There are seminal moments in any occupation and Jim Keohane’s is a doozy. He knew one thing used to be defective when his lowball offer for Canadian Pacific Railway shares, lobbed in at $1 below the asking designate, used to be straight accredited.

It used to be October 1987 and by the time the shares he had traded in every other country opened on the Toronto Stock Substitute hours later — on what would become identified as Gloomy Monday — they’d dropped an extra $5 per share.

Keohane, who will step down subsequent twelve months after a widely praised 20-twelve months bustle as chief investment officer after which chief executive of the $Seventy 9-billion Healthcare of Ontario Pension Idea (HOOPP), remembers that his loss on that day’s change used to be painful as markets historically tumbled to a depth and at a crawl few idea imaginable, nevertheless it used to be removed from the worst side that befell.

The firm the put he worked, Wood Gundy & Co., had true agreed to underwrite a huge stock put of dwelling by British Petroleum Co. at a guaranteed designate, and the loss attributable to the market collapse practically toppled the independent investment seller, and pushed the beforehand properly-capitalized 82-twelve months-former firm into the arms of Canadian Imperial Monetary institution of Commerce.

“They like been attempting to derive out of the (BP) deal, nevertheless they couldn’t … and they like been practically bankrupt,” Keohane recalled at some level of a lengthy and broad-ranging interview at HOOPP’s recent headquarters on Toronto’s immediate developing waterfront. “That’s why Wood Gundy did the take care of CIBC, because they like been effectively bankrupt.”

What Keohane took from Gloomy Monday and its aftermath used to be a unravel to always conjure up a scenario the put “the worst case plays out” and to visualise “what that looks as if” for every investment.

“That used to be reasonably an insightful trip with menace,” he mentioned, reflecting on the surprising turbulence more than 30 years ago and the lesson that stuck with him. “On occasion that does play out, so you greater realize what you’re getting in.”

Balancing menace and reward is one thing Keohane has become identified for: the employ of sophisticated derivatives to serve kill benchmark-beating returns since 2008, usher HOOPP into the upper echelons as Canada’s fifth-greatest public-sector pension, and put mortgage lender Dwelling Capital Community Inc. alongside the vogue. But as the practically 65-twelve months-former enters his closing 9 months accountable, the request arises of whether or not a successor can go the motorway of menace administration as successfully.

At stake are the pension nest eggs of more than 325,000 active HOOPP participants and pensioners that consist of sanatorium workers, neighborhood health-centre staff and family health groups.

The capability to scan for and self-discipline anomalies that would per chance most doubtless lead to problem or opportunity has been basically the most important to Keohane’s success as a pension manager, mentioned Hugh O’Reilly, who used to be out of doors counsel to HOOPP’s board of trustees for roughly a decade sooner than changing into chief executive of every other Ontario pension manager in 2015.

“He sees things sooner than others set,” mentioned O’Reilly, now a senior fellow at the C.D. Howe Institute and executive-in-direct at the World Risk Institute. Keohane, he added, pairs that capability with a fervour to witness “below the hood” and deeply analyze the nuts and bolts of complex investments.

For instance, it used to be Keohane who, as chief investment officer, led the crawl to flip HOOPP correct into a liability-pushed investment realizing, primarily primarily based on his wretchedness that a simultaneous drop in every stock markets and fervour rates would per chance most doubtless doom the fund’s capability to pay out future advantages that had been guaranteed by the outlined-earnings realizing.

The transition began after the dot-com bust within the early 2000s, and incorporated a shift to extensively employ derivatives — including futures, alternatives and swaps — every as a hedge to limit losses when markets set poorly, and to compose bigger returns.

Jim Keohane at HOOP’s workplaces in Toronto.

Peter J. Thompson/National Submit

The map helped HOOPP climate the monetary disaster greater than various pension funds in Canada and spherical the sphere. In 2008, the fund misplaced 12 per cent compared with losses of between 15 and 25 per cent at various huge pension funds, primarily primarily based on a World Monetary institution Community document in 2017.

The fund’s “timely reduction of its equities allocation… in 2007 safe roughly $2 billion in asset worth,” the document mentioned.

O’Reilly mentioned HOOPP also looked to like the good thing about some prescience in 2009 when it boosted stock holdings at the time later identified as the backside and the excellent time to defend equities.

