There are seminal moments in any career and Jim Keohane’s is a doozy. He knew something turn out to be as soon as irascible when his lowball offer for Canadian Pacific Railway shares, lobbed in at $1 under the asking notice, turn out to be as soon as staunch now accredited.

It turn out to be as soon as October 1987 and by the time the shares he had traded in one other nation opened on the Toronto Inventory Switch hours later — on what would change into acknowledged as Gloomy Monday — they had dropped a additional $5 per fragment.

Keohane, who will step down next year after a broadly praised 20-year bound as chief funding officer and then chief government of the $79-billion Healthcare of Ontario Pension Opinion (HOOPP), remembers that his loss on that day’s trade turn out to be as soon as painful as markets historically tumbled to a depth and at a accelerate few realizing that probabilities are you’ll presumably presumably factor in, then yet again it turn out to be as soon as a ways from the worst ingredient that came about.

The company where he worked, Wood Gundy & Co., had simply agreed to underwrite a gargantuan inventory yelp by British Petroleum Co. at a guaranteed notice, and the loss precipitated by the market collapse nearly about toppled the unprejudiced funding vendor, and pushed the previously correctly-capitalized 82-year-worn company into the arms of Canadian Imperial Financial institution of Commerce.

“They were making an attempt to safe out of the (BP) deal, but they couldn’t … and they were practically bankrupt,” Keohane recalled at some level of a lengthy and large-ranging interview at HOOPP’s original headquarters on Toronto’s suddenly organising waterfront. “That’s why Wood Gundy did the take care of CIBC, attributable to they were effectively bankrupt.”

What Keohane took from Gloomy Monday and its aftermath turn out to be as soon as a unravel to constantly conjure up a scenario where “the worst case plays out” and to visualise “what that looks to be to be like be pleased” for every funding.

“That turn out to be as soon as rather an insightful expertise with possibility,” he talked about, reflecting on the surprising turbulence extra than 30 years ago and the lesson that stuck with him. “Incessantly that does play out, so you better realize what you’re coming into into.”

Balancing possibility and reward is something Keohane has change into acknowledged for: using sophisticated derivatives to attend kind benchmark-beating returns since 2008, usher HOOPP into the greater echelons as Canada’s fifth-ideally suited public-sector pension, and assign mortgage lender Dwelling Capital Group Inc. alongside the blueprint in which. But as the virtually about 65-year-worn enters his final 9 months accountable, the quiz arises of whether a successor can go the line of possibility administration as efficiently.

At stake are the pension nest eggs of additional than 325,000 energetic HOOPP participants and pensioners that comprise health center workers, community health-centre employees and family health teams.

The flexibility to scan for and discipline anomalies that could presumably also outcome in grief or opportunity has been the principle to Keohane’s success as a pension supervisor, talked about Hugh O’Reilly, who turn out to be as soon as outside counsel to HOOPP’s board of trustees for roughly a decade sooner than turning into chief government of 1 other Ontario pension supervisor in 2015.

“He sees issues sooner than others place,” talked about O’Reilly, now a senior fellow on the C.D. Howe Institute and government-in-location on the Worldwide Pains Institute. Keohane, he added, pairs that capability with an eagerness to request “under the hood” and deeply analyze the nuts and bolts of complex investments.

For example, it turn out to be as soon as Keohane who, as chief funding officer, led the push to turn HOOPP staunch into a felony responsibility-driven funding realizing, per his downside that a simultaneous topple in both inventory markets and interest charges can also doom the fund’s capability to pay out future advantages that had been guaranteed by the outlined-income realizing.

The transition began after the dot-com bust in the early 2000s, and included a shift to broadly use derivatives — at the side of futures, alternate choices and swaps — both as a hedge to limit losses when markets place poorly, and to elongate returns.

The technique helped HOOPP weather the monetary disaster better than other pension funds in Canada and across the sector. In 2008, the fund lost 12 per cent when put next with losses of between 15 and 25 per cent at other gargantuan pension funds, in step with a World Financial institution Group document in 2017.

The fund’s “timely reduction of its equities allocation… in 2007 stable roughly $2 billion in asset rate,” the document talked about.

The purchasing and selling ground of the Toronto Inventory Switch on Gloomy Monday, October 1987. What HOOPP CEO Jim Keohane took from that day and its aftermath turn out to be as soon as a unravel to constantly conjure up a scenario where “the worst case plays out” and to visualise “what that looks to be to be like be pleased” for every funding.

The Canadian Press

O’Reilly talked about HOOPP also looked as if it would comprise the good thing about some prescience in 2009 when it boosted inventory holdings on the time later identified as the bottom and the true time to procure equities.

