Pension funds that were buoyed by soaring stock markets and growing economies that helped produce double-digit returns last year are now being challenged by the escalating trade war between the United States and Canada that is spilling out globally.

“The U.S. economy has been very strong for so long,” Jeff Wendling, chief executive of the Healthcare of Ontario Pension Plan (HOOPP), said. “Will that continue? What will happen with inflation? We run a lot of scenarios.”

Some economists are predicting the U.S. could enter a recession amid the trade war with Canada, Mexico and China, as well as steep cuts to its federal workforce and potentially rising inflation. U.S. stock markets, meanwhile, have been falling amid the turmoil after a strong 2024.

HOOPP, which provides retirement benefits for Ontario health-care workers, reported a 9.7 per cent return on Wednesday for the year ending Dec. 31, 2024. Net assets rose to $123 billion. With the exception of real estate and fixed income, all segments, including private equity and credit as well as infrastructure, turned in double-digit returns last year.

“We do try to build a portfolio that we think is well exposed to different factors and can be resilient,” said Wendling, who has announced he will retire in April.

His successor, Annesley Wallace, will inherit a different set of circumstances than Wendling did five years ago, though he took the reins at HOOPP just as the economic impacts of the COVID-19 pandemic were setting in.

Michael Wissell, HOOPP’s chief investment officer, said the fund’s diversification by asset class and geography positions it to manage upheaval, from pandemics to the current trade-driven uncertainty.

For example, he said the fund is invested in European equities, which were lagging U.S. markets but have begun to outperform. 

“When you go into a moment in time that might be particularly chaotic, if you’ve entered into it with a really diversified portfolio and high liquidity, you just start to take advantage of these situations,” he said.

HOOPP opened an office in London last June to increase exposure to partnerships in the United Kingdom and Europe. 

Still, the fund remains heavily connected to Canada and its economic fortunes. More than $60 billion of HOOPP’s assets — 50 per cent — are invested in Canada and the fund is one of the biggest investors in Canadian bonds, with more than $40 billion in total government bond holdings at the end of December.

Wendling said Mark Carney replacing Prime Minister Justin Trudeau is good for the country because it brings some stability to Ottawa.

“It looks like we’ll probably have an election sooner than we might have otherwise,” he said. “That’s probably a good thing to get some clarity one way or another so as we try to deal with what’s going on in the U.S., we have a new leader with a mandate.”

Wendling said that although Carney, former governor of both the Bank of Canada and the Bank of England, is known to Bay Street, HOOPP’s management is “agnostic” when it comes to which party governs.

But one thing on his wish list for whoever takes the reins in Ottawa next is the return of real return bonds.

In late 2022, the Liberals announced they would stop issuing the popular bonds, which helped pension funds that pay out inflation-indexed benefits balance their assets and liabilities.

The government’s rationale that there was low demand for the bonds was quickly dismissed by senior pension officials, who were outspoken about efforts to get the government to reverse its decision.

Nothing came of those efforts, but Wendling said he hopes whoever is in charge of the next government will reconsider.

“We’re hopeful,” he said. “We were big buyers of Canadian real return bonds.”

• Email: bshecter@postmedia.com

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