sick, some are going to be making the team, some are going to be crushing it, doing extraordinarily well. And so we have to stay calm and we have to remind ourselves that there will be, and the press tend to focus on the five problem children every day. And that's just life, it comes with the territory. But we can't overreact, we have to stay calm. We have to, frankly, love all our children and we have to really not so much focus on the extraordinary winners or the few that are in the penalty box. But the vast, vast, vast majority, and I'm pleased to say the vast majority of our children are doing extremely well and as hoped and as planned.

Celine Chiovitti: Yeah. At the height of your career, responsible for a $130-billion pension plan and your team and 600,000 members and your family, and what do you do to take care of your mental health?

Blake Hutcheson: I am blessed to have an incredible mate in Sue. I'm blessed to have an incredibly supportive and deep and big family who keep us all humble and keep us all reminding ourselves what's important in life. And so I think foundationally, I'm really fortunate and my kids today are in good health and my family are in good health. So I never take it for granted, but I know it helps contribute to my ability to go to work every day, sometimes 20 hours a day. And I've tried to, over the course of my career, keep a healthy balance. I'm not anywhere close to perfect at it, and I've really, generally speaking from 8:00 AM Monday morning 'til 8:00 or 9:00 at night Friday, I know I'm on call to work and there's no expectation that if I need to do anything, any day, all day I'm available. I try to, on the weekends, protect some time with the family and read things that aren't related to the business and go for runs and stay as fit as possible. Early in my life I was taught by a mentor that there's a time to get educated, there's a time to work extraordinarily hard, and there's a time to give back. And I think that's true, but I've never felt that those three happen in three blocks. I think they happen with significant concentric circles. So my whole life, I'm a student, I'm always reading, I am always working, but I also try to find ways to give back and ways to try to help my community and others who aren't as fortunate as I am. And so my world is quite blended where I'm constantly trying to learn. I'm constantly working and I'm constantly trying to give back. Because I don't want to wait and do it in three chunks of 30 and be all-in in one place or another. I want to try to make that a lifetime commitment to do all three for as long as I have the good health to do it.

Celine Chiovitti: That's wonderful. That fits right into our thinking about how the lifecycles are changing. And so it's no longer three stages. It's how do you do everything over potentially 100 years? And your father, I believe is 97 this year?

Blake Hutcheson: My father is, yeah.

Celine Chiovitti: And a great role model.

Just tell us a little bit about how he's doing.

Blake Hutcheson: No, he's like, we feel pretty blessed. He's not without his issues, but he's mentally as lucid and high-functioning as he was when he was 35. He is in extraordinarily good health. He did break the World Book of Records for water skiing when he was 93, I believe.

Celine Chiovitti: 93.

Blake Hutcheson: And still snow skis at 97. So I do feel blessed that he's so healthy and he is a role model, not just in the way he's taken life to a higher level by staying active. But he's been a really hardworking, really genuinely decent, family-oriented person. And I think he's a hero to me.

Celine Chiovitti: That's wonderful. And I've met your wife, Sue, who's just the loveliest, loveliest person and I know you also play lacrosse with childhood friends, so I think you've got it covered as far as those social connections and care. So that's great to hear.

Blake Hutcheson: Thank you.

Celine Chiovitti: So I'm going to, my final question to you if you want to go there is, let's talk a little bit about 2030. And I know you've been thinking about and putting together our OMERS 2030 strategy. Do you want to share a little bit about that today?

Blake Hutcheson: I'm happy to although we haven't had this strategy approved by the Boards, as of yet, so it's a little premature to get into detail. But I'm happy to share the overarching five points which characterize the strategy for 2030, which I think are five points that can resonate with most people. And as you know, what our OMERS strategy is, is we do a detailed strategy usually every five years.

It's often hundreds of pages. It's a deep dive on our investment portfolio, on your area of the business, on everybody that supports those areas of the business. So it's a big document, it's very thoughtful and it has a lot of math, a lot of science, and it really tells us where we're headed. But very, I'll say superficially in the interim, remember one, two, three, four, five.

One means we will be a 100% plus funded between now and 2030. Today we're about 97% funded, as you know, which is about 10% better than it was 10 years ago. So we've taken the funded status from I think low 84% to about 97% in the last 10 or 11 years. And the trajectory is terrific. So the first thing, first plan is to make sure we're 100% funded by 2030.

The second is today we have $130 billion of our own assets. That will be $200 billion between now and 2030. With reasonable growth and a reasonable economy, we can see building the 130 to a $200 billion equity portfolio for our members. So that's a 65% growth, which is significant. And what it means to our employees, as you know, we have about 3,000 employees, is they're part of something that's going to grow almost 65% in the next five or six years as we continue to diversify, continue to invest, and continue to try to find ways to unlock value for the pensioners.

Three is three continents. We're really focused on three continents and there are 200 countries in the world. We can't even think about that kind of diversification. We have to be great at what we do. So we focused on about 12 countries in three continents and actually within those countries, specific cities, specific disciplines where we know we can compete with the best of the best. So we'll be very active and very strategic in those various countries. And three continents. And people ask, what are the three continents we're focused on? It's, of course, North America, so Canada and the US. It's Europe, and then we call it our Asia-Pac region. We have an office in Singapore, we have an office in Sydney, and it's primarily India and Australia directly and that region through equities and investments of that nature. So it's North America, it's Europe and Asia-Pac.

Four stands for $400 billion of assets under management. So if we have $200 billion of equity, we layer on some debt because some of our portfolio is leveraged and plus we manage a lot of third party capital for others. Oxford, for example, has, I think over $40 billion of other people's money, which they manage on their behalf. And actually when I do the numbers that $400 billion could be a lot closer to a half a trillion. So we're going to be, we OMERS, almost a half a trillion dollar enterprise between now and 2030, which again gives people a lot of reason to wake up in the morning knowing they're part of something that's so significant. And that collectively with that responsibility, we can take and just do that much better for our members.

And five is, we call it a 5% real return. When we achieve a 5% real return, the actual funded status could be closer to 107%. And the difference between real and nominal returns is a nominal return, as I said, the last three years we've had an 8% return. Some of that's inflation. So nominal takes into consideration inflation, real takes out inflation. So we can do as well as we have in the last three years, for example, we think we'll be 107% funded somewhere in that neighborhood.

So, one, two, three, four, five.

So 100% funded, $200 billion of assets, dominant in three continents, over $400 billion of AUM, and our five yield will make sure we have a big cushion in our funded status. I think it's something to be excited about. It will not come easily, but with the team we've assembled and the energy we have and the confidence we have in the future of this organization, I think we'll get there.

Celine Chiovitti: I'm confident we'll get there, one, two, three, four, five.

Blake Hutcheson: That'll give you a quick snapshot as to what we're dreaming about for 2030 on behalf of our 620,000 members.

Celine Chiovitti: Well thank you for giving us a sneak peek into that. That's great. And thank you for taking the time to visit with us. I think our next, we're back out on the road sometime soon. I think we're going to go to the Muskoka area, so that'll be fun.

Blake Hutcheson: Good idea.

Celine Chiovitti: Yeah.

Blake Hutcheson: Good idea.

Celine Chiovitti: Yeah, we'll visit Huntsville.

Blake Hutcheson: Inspire.

Celine Chiovitti: We'll definitely visit Huntsville.

Blake Hutcheson: I like it, I like it.

Celine Chiovitti: Thank you, Blake.

Blake Hutcheson: Thank you. Keep up the good work and thank you for this opportunity.

Celine Chiovitti: Thank you.

Blake Hutcheson: Yeah, thank you.

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