“In my take into story, Jim is the true pension funding person on planet earth,” talked about O’Reilly, who till March turn out to be as soon as chief government of OPSEU Pension Opinion Fund (OPTrust), which administers the pension realizing of public carrier workers in Ontario.

In the pages of the HOOPP’s monetary statements, there are references to derivatives tied to credit, forex, equity, and interest charges, and terms for devices at the side of alternate choices, futures, swaps, and even “swaptions.”

Keohane has constructed a popularity over time as an professional in controlling and exploiting the monetary devices that won notoriety at some level of the monetary disaster for his or her inherent riskiness and capacity to enlarge both features and losses.

“HOOPP is a top performer both short term and long term,” talked about Canadian pension professional Keith Ambachtsheer.

The fund’s 10-year annualized return is 11.2 per cent and its 20-year annualized return is 8.5 per cent.

In my take into story, Jim is the true pension funding person on planet earth

Hugh O’Reilly

But using derivatives to liberate cash to make investments and generate returns is a technique that has also drawn critics.

Malcolm Hamilton, a retired pension actuary who’s a senior fellow on the C.D. Howe Institute, urged the Financial Submit in 2016 that HOOPP and other Canadian pensions were “levering up and hoping for the true.”

To this level, even though, HOOPP has been prospering under Keohane.

In 2018, the pension’s funded map stood at 121 per cent, that blueprint there turn out to be as soon as $1.21 readily readily obtainable for every buck foremost to pay out a pension. Derive sources, which totalled lower than $20 billion when Keohane joined the pension two a protracted time ago, extra than quadrupled to almost about $80 billion by the tip of final year.

Sitting in a boardroom high in HOOPP’s wise place of job tower on a present spring day in Toronto, Keohane, who lives no longer too a ways away in the tony neighbourhood of Forest Hill, is farther from his childhood dwelling of Ottawa than the kilometres between the two cities would imply.

His youthful brother Ed, a senior vice-president in Financial institution of Nova Scotia’s wealth-administration division, remembers a story relating to the teenaged “Jimmy” — the third of eight siblings — taking apart and reassembling a Toyota Celica attributable to he knew it will topple to him to place any repairs.

“It turn out to be as soon as scattered everywhere in the storage and we were all amazed that he turn out to be as soon as ready to safe it aid together,” talked about Ed, who’s three years youthful than Jim. “At that time we didn’t comprise grand cash — you know, eight children — we needed to fix our have cars. We learned shield watch over and not using a longer deal of beans.”

HOOPP has been prospering under Keohane

Jim and Ed, be pleased their siblings, got phase-time work and summer jobs that included pumping gas and doing outside yard work for Ottawa’s Nationwide Capital Price to pay for his or her submit-secondary training — in Jim’s case, a science stage adopted by an MBA.

“We grew up comely. We didn’t know we didn’t comprise cash,” Ed talked about.

Despite the synthetic of mouths to feed, summers were spent at a cottage on the Quebec aspect of the Ottawa River with their mother, a trainer, who had her first three children inner three years of 1 one other, and went on to waste a university stage phase-time while working.

For the length of his youth, Jim developed a lifelong passion for snowboarding, in conserving alongside with his brother, one which nowadays finds an appetite for possibility that could presumably also seem incongruous for someone who works so scrupulously to manipulate it in his professional existence, even though Ed talked about his brother also revels in a ways-off heli-snowboarding adventures.

“I wouldn’t place it. But he does,” he talked about with a aggregate of terror and downside creeping into his yelp.

The gargantuan family still gathers on the least yearly in the cottage community of Norway Bay, Que., where they summered. The same old occasion is to honour their father at a golf tournament in his reminiscence. Brian Keohane passed away at 61 in 1988, a year after Jim’s formative Gloomy Monday expertise.

Jim Keohane

Jeff Johnson, a protracted-time family pal who would later glimpse out recommendation from Jim Keohane when he turn out to be as soon as brooding about coming into into the pension trade after working in the banking and vitality sectors, remembers Keohane’s mother, Enid, who turns 90 on July 12, stepping in seamlessly as the family’s figurehead after Brian died.

“I’ve worked for six organizations over 35 years, and I did keep up a correspondence to Jim sooner than I joined OPTrust,” Johnson, who’s now director of venture possibility administration on the pension supervisor, talked about. “I simply desired to safe his perspective on this group and safe a strategy of the career and whether he enjoyed it. I’m here, so it’s reflective of how clear that conversation (turn out to be as soon as).”