“In my inspect, Jim is the excellent pension investment person on planet earth,” mentioned O’Reilly, who except March used to be chief executive of OPSEU Pension Idea Fund (OPTrust), which administers the pension realizing of public carrier workers in Ontario.

Within the pages of the HOOPP’s monetary statements, there are references to derivatives tied to credit rating, forex, fairness, and fervour rates, and phrases for instruments including alternatives, futures, swaps, and even “swaptions.”

Keohane has built a reputation over the years as an skilled in controlling and exploiting the monetary instruments that obtained notoriety at some level of the monetary disaster for their inherent riskiness and doable to magnify every gains and losses.

“HOOPP is a high performer every short length of time and lengthy length of time,” mentioned Canadian pension skilled Keith Ambachtsheer.

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

In my inspect, Jim is the excellent pension investment person on planet earth

Hugh O’Reilly

However the employ of derivatives to liberate money to make investments and generate returns is a capacity that has also drawn critics.

Malcolm Hamilton, a retired pension actuary who is a senior fellow at the C.D. Howe Institute, informed the Monetary Submit in 2016 that HOOPP and various Canadian pensions like been “levering up and hoping for the excellent.”

So a long way, though, HOOPP has been prospering below Keohane.

In 2018, the pension’s funded self-discipline stood at 121 per cent, which map there used to be $1.21 available within the market for every greenback predominant to pay out a pension. Win sources, which totalled not up to $20 billion when Keohane joined the pension two a protracted time ago, more than quadrupled to practically $80 billion by the pause of closing twelve months.

Sitting in a boardroom high in HOOPP’s piquant office tower on a new spring day in Toronto, Keohane, who lives not too a long way-off within the tony neighbourhood of Wooded self-discipline Hill, is farther from his childhood dwelling of Ottawa than the kilometres between the 2 cities would indicate.

His younger brother Ed, a senior vice-president in Monetary institution of Nova Scotia’s wealth-administration division, remembers a story in regards to the teenaged “Jimmy” — the third of eight siblings — taking apart and reassembling a Toyota Celica because he knew it would per chance most doubtless tumble to him to set any repairs.

“It used to be scattered all over the place the garage and we like been all amazed that he used to be in a put of dwelling to derive it serve together,” mentioned Ed, who is three years younger than Jim. “For the time being we didn’t like noteworthy money — , eight younger of us — we needed to repair our like vehicles. We learned easy the vogue to defend up a watch on with not a good deal of beans.”

HOOPP has been prospering below Keohane

Jim and Ed, like their siblings, purchased share-time work and summer season jobs that incorporated pumping gasoline and doing initiate air yard work for Ottawa’s National Capital Price to pay for their post-secondary education — in Jim’s case, a science diploma adopted by an MBA.

“We grew up beautiful. We didn’t know we didn’t like money,” Ed mentioned.

No subject the a lot of of mouths to feed, summers like been spent at a cottage on the Quebec side of the Ottawa River with their mother, a trainer, who had her first three younger of us internal three years of every other, and went on to kill a college diploma share-time while working.

All the scheme in which by his childhood, Jim developed a lifelong passion for snowboarding, primarily primarily based on his brother, one which today time unearths an appetite for menace that would per chance most doubtless honest seem incongruous for any individual who works so scrupulously to manipulate it in his legitimate existence, though Ed mentioned his brother also revels in distant heli-snowboarding adventures.

“I wouldn’t set it. But he does,” he mentioned with a combine of awe and wretchedness creeping into his declare.

The broad family quiet gathers not not up to once a twelve months within the cottage neighborhood of Norway Bay, Que., the put they summered. The identical outdated occasion is to honour their father at a golf match in his memory. Brian Keohane passed away at 61 in 1988, a twelve months after Jim’s formative Gloomy Monday trip.

Jim Keohane at HOOPP’s workplaces in Toronto.

Peter J. Thompson/National Submit

Jeff Johnson, a lengthy-time family friend who would later watch out recommendation from Jim Keohane when he used to be focused on getting within the pension industry after working within the banking and energy 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 discuss to Jim sooner than I joined OPTrust,” Johnson, who is now director of enterprise menace administration at the pension manager, mentioned. “I true wished to derive his standpoint on this organization and derive a sense of the occupation and whether or not he loved it. I’m right here, so it’s reflective of how definite that conversation (used to be).”

