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Restrictions on Pension Investing:

A Canadian Perspective

Michael NobregaOMERS President and CEO

4 June 2008

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Formed in 1962

Defined Benefit pension plan for local governments in Ontario

Jointly sponsored and funded public sector plan

380,000 members (including 103,000 retirees); 906 employers

Small actuarial surplus ($80MM)as at Dec/07

Net assets of over $51 billion as of Dec/07

Fund returns: 8.7% in 2007, 13.7 average in 2005 - 07

OMERS – Who We Are

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70centsInvestment

Income+ =$1

PensionBenefits

15centsEmployer

+15centsEmployee

The Challenge

The Pension Equation

30% of average pension benefit is funded from contributions

70% is funded from investment income

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An institutional investor with global reach

Continent% of Fund

Canada 61.0%USA 18.8%Europe 14.5%Asia 4.9%Australia / Oceana 1.0%South America 0.6%Africa 0.2%

Investment Profile

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Significant participation in Infrastructure Private Equity and Real Estate

Investment Performance

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Investment Performance

24.9%21.7% 22.1%

15.0%

57.3%54.1%

48.1%

42.5%

11.9%

10.3%12.5%

12.5%

7.9%9.9%

20.0%

6.0% 7.4% 10.0%3.1%

2.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003Actual

2006Actual

2007Actual

Target

Private Equity

Infrastructure

Real Estate

Public Equity Interest Bearing(includes Real ReturnBonds – long termtarget 5.0%)

A Changing Asset Mix Strategy

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The Pension Investment Rules

The Federal Investment Rules

Rule Description

5% Rule Invest 5% or less of fund’s book value in single parcel of real estate or Canadian resource property

10% Rule Invest no more than 10% of fund’s book value in any one entity

15% Rule Invest 15% or less of fund’s book value in Canadian resource properties

25% Rule Invest 25% or less of fund’s book value in aggregate in real estate and Canadian resource properties

30% Rule Can only own 30% or less of shares eligible to elect corporate board

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The Pension Investment Rules

Rationale for the Rules

Rules exist to ensure pension funds are properly invested

Quantitative limits derive from historic “legal list” approach to regulating insurance

Limit risk of exposure to single company/sector

Ensure that pension funds remain passive investors focussed on plan administration

“Prudent person” standard added to PBA in 1990

Rules “harmonized” in 2000

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The Pension Investment Rules

The Global Picture

Internationally, pensions are regulated along a continuum between prudent person rules (PPR) and quantitative limit rules (QLR)

- Fewer quantitative limits allows for increased competitiveness

Canada ranks 5th in the world in pension plan assets managed but is in the middle of continuum between PPR and QLR

- Large Canadian plans are at a competitive disadvantage over large plans in USA, Netherlands, UK

USANetherlands

UKJapan

AustraliaCanada

Italy

GermanySweden

Other developing Countries

QLR

PPR

Dec

reas

ing

Reg

ulat

ion

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The Pension Investment Rules

Impact on Canadian Pension Plans

Impose burdens and costs Significant additional costs and intellectual capital

required to ensure compliance

Canadian pension funds losing out on opportunities to plans and investors from other jurisdictions

Lower investment returns (estimated between 30 – 90 bps)

Passive investment strategy inconsistent with goal of an optimal pension delivery organization May result in challenges to meet future actuarial liabilities

Has been shown to create intergenerational inequity

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The Pension Investment Rules

What is Being Done About the Rules?

Active Campaign Under Way

Industry leadership in seeking allies for reform

Conducting research on the impact of the rules

Making the case to government for reform

Seeking an immediate exemption (provincial government)

Working for longer term reform (Ontario Expert Commission + federal government)

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The Pension Investment Rules

OMERS Submission to the Ontario Expert Commission on Pensions

Recommendations:

Exempt jointly-sponsored pension plans from quantitative investment rules

Amend PBA to consist of fundamental principles

Exempt public sector pension plans from solvency funding requirements

Provide increased authority and enhanced role for FSCO

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Questions?