Johnson still goes to Norway Bay and talked about many participants of the Keohane family comprise sold their very have summer getaways there, but Jim Keohane is striking the finishing touches on a gargantuan retirement dwelling in Caledon, Ont., where he plans to exhaust time alongside with his wife when he retires, between trips they hope to have interaction, be pleased one to Asia earlier this year. The dwelling could even comprise room for his four sons, all now of their 30s, from a old marriage.

“I wouldn’t name him extravagant or anything else be pleased that,” Ed talked about, describing his brother as one more as “very purpose-driven.”

It turn out to be as soon as Keohane’s ambition to rise by the ranks that led him into the sector of derivatives. He talked about he began finding out relating to the subtle monetary devices early in his career, after shifting to Toronto, attributable to he reasoned that organising a uncommon specialization would propel him above the crowd of “junior” bankers in Canada’s ideally suited city.

It turn out to be as soon as Keohane’s ambition to rise by the ranks that led him into the sector of derivatives

The resolution guided Keohane as he moved on to jobs with Pemberton Securities, Royal Financial institution of Canada, HSBC and Deutsche Financial institution sooner than landing at HOOPP in 1999. His first job there turn out to be as soon as to map up a derivatives program.

In March, Keohane urged Pension Pulse blog creator Leo Kolivakis he turn out to be as soon as very jubilant to high-tail away the “poisonous culture of funding banks” to notice up for HOOPP attributable to “after awhile making extra cash doesn’t safe you a ways flung from mattress.”

It didn’t have interaction long, even though, for the classes of Gloomy Monday to guide his resolution-making at HOOPP. Keohane considers it one in every of his career highlights that he turn out to be as soon as ready to guide the pension fund a ways flung from serious exposure to Canadian heavyweight Nortel Networks Corp.

At its peak in 2000, Nortel accounted for extra than a third of the Toronto Inventory Switch’s benchmark index This capability that — and the truth that and Nortel possession turn out to be as soon as also embedded in Bell Canada on the time — the knowledge networking tools producer had attain to symbolize a sizeable chunk of the portfolios of HOOPP and other institutional merchants.

Keohane discovered the concentration “disproportionately high” and paralyzed relating to the impact can also still something high-tail irascible, so he instituted a job to ease Nortel holdings the total blueprint down to lower than five per cent of the portfolio using — no longer surprisingly — a complex map of derivative investments.

“We historical an option technique acknowledged as a costless collar,” Keohane talked about, explaining that build and make contact with alternate choices were bought and sold at costs that fully lined HOOPP’s costs. As Nortel spiralled from high flyer into monetary distress security in 2009 in one in every of the ideally suited corporate disasters in Canadian historical previous, “the build alternate choices we held stable us from taking a loss on these Nortel sales.”

Nortel Networks signage in Ottawa in 2008.

Andre Forget/Sun Media recordsdata

Now, Twenty years into his tenure on the pension fund, and in his seventh year on the helm, he boasts that HOOPP has one in every of the ideally suited derivatives portfolio of any pension in the sector. But he’s snappy to order that the high concentration of derivatives is in simply one in every of the fund’s two portfolios, the one designed to make use of excess funds to glimpse returns. The felony responsibility hedge portfolio, by distinction, is largely made up of bonds and short mounted-earnings investments, as correctly as exact property.

Although praised for his smarts, the job of relaying complicated monetary crucial facets and manoeuvres has no longer constantly been easy. HOOPP is governed by a board of trustees, which attracts its 16 participants from appointees of the Ontario Sanatorium Association and 4 unions at the side of the Ontario Nurses’ Association and the Canadian Union of Public Workers.

“Jim’s model turn out to be as soon as composed and he turn out to be as soon as constantly viewed as being exceptionally tidy and having the pensioners’ ideally suited pursuits at heart, so as that carried him a unheard of distance,” talked about Marlene Puffer, a frail HOOPP trustee who turn out to be as soon as chair of the asset-felony responsibility administration committee at some level of her 9-year term.

“The board turn out to be as soon as constantly, I’d verbalize, confident in the suggestions that were being equipped, but Jim’s composed come also meant that he turn out to be as soon as now and yet again complicated to comprehend.”

Puffer, the critical board member appointed by the health center affiliation with funding and derivatives expertise, turn out to be a translator of forms.

“It turn out to be as soon as constantly a puny droll to see the dynamic in the room attributable to he would keep up a correspondence in the blueprint in which he does, which is (to offer) an especially shimmering solution that I’d realize and maybe a couple of alternative of us in the room would realize,” Puffer explained. “And rather now and yet again my characteristic turn out to be as soon as to have interaction his solution and repeat it in undeniable language. So we had that dynamic going your whole time.”