Johnson quiet goes to Norway Bay and mentioned many participants of the Keohane family like offered their very like summer season getaways there, nevertheless Jim Keohane is striking the finishing touches on a huge retirement dwelling in Caledon, Ont., the put he plans to employ time alongside with his spouse when he retires, between journeys they hope to spend, like one to Asia earlier this twelve months. The dwelling will also like room for his four sons, all now in their 30s, from a old marriage.

“I wouldn’t call him extravagant or the leisure like that,” Ed mentioned, describing his brother as a change as “very scheme-pushed.”

It used to be Keohane’s ambition to upward push by the ranks that led him into the sphere of derivatives. He mentioned he began studying in regards to the sophisticated monetary instruments early in his occupation, after shifting to Toronto, because he reasoned that developing a uncommon specialization would propel him above the crowd of “junior” bankers in Canada’s greatest metropolis.

It used to be Keohane’s ambition to upward push by the ranks that led him into the sphere of derivatives

The choice guided Keohane as he moved on to jobs with Pemberton Securities, Royal Monetary institution of Canada, HSBC and Deutsche Monetary institution sooner than landing at HOOPP in 1999. His first job there used to be to prepare a derivatives program.

In March, Keohane informed Pension Pulse weblog author Leo Kolivakis he used to be very fully pleased to crawl away the “toxic culture of investment banks” to affix HOOPP because “after awhile making more money doesn’t derive you up and doing.”

It didn’t spend lengthy, though, for the classes of Gloomy Monday to steer his decision-making at HOOPP. Keohane considers it with out a doubt one of his occupation highlights that he used to be in a put of dwelling to steer the pension fund a long way from serious exposure to Canadian heavyweight Nortel Networks Corp.

At its peak in 2000, Nortel accounted for more than a third of the Toronto Stock Substitute’s benchmark index As a result — and the truth that and Nortel possession used to be also embedded in Bell Canada at the time — the solutions networking tools manufacturer had come to indicate a sizeable chunk of the portfolios of HOOPP and various institutional traders.

Keohane came upon the focus “disproportionately high” and nervous in regards to the impact can like to one thing crawl defective, so he instituted a process to ease Nortel holdings down to not up to five per cent of the portfolio the employ of — not surprisingly — a posh set of spinoff investments.

“We frail an possibility map identified as a costless collar,” Keohane mentioned, explaining that attach and call alternatives like been purchased and sold at costs that absolutely lined HOOPP’s charges. As Nortel spiralled from high flyer into economic kill safety in 2009 in with out a doubt one of many greatest corporate screw ups in Canadian historical previous, “the attach alternatives we held safe us from taking a loss on these Nortel gross sales.”

Nortel Networks signage in Ottawa in 2008.

Andre Neglect/Solar Media files

Now, twenty years into his tenure at the pension fund, and in his seventh twelve months at the helm, he boasts that HOOPP has with out a doubt one of many greatest derivatives portfolio of any pension on the planet. But he’s like a flash to expose that the high focus of derivatives is in precisely with out a doubt one of many fund’s two portfolios, the one designed to make employ of excess funds to seem at returns. The liability hedge portfolio, by incompatibility, is basically made up of bonds and transient mounted-income investments, as properly as staunch property.

Even when praised for his smarts, the job of relaying sophisticated monetary important factors and manoeuvres has not always been easy. HOOPP is dominated by a board of trustees, which draws its 16 participants from appointees of the Ontario Clinical institution Affiliation and four unions including the Ontario Nurses’ Affiliation and the Canadian Union of Public Workers.

“Jim’s vogue used to be calm and he used to be always considered as being exceptionally natty and having the pensioners’ excellent pursuits at coronary heart, so as that carried him a lengthy scheme,” mentioned Marlene Puffer, a veteran HOOPP trustee who used to be chair of the asset-liability administration committee at some level of her 9-twelve months length of time.

“The board used to be always, I’d inform, confident within the solutions that like been being offered, nevertheless Jim’s calm scheme also supposed that he used to be veritably inviting to like.”

Puffer, the first board member appointed by the sanatorium association with investment and derivatives expertise, modified into a translator of varieties.

“It used to be always moderately humorous to examine the dynamic within the room because he would discuss within the vogue he does, which is (to give) an especially vivid acknowledge that I’d realize and most doubtless a pair of various of us within the room would realize,” Puffer outlined. “And moderately continually my role used to be to spend his acknowledge and repeat it in undeniable language. So we had that dynamic going the total time.”

