Healthcare of Ontario Pension Plan (HOOP) on diversification into ILS & Covid-19

A shift from equities into alternative asset classes including insurance-linked securities (ILS) has helped to cushion the blow of the market volatility seen as a result of the Covid-19 coronavirus for the Healthcare of Ontario Pension Plan (HOOPP).

The latest large Canadian institutional retirement fund to target the insurance-linked securities (ILS) market as a source of diversifying returns, the Healthcare of Ontario Pension Plan (HOOPP) began allocating to ILS recently and it turns out this was a prudent and well-timed move for the pension.

Speaking with the Financial Post, Chief Executive of HOOPP Jim Keohane explained that the financial market volatility caused by the ongoing coronavirus pandemic has dented the pension fund.

“It’s more severe than any stress test we would’ve come up with,” Keohane explained, adding that the HOOP fund remains fully-funded with a small surplus even after the market volatility, with total assets of roughly $95 billion.

Helping in this respect was the fact that HOOPP sold off a significant amount of its exposure to global equities in 2019, shifting the cash recovered into bonds and a range of other asset classes it wanted to grow in, one of which was insurance-linked securities (ILS).

Targeting returns from the reinsurance market, it’s understood that the HOOPP pension has already allocated to at least two ILS funds at this time and has a longer term plan to make more direct investments into collateralised reinsurance as well.

Having posted double-digit returns in 2019, the pension fund is almost certain to come nowhere near that for 2020, unless the market rebounds significantly and the coronavirus outbreak allows the world to get back to normal sooner than many expect it will.

But the shift into some alternative and return driving diversifying asset classes like ILS may prove to been extremely timely for HOOPP, as it has helped to “cushioned the blow” of the current equity market decline.

HOOPP has also been an active buyer of assets sold by institutions that have been seeking liquidity and cash, with Keohane saying that “price dislocation” is playing out to the pension funds advantage.

With capital to deploy, Hoop may have been one of the buyers of the recent and ongoing catastrophe bond sell-off by some generalist investors, although we cannot confirm that at this time.

HOOPP is now weighing its options with respect to bond holdings that are not delivering much return given flat interest rates and could deploy some of that capital into other asset classes.

Now seems an opportune time for the pension fund to build on its initial deployments to the ILS and reinsurance linked asset class, as there are clear buying opportunities right now to support some investors exit needs, while the renewals may see growing opportunity for those who have fresh capital to deploy.

HOOPP employed Bernard Van der Stichele as a Portfolio Manager for its new Insurance-linked Securities investment program earlier this year.