The smartest guy in the room: How pension guru worked his magic, beat the market and saved Home Capital

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The smartest guy in the room: How Jim Keohane beat the market, pushed a hospital pension plan to the top and saved Home Capital

There are seminal moments in any career and Jim Keohane’s is a doozy. He knew something was wrong when his lowball offer for Canadian Pacific Railway shares, lobbed in at $1 below the asking price, was instantly accepted.

“They were trying to get out of the deal, but they couldn’t … and they were practically bankrupt,” Keohane recalled during a lengthy and wide-ranging interview at HOOPP’s new headquarters on Toronto’s rapidly developing waterfront. “That’s why Wood Gundy did the deal with CIBC, because they were effectively bankrupt.”

At stake are the pension nest eggs of more than 325,000 active HOOPP members and pensioners that include hospital workers, community health-centre employees and family health teams. The transition began after the dot-com bust in the early 2000s, and included a shift to extensively use derivatives — including futures, options and swaps — both as a hedge to limit losses when markets do poorly, and to increase returns.

“In my opinion, Jim is the best pension investment person on planet earth,” said O’Reilly, who until March was chief executive of OPSEU Pension Plan Fund , which administers the pension plan of public service workers in Ontario. The fund’s 10-year annualized return is 11.2 per cent and its 20-year annualized return is 8.5 per cent.Hugh O’Reilly But using derivatives to free up money to invest and generate returns is a strategy that has also drawn critics.

“It was scattered all over the garage and we were all amazed that he was able to get it back together,” said Ed, who is three years younger than Jim. “At that time we didn’t have much money — you know, eight kids — we had to fix our own cars. We learned how to manage with not a lot of beans.

Johnson still goes to Norway Bay and said many members of the Keohane family have bought their own summer getaways there, but Jim Keohane is putting the finishing touches on a large retirement home in Caledon, Ont., where he plans to spend time with his wife when he retires, between trips they hope to take, like one to Asia earlier this year. The home will also have room for his four sons, all now in their 30s, from a previous marriage.

It didn’t take long, though, for the lessons of Black Monday to influence his decision-making at HOOPP. Keohane considers it one of his career highlights that he was able to steer the pension fund away from serious exposure to Canadian heavyweight Nortel Networks Corp. Now, 20 years into his tenure at the pension fund, and in his seventh year at the helm, he boasts that HOOPP has one of the largest derivatives portfolio of any pension in the world. But he is quick to point out that the high concentration of derivatives is in just one of the fund’s two portfolios, the one designed to use excess funds to seek returns. The liability hedge portfolio, by contrast, is largely made up of bonds and short-term fixed-income investments, as well as real estate.

Puffer, the first board member appointed by the hospital association with investment and derivatives expertise, became a translator of sorts. Observers outside the pension, such as Claude Lamoureux, who ran Ontario Teachers’ Pension Plan from 1990 to 2007 and knows Keohane as a friendly rival, suggest he’s not just being modest.

Keohane had left the board in late April that year, a move that was announced amid scrutiny of a high-interest emergency loan extended to Home Capital by a HOOPP-led syndicate of lenders as investors and depositors fled the troubled mortgage company.

 

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He sure looked like a fool on BNN the one time.

Pension plans shouldn’t beat the market

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