The board has its work cut out for it now. It’s mountainous footwear to possess

Paul Litner, Osler, Hoskin and Harcourt LLP

The sophistication of HOOPP’s investment map has led to hypothesis — and moderately of wretchedness — about who will replace Keohane when he officially steps down subsequent March.

“It’s going to be a staunch put of dwelling,” mentioned Paul Litner, head of the pension relate at Toronto-primarily primarily based legislation firm Osler, Hoskin & Harcourt LLP, who also serves as exterior counsel to HOOPP’s board of trustees. “The board has its work cut out for it now. It’s mountainous footwear to possess.”

Even Keohane himself acknowledged — rather sheepishly — that there are handiest one or two managers on the bench at HOOPP who would per chance most doubtless be logical successors.

Observers out of doors the pension, a lot like Claude Lamoureux, who ran Ontario Lecturers’ Pension Idea from 1990 to 2007 and knows Keohane as a nice rival, indicate he’s not true being modest.

“He’ll be laborious to interchange,” Lamoureux mentioned. “He has accomplished a mountainous job at HOOPP and … even helped put (mortgage lender) Dwelling Capital with a line of credit rating that no-one wished to grant.”

Lamoureux and Keohane almost crossed paths on the board of Dwelling Capital Community, with out a doubt one of many few times that has stoked controversy at some level of Keohane’s occupation.

Lamoureux joined in early Can also honest 2017 to serve shore up governance at the mortgage lender, which used to be scuffling with a disaster of self perception after the Ontario Securities Price levelled allegations of deceptive disclosure against Dwelling Capital and a handful of executives.

Keohane had left the board in leisurely April that twelve months, a crawl that used to be announced amid scrutiny of a high-passion emergency loan prolonged to Dwelling Capital by a HOOPP-led syndicate of lenders as traders and depositors fled the unnerved mortgage firm.

The workplaces of Dwelling Capital in Toronto.

Peter J. Thompson/National Submit files

On the time, Keohane defended the loan as a spend-spend for Dwelling Capital and HOOPP, and mentioned he had properly recused himself from discussions the put there would per chance most doubtless like been a battle.

Koehane more honest honest recently added that the pension fund had expertise within the kind of lending required by Dwelling Capital, having made identical, though less publicized, loans to various companies.

Puffer, who is now chief executive of the CN Investment Division, which runs Canadian National Railway Co.’s corporate pension, mentioned Keohane “used to be true that there used to be an opportunity for a spend-spend” within the Dwelling Capital loan, including that every thing used to be handled the vogue it might per chance perhaps probably per chance like been from a governance standpoint.

“For Jim, sadly, the media consideration used to be not rational … It had roughly attach him in a self-discipline the put no subject what kind of clarification he offered, it wasn’t going to be magnificent,” she mentioned, alluding to the in vogue protection of Dwelling Capital’s regulatory bustle-in and subsequent awe. “I deem within the pause, he handled it completely and it died down, because it used to be a true deal. It used to be a true, beneficial transaction.”

Warren Buffett used to be widely praised as Dwelling Capital’s saviour a short time later, observers show, when the HOOPP-led lifeline used to be modified with a loan from his Berkshire Hathaway Inc. that carried a rich — albeit decrease — passion rate of 9 per cent, plus one per cent on undrawn funds.

Puffer mentioned the Dwelling Capital affair highlighted the depth of HOOPP’s deal crew, which, mixed with sophisticated operations and expertise to defend up discover of the myriad investment techniques, can like to ease the transition from Keohane’s tenure.

As well to, the board has always relied on out of doors advisers with pension expertise to make certain that the board is asking the true questions to defend up managers enthusiastic in offering promised pensions down the road, she mentioned.

“It’s a valuable side to defend up instructing the board, so that they’re going to can like to not like any more than just a few nevertheless to proceed to set it because HOOPP’s scheme would per chance be quite noteworthy, at its coronary heart, reliant on these sophisticated techniques, and it’s so noteworthy an component of the DNA of the organization,” Puffer mentioned.

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

“He’s a inviting act to coach,” mentioned Ed Keohane, any individual who must snatch, echoing many across Canada’s pension industry. “All people knows him. I derive asked continually if he’s my brother. I proudly inform certain.”

Monetary Submit

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