The board has its work carve out for it now. It’s unheard of shoes to bear

Paul Litner, Osler, Hoskin and Harcourt LLP

The sophistication of HOOPP’s funding technique has resulted in speculation — and a puny of downside — about who will replace Keohane when he formally steps down next March.

“It’s going to be an true yelp,” talked about Paul Litner, head of the pension notice at Toronto-primarily based mostly law company Osler, Hoskin & Harcourt LLP, who also serves as exterior counsel to HOOPP’s board of trustees. “The board has its work carve out for it now. It’s unheard of shoes to bear.”

Even Keohane himself acknowledged — moderately sheepishly — that there are ideally suited one or two managers on the bench at HOOPP who would be logical successors.

Observers outside the pension, akin to Claude Lamoureux, who ran Ontario Teachers’ Pension Opinion from 1990 to 2007 and is conscious of Keohane as a friendly rival, imply he’s no longer simply being modest.

“He’s going to be laborious to replace,” Lamoureux talked about. “He has finished a gargantuan job at HOOPP and … even helped assign (mortgage lender) Dwelling Capital with a line of credit that no one desired to grant.”

Lamoureux and Keohane nearly crossed paths on the board of Dwelling Capital Group, one in every of the few times that has stoked controversy at some level of Keohane’s career.

Lamoureux joined in early Might well possibly also simply 2017 to attend shore up governance on the mortgage lender, which turn out to be as soon as struggling with a disaster of self assurance after the Ontario Securities Price levelled allegations of deceptive disclosure in opposition to Dwelling Capital and a handful of executives.

Keohane had left the board in slack April that year, a switch that turn out to be as soon as presented amid scrutiny of a high-interest emergency mortgage prolonged to Dwelling Capital by a HOOPP-led syndicate of lenders as merchants and depositors fled the scared mortgage firm.

The locations of work of Dwelling Capital in Toronto.

Peter J. Thompson/Nationwide Submit recordsdata

On the time, Keohane defended the mortgage as a consume-consume for Dwelling Capital and HOOPP, and talked about he had correctly recused himself from discussions where there can also had been a warfare.

Koehane extra no longer too long ago added that the pension fund had expertise in the form of lending required by Dwelling Capital, having made an identical, even though much less publicized, loans to other companies.

Puffer, who’s now chief government of the CN Funding Division, which runs Canadian Nationwide Railway Co.’s corporate pension, talked about Keohane “turn out to be as soon as ultimate that there turn out to be as soon as a possibility for a consume-consume” in the Dwelling Capital mortgage, at the side of that everything turn out to be as soon as handled the blueprint in which it must had been from a governance perspective.

“For Jim, unfortunately, the media attention turn out to be as soon as no longer rational … It had roughly build him in a map where no matter what selection of explanation he equipped, it wasn’t going to be fulfilling,” she talked about, alluding to the favored coverage of Dwelling Capital’s regulatory bound-in and subsequent panic. “I feel in the tip, he handled it very correctly and it died down, attributable to it turn out to be as soon as an whole lot. It turn out to be as soon as an even, purposeful transaction.”

Warren Buffett turn out to be as soon as broadly praised as Dwelling Capital’s saviour a short time later, observers notice, when the HOOPP-led lifeline turn out to be as soon as changed with a mortgage from his Berkshire Hathaway Inc. that carried a correctly off — albeit decrease — rate of interest of 9 per cent, plus one per cent on undrawn funds.

Puffer talked about the Dwelling Capital affair highlighted the depth of HOOPP’s deal team, which, combined with sophisticated operations and expertise to withhold song of the myriad funding suggestions, can also still ease the transition from Keohane’s tenure.

To boot, the board has constantly relied on outside advisers with pension expertise to be positive the board is asking the ultimate inquiries to withhold managers serious about providing promised pensions down the boulevard, she talked about.

“It’s a critical ingredient to withhold educating the board, so they’re going to have not any need but to continue to place it attributable to HOOPP’s come is terribly grand, at its heart, reliant on these sophisticated suggestions, and it’s so grand a phase of the DNA of the group,” Puffer talked about.

Many strands of that DNA could be attributed to Keohane, and his successor will inherit that legacy.

“He’s a complicated act to apply,” talked about Ed Keohane, someone who ought to know, echoing many across Canada’s pension trade. “All americans is conscious of him. I safe asked now and yet again if he’s my brother. I proudly verbalize yes.”

Financial Submit

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