HOOPP New Direction: Climate Change, Inflation and Innovation



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In his first interview since becoming CIO, Michael Wissell talks to Sarah Rundell about the development plans for HOOPP’s portfolio, which emphasizes climate change, inflation and innovation while always keeping an eye out across the entire portfolio.

The Healthcare of Ontario Pension Plan, HOOPP, the C $ 104 billion ($ 82 billion) plan for Ontario’s hospital and community health care sector is developing a new envelope for its portfolio of actions that will be less exposed to the negative consequences of climate change – and even more to the energy transition.

This reflects the fund’s ongoing shift to explore how best to incorporate sustainability into its policy portfolio in a shift that new CIO Michael Wissell says reflects the kind of innovation he wants to guide the fund through. years to come.

“We continue to develop our sustainable program in a number of ways and we are delighted to be embarking on this path. “

The stocks will be selected individually by the public stocks team and HOOPP has already developed an internal benchmark. The fund also works with service providers to help make selections and may partner with external funds.

“We haven’t made a decision yet,” said Wissell, who took the lead last month after three years as head of the capital markets and total portfolio division.

The shift to climate opportunities aligns with HOOPP’s guiding mantra of identifying risk and taking action before it happens, a characteristic according to Wissell that is the cornerstone of the fund’s enduring success, encapsulated in 11% returns. over 10 years. For example, wary of the risk to its liabilities associated with the possibility of a long period of very low interest rates, HOOPP developed an LDI strategy in 2007. Recognizing the importance of liquidity and the risk of failing to getting enough, made sure you had enough dry powder to take advantage of low asset prices in March 2020.

As for today, it is not content to simply prepare the fund for “one of the greatest transitions in the history of mankind”. Inflation, now more of a problem than at any point in his 30-year career, is also on the mind.

Prepare for inflation

Preparedness for inflation and the risk that rising prices pose to HOOPP’s large fixed income allocation is prompting the current strategy to reduce the liability-matching portfolio and re-evaluate what has been an element. key to the fund’s investment thesis over the past 15 years. (See Amanda White’s podcast interview with Jeff Wendling Responsible Investing 2.0)

“We have deleted this wallet and it is now as small as it has been for a very long time.”

Rather than having a fixed target or notional amount, the reduction is managed against HOOPP’s liabilities. The portfolio still includes a large position in index-linked bonds which have outperformed, as well as exposure to breakeven points which Wissell says have served the fund well.

However, having fewer nominal on board is now essential. The Canadian CPI is higher than it has been for some time and a risk the fund has always been aware of has taken center stage.

“We have a basic vision in terms of things that could happen and around which we then prepare accordingly. In this conversation, you need to talk about inflation.

The reduction in the bond allocation to better manage the inflation risk is accompanied by a strengthening of the infrastructure allocation. Despite competition for assets, Wissell says HOOPP “sees a lot of exciting opportunity” and the new portfolio is growing “faster” than expected.

Private assets

Apart from inflation, other priorities include continuing to increase HOOPP’s allocations to private assets, where he says the focus will be increasingly on direct transactions. The fund is already a renowned investor in real estate and areas like logistics, and has a lot of dry powder to deploy. While he is increasing his allocation to private assets – via both new investments and the redeployment of capital from investments made years ago – he does not anticipate any disruption in relations with GPs.

“We think we are right; we are not developing our generalists.

Having said that, new people have joined the team (HOOPP is currently looking for a new head of private equity) will of course bring new relationships and the fund is expanding its GP relationships in infrastructure.

“Some of our peer plans don’t use GPs here, but we think they have a role to play and we’ll continue to do so.”

Despite the equity diversification benefits of investing in China and other emerging markets, he questions whether the risk is currently being rewarded enough: HOOPP’s modest exposure relative to its peers’ plans is adequate for now.

“We are looking for opportunities, but it is only when the returns are proportional to the risk that we will add [more Chinese investment] on our investment platform.

The push towards more private assets means dramatically increasing HOOPP’s workforce in an expansion that will also require some degree of innovation. Protecting the fund’s culture and the things that have made the fund successful while moving quickly enough to ensure that the investment team can seize opportunities as they arise requires careful choreography.

A challenge encapsulated in how best to practically house the growing investment team – aiming for a return to power in January 2022 – while maintaining the ideas and creativity born from a tight-knit group.

“To date, the entire investment management team is sitting on one floor, which has had real benefits in terms of culture and ideas. Now that we grow up, that will no longer be possible, ”says Wissell.

The new CIO concludes by outlining his other key priority as he takes the helm. Along with innovating and identifying risks before they arise, it will focus on the entire fund: what the plan does as a whole and the absolute level of return matters most.

“You can focus on adding value, but you should never lose sight of the real performance of the plan. For example, having a total plan return of -5% when you have made 1% is not a good result. “

Asset owner:

Ontario Health Care Pension Plan (HOOPP)

Sarah Rundell is a writer for Top1000funds.com based in London. She writes on institutional investing in all asset classes, global trade and corporate treasury.

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