2022 Investments Review

HEPP Investment Returns*

The Healthcare Employees’ Pension Plan’s (HEPP) investments returned -7.1% in 2022, following a 12.4% return in 2021. We underperformed our benchmark return of -6.4% in 2022, after exceeding our 2021 benchmark return of 11.13%. Our five and ten year returns were 5.1% and 7.5% and were in excess of our benchmark returns of 4.7% and 6.8% respectively. While in 2021, all asset classes had positive returns, rising interest rates, inflation and the Russian invasion of Ukraine created substantial uncertainty in markets in 2022. Our Canadian, International and US equity portfolios returned -2.8%, -12.9% and -12.5% respectively. Our other asset class returns were 6.4% in real estate, -8.6% in fixed income, and 12.5% in infrastructure. Since its inception, HEPP has had positive returns in 21 of 26 years.

As a result of difficult markets in 2022, the fund’s value fell to $9.565 billion, down from its peak level of $10.335 billion at year-end 2021. Over the past 10 years, our investment returns have added $530 million of value when compared to the Plan’s benchmark returns.

Currently a return of 5.9% is required to fund the Plan’s obligations. The Plan’s exposure to equity-type investments has generated strong returns over the history of the fund. When HEPP was formed in 1997, 10 year Government of Canada bond yields were 6.4%. By the summer of 2020, these rates had fallen to 0.5%, and then closed at 3.3% at the end of 2022. When rates rise, the market value of our fixed income holdings fall.

*Total fund returns are after external management, custodial, and performance fees, transaction costs and operating expenses. Asset class returns are after transaction costs and performance fees but before external management and custodial fees, and operating expenses.

Major Market Returns

Following strong returns in 2021, public market returns were negative in 2022 as investor expectations shifted on macro-economic and global factors. For 2022, both public equity and fixed income markets produced negative returns, as interest rates and inflation rose.

The Canadian equity market returned -5.8% in 2022 following a return of 25.1% in 2021. The US equity market was down -12.2% following a 27.6% return in 2021. International equity markets were also down in 2022, returning -7.8% compared to 10.8% in 2021. Emerging markets returned -13.9% in 2022 after falling -3.1% in 2021. Canadian real estate returned 2.3% for the year following a 7.9% return in 2021. Returns for Canadian real estate sectors once again had a wide outcome: industrial properties rose 17.4%, Multi-Family Residential rose, while retail properties fell -2.9%and office properties fell -5.2%. Infrastructure returns remained firm during 2022.

Government of Canada 10 year bond yields more than doubled from the prior year closing at 3.3% vs. 1.4% at 2021. At the height of the COVID-19 pandemic, in the summer of 2020, rates were 0.5%. The last time rates were at 3.3% was in 2011. Higher interest rates reduce the market value of fixed income holdings, resulting a Canadian bond market return of -11.7% vs. a 2021 return of -2.5%. Rates rose as inflation climbed around the world. The Canadian annual inflation rate rose to 6.3% at year-end 2022 falling from a peak of 8.1% in June 2022. During the summer of 2020, the annual rate of inflation fell to -0.4%. The last time inflation was above 8% was in early 1983.
2022 Major Market Returns

HEPP Asset Mix

Our overall public equity exposure at year-end 2022 fell by 3% to 55.5% from 2021. Public equity and fixed income returns were negative during the year, while our private market asset classes had positive returns. We actively monitor our exposure to equities and our regional allocations to Canadian, US and International equity markets as part of our risk management framework. These allocations will change over time, reflecting fluctuating return expectations and risk profiles.

Our exposure to real estate and infrastructure each increased by about 1.5% during the year. This is largely a result of negative returns in public equity and fixed income markets, while real estate and infrastructure had positive returns, thus increasing their weights in the overall portfolio. We currently hold 5.8% of the fund in infrastructure, with a target weight of 10%. We continue to commit funds for our global infrastructure investment program, which continues to perform as expected. Our real estate exposure at 13.2% is above our target at 10.0%. We are not actively pursuing real estate investments to increase our exposure, but are opportunistically looking at increasing our proportion of non-Canadian real estate.

We now have completed our first calendar year of investment in our private equity portfolio and in 2023 we will commit funds to our private debt portfolio. All of our private market investments are invested over time, meaning that it will be several years before we reach our target allocation.
2022 Asset Mix

Detailed Investment Commentary

Public Equity

We have just over 55% invested in equities. At the end of 2022, most of our equities are publicly traded. We diversify our equity holdings by geography, sector, company size and investment style. At a strategic level, we run Canadian equity, US equity and International equity portfolios. International equity portfolios invest in developed and emerging markets outside of Canada and the US. Within those portfolios, we further diversify by sector, company size and investment style.

