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By John Heinzl
The Globe And Mail
Report on Business
Tuesday, February 24, 2004
Yesterday's decision by the $32.7-billion Ontario Municipal Employees Retirement Board (OMERS) to lighten up on stocks and bonds will have a negligible impact on markets in the long term, according to money managers who say investors have nothing to fear.
Adrian Mastracci, investment counsel at
Vancouver based ‘fee-only’ KCM Wealth Management, says, “There's no reason for small investors to panic. But, they may want to take OMERS' cue and examine the asset allocation in their own portfolios.”
Following a trail blazed by other pension funds, OMERS said it will try to achieve a bigger bang for its buck by investing up to 35 per cent of its holdings in "alternative assets" such as private equity, infrastructure and real estate, up from 18 per cent currently.
Over the same period, the fund's exposure to publicly traded stocks and bonds will fall to about 60 per cent from 80 per cent, OMERS said.
But OMERS chief executive officer Paul Haggis said the fund has no plans to liquidate massive stock or bond positions. Rather, it intends to gradually shift a greater proportion of new money into alternative direct investments, while still adding to its absolute holdings of stocks and bonds.
"I don't envision selling billions of dollars worth of stock and buying billions of dollars worth of power plants overnight. It's going to be an evolutionary thing," he said. "While OMERS is big . . . I can't imagine that we would affect [market] liquidity that much."
"If they do it slowly . . . they're not going to upset the apple cart very much, if any," said Adrian Mastracci, president of Vancouver's-based KCM Wealth Management Inc.
There's no reason for small investors to panic, he said. But, he added, they may want to take OMERS' cue and examine the asset allocation in their own portfolios. Investors with the requisite knowledge could consider, for example, buying an investment property or investing in a private business.
The push into private equity by OMERS and other pension funds such as the Ontario Teachers Pension Plan Board and Caisse de dépôt et placement du Québec signals that institutional investors don't expect stock markets to continue generating big returns.
"It suggests that they are buying into the view that returns long run from here are likely to be . . . only 7 per cent a year as opposed to say, 10 per cent, historically," said a market strategist who did not want to be identified.
But he said OMERS' decision would likely not have any significant impact on markets.
Ross Healy, president of Strategic Analysis Corp., said history indicates that pension fund activity has little impact on stocks. More important to determining stock prices are earnings and interest rates, he said.
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