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Here is an excerpt from the Financial Services Commission of Ontario Report dealing with OMERS and DRTP. You can download the entire Report at http://www.omers.com/Assets/Plan+Governance/FSCO+Report+Final.pdf

Scope of the OMERS Examination

FSCO’s examination focused on the management and administration of the Plan and Fund with regard to activities, transactions and investments among OMERS, Borealis Capital Corporation (BCC) and its entities, and the Borealis Executives during the primary review period.

Special attention was paid to investments made in certain identified projects, including the Detroit River Tunnel Project...

The information was collected and the examination undertaken for purposes of determining if the OMERS Plan and the OMERS Fund, in respect of the transactions, activities and investments under consideration, were being administered in accordance with the requirements of the PBA...

5.1.1 Due Diligence

Findings

In its review of OMERS and its activities related to identified transactions and investments, FSCO found that OMERS conducted a significant amount of due diligence before entering into the activities, transactions or investments under review. However, FSCO could not conclude that OMERS obtained advice on PBA compliance matters and whether it thereby complied with its prudence obligation under section 22 of the Act.

Discussion of Findings

In determining whether an investment or transaction met the prudent person requirement in section 22 of the Act, FSCO looked at, among other things, whether OMERS exercised due diligence in researching all aspects of the transaction or investment prior to selecting and/or entering into the transaction or investment, including compliance with the PBA.

FSCO also considered the process, including obtaining legal advice, by which OMERS decided to enter into a transaction or investment, as well as the process by which the decision was implemented...

FSCO looked for documentation that a number of matters had been assessed as a part of OMERS’ overall due diligence, including legal due diligence, prior to undertaking the investment or after undertaking the investment if there had been a change in the structure of the investment. These matters included:

• • The authority to undertake the investment under the Plan, the Fund, the PBA, the Statement of Investment Policies and Goals (SIP&G), and the Statement of Investment Policies and Procedures (SIP&P);
  • The provisions under the PBA applicable to the investment;
  • The applicable quantitative limits of the FIR; and
  • Constraints to the investment including conflict of interest and related party provisions.

In these non-privileged materials, FSCO found that there was insufficient documentation to conclude that OMERS obtained advice related to the matters set out above for certain identified transactions and investments and whether it had, therefore, complied with its obligations under section 22 of the Act.

For example, in the Detroit River Tunnel Project there was an internal 70-page report detailing all the due diligence that was done prior to undertaking the investment. While the report indicated that certain legal due diligence was undertaken, there was no indication that this due diligence related to the PBA and its application to the project. There were files that went to the Board indicating that legal due diligence for purposes of the PBA had been done. However, in FSCO’s view, there was insufficient material for FSCO to independently confirm what due diligence had actually been done in relation to application of the PBA...

With respect to its decision to move into investing in infrastructure, OMERS acknowledged in a press release dated October 1, 1997, that its investment in an infrastructure company was a first for a Canadian pension fund, and that OMERS would look at similar investment opportunities in the future where all factors pointed towards prudent investment of the Fund. With a move into a new field of investment FSCO expected to see: an analysis by OMERS of infrastructure investing with respect to the Plan and PBA compliance; documentation to support the decision made; and changes to the SIP&G prior to any investment in infrastructure being undertaken. The material reviewed by FSCO did not include such documentation and therefore, FSCO was unable to conclude that OMERS met its obligations under section 22 of the Act.