Geographic exposure as % of total fund:

  • International equity: 20%
  • US equity: 20%
  • Canadian equity: 15%

Sector exposure as % of total equites:

  • Financials: 19%
  • Industrials: 17%
  • Information Technology: 11%
  • Consumer Discretionary: 9%
  • Energy 9%
  • Materials: 9%
  • Health Care: 7%
  • Consumer Staples: 7%
  • Communication Services: 5%
  • Real Estate: 4%
  • Utilities: 3%

Fixed Income

We have almost 25% of the fund invested in fixed income securities, the majority of which is held in publicly traded securities.

At year-end 2022, our credit exposure as a % of total fixed income was as follows:

  • Canadian Government: 31%
  • Canadian Investment Grade: 39%
  • US High Yield: 30%

We hold Canadian government bonds primarily for liquidity purposes. When equity markets decline we are able to access ready cash to rebalance the overall portfolio.

We hold Canadian investment grade corporate bonds and US high yield securities, as their yield is higher than government bonds, and provides increased return opportunities. Our holdings in the US high yield market are currency hedged to reduce return volatility.

Within our corporate bond holdings, our credit rating exposure is as follows:

  • BBB and higher: 61%
  • B/BB: 32%
  • Below B/Not Rated: 7%

Real Estate

We have just over 13% invested in direct real estate investments. These are private market transactions, which means that the assets are illiquid. In addition to our invested amounts, we have outstanding commitments of approximately 1% of total assets, which will be deployed over the next several years.

Geographic exposure as % of total real estate:

  • Canada: 87%
  • USA: 8%
  • Europe: 2%
  • Rest of World: 3%

Sector exposure as % of total real estate:

  • Office: 29%
  • Industrial: 26%
  • Multi-Unit Residential: 26%
  • Retail: 13%
  • Other: 6%


We have almost 6% invested in infrastructure investments. These are private market transactions, which means that the assets are illiquid. Our long-term target for infrastructure is 10%. As we do with all private market investments, we will invest a certain portion of our allocation each year to minimize what is known as the “vintage year” effect. In addition to our invested amounts, we have outstanding commitments of  approximately 4% of total assets, which will be deployed over the next several years.

Geographic exposure as % of total infrastructure:

  • Europe: 52%
  • North America: 28%
  • Rest of World: 20%

Sector exposure as % of total infrastructure:

  • Energy & Utilities: 50%
  • Communications: 26%
  • Transportation: 20%
  • Social: 2%
  • Other: 1%

Representative industry groups within each sector include:

  • Energy & Utilities: renewables, midstream/storage, integrated/multi utility, gas transmission/distribution
  • Communications: telecom, fibre and data infrastructure
  • Transportation: freight logistics, toll roads, parking, ports, aircraft leasing, EV charging, airports
  • Social: social housing

Private Debt and Private Equity

We have a 5% allocation to private debt and a 5% allocation to private equity, both of which are illiquid asset classes. We will manage the rollout of these programs over several years to manage our “vintage year” risk. We have almost 1% of total assets invested in private equity. In addition to this, we have outstanding commitments of almost 2% that will be deployed over the next several years. 

Currency Management

Our largest currency exposure is in Canadian dollars, representing almost 45% of investments. Our second largest exposure is vs. the US dollar, representing 37%.

We generally do not hedge foreign currencies for our public equity investments.

Our non-Canadian fixed income returns are hedged as currency volatility adds unnecessary risk to our returns for an asset class which is generally defensive in nature.

At the present time we are not hedging our non-Canadian real estate holdings or infrastructure holdings.


Costs for managing investments are typically presented as a percentage of assets under management. For 2022, our costs were 0.50%. This includes external management fees (direct and indirect) and custodial costs as well as operating costs. Our five-year average cost is 0.50%. Generally, publically traded assets have lower fee structures than private market assets. As we increase our exposure to private assets over time, we expect our costs to drift upwards.

Like all large plans in Canada, we have a forward-looking strategy to deal with changes to our business model as our assets grow over time. As part of this strategy, we have adjusted our staffing levels accordingly and have transitioned two public equity portfolios and one public fixed income portfolio from being externally managed to internally managed.


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