HOOPP's unconventional approach to investing and risk management
The Healthcare of Ontario Pension Plan has a history of unconventional investment styles and risk management, according to pension expert and KPA Advisory Services founder Keith Ambachtsheer.
“If you look at HOOPP as a pension organization, they’ve been in business a long time, they have a risk management process protocol… they’re a little different from the average pension fund around the world in the sense that they’ve done some interesting, creative, innovative things in how they manage their balance sheet,” Ambachtsheer said in an interview on BNN.
HOOPP agreed to provide a $2 billion line of credit to alternative mortgage lender Home Capital this past week as customers have withdrawn hundreds of millions of dollars from Home Capital’s high-interest savings accounts in the past month.
Controversy stirred as HOOPP CEO Jim Keohane was a Home Capital board member and shareholder around the time of the announcement.
Keohane has since resigned from Home Capital’s board, telling BNN he made the decision once the pension fund engaged in the deal.
The line of credit secured by Home Capital carries a 22.5 per cent interest rate. Ambachtsheer said that’s the premium HOOPP charged to assume the risk.
“If you’re going to create some risk exposure on your balance sheet, you need to get paid for it,” he said. “In this particular case, if that’s the number they came up with, they basically say, ‘this has some risk attached to it, we need to look at this kind of return before we can do this deal.’”
“They’re a little more entrepreneurial than other funds have been in both [equity and debt] markets.”
HOOPP also employs arbitrage strategies, an investing approach typically used by hedge funds.
“They have a liability structure, they have pensions coming due over the next 30, 40, 50 years, and it’s hard to match that on the asset side without some leverage in terms of more interest exposure and longer-term exposure. So part of what they’re doing is actually creating a better match on their balance sheet.”