-1- Restrictions on Pension Investing: A Canadian Perspective Michael Nobrega OMERS President and CEO 4 June 2008

2  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 OMERS – Who We Are

3 70cents Investment Income + = $1 Pension Benefits 15cents Employer + 15cents Employee The Challenge The Pension Equation  30% of average pension benefit is funded from contributions  70% is funded from investment income

4 An institutional investor with global reach Investment Profile

5 Significant participation in Infrastructure Private Equity and Real Estate Investment Performance

6 24.9% 21.7% 22.1% 15.0% 57.3% 54.1% 48.1% 42.5% 11.9% 10.3% 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% 2003 Actual 2006 Actual 2007 Actual Target Private Equity Infrastructure Real Estate Public Equity Interest Bearing (includes Real Return Bonds – long term target 5.0%) A Changing Asset Mix Strategy

7 The Pension Investment Rules The Federal Investment Rules RuleDescription 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

8 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

9 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 5 th 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 USA Netherlands UK Japan Australia Canada Italy Germany Sweden Other developing Countries QLR PPR Decreasing Regulation

10 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

11 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)

12 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

13 Questions?