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HOOPP Winds Down Its Long-Term Options Strategy

The ten-year-old strategy had recorded losses the past two years, according to the Canadian pension’s annual report on Wednesday.

The Healthcare of Ontario Pension Plan has wound down its long-term options strategy, its 2020 annual report revealed.  

The strategy, which offered HOOPP equity index exposure with equity index options, recorded losses in 2020 and 2019, according to the report.

HOOPP’s broader portfolio posted strong performance in 2020, returning 11.42 percent for the year and beating its benchmark return of 9.8 percent. The pension fund surpassed C$100 billion (USD $79.5 billion) in assets under management for the first time in 2020.  

As HOOPP’s overall portfolio outperformed, the long-term options strategy lost C$31 million in 2020. In 2019, when the total fund gained 17.14 percent, the options strategy lost $C629 million. The strategy had, in some years, returned billions of dollars, past annual reports showed. 

“The strategy was put in place to capture the market dislocations that followed the global financial crisis,” HOOPP CEO and president Jeff Wendling said via email Wednesday. “It had a 10-year time horizon and has now fully matured.” 

The strategy “was one of the major contributors to the return-seeking portfolio” when it was first implemented in 2011, adding C$273 million in value, according to HOOPP’s 2011 annual report.

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The pension plan divides its portfolio into two strategies: a liability hedge portfolio and a return-seeking portfolio.  

In 2020, the liability hedge portfolio, which includes short-term investments, bonds, and real estate, earned C$7.5 billion, according to the annual report. Nominal bonds — those that have mid- and long-term maturities — drove this strategy’s performance, raking in C$5.8 billion.  

Meanwhile, the return-seeking portfolio gained C$3.1 billion for the year. This portfolio, which housed the long-term options strategy, includes equities, private investments, and corporate credit, among other strategies.  

Within the return-seeking portfolio, public equities were the primary driver of returns.  

“In our equity portfolios, HOOPP was able to use market weakness in early 2020 to add significant exposure to selected stocks of companies with strong businesses at attractive valuations,” the report said. “As markets normalized in the second half of the year, these equity positions delivered value to the fund.” 

Over the ten-year period, HOOPP has returned 11.16 percent, and remains more than fully funded, the annual report shows.  

“Being able to achieve these results in such a tumultuous year highlights the resilience of our highly diversified fund and long-term investment management approach,” Wendling said in a statement. “I am proud of what our team was able to accomplish last year for our members.” 

Wendling told Institutional Investor in March 2020 that he expected HOOPP’s portfolio, which was worth C$79 billion at the time, to grow to C$100 billion over time. 

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