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Ontario Teachers' Pension Plan Board ekes out small return in 'difficult' markets

·3 min read
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otpp-0815

The Ontario Teachers’ Pension Plan Board eked out a 1.2 per cent return in the first half of the year, amid high inflation and “difficult” markets.

Net assets for Canada’s largest single-profession pension grew to $242.5 billion.

“In a tumultuous time for global markets and with the highest inflation rates we have seen in decades, we were able to deliver positive returns for our members and continue to make progress towards our goal of reaching $300 billion in net assets by 2030,” Jo Taylor, the pension manager’s chief executive, said in a statement.

“These results show that diversification, active management and an agile investment approach enable us to generate returns in a wide array of investment environments and position us well to navigate through what is likely to be a challenging investment landscape over the next few years.”

The fund’s one-year net return is 8.3 per cent, with an annualized total-fund net return of nine per cent over 10 years. The return since inception is 9.6 per cent.

Ziad Hindo, Teachers’ chief investment officer, said the latest period’s performance was achieved despite losses in most major stock and bond indices and a high inflationary environment.

“We saw positive returns in our inflation-sensitive, infrastructure and absolute return strategies asset classes, which were partially offset by losses in public equities, venture growth and credit,” he said.

“The fund has benefited from our deliberate efforts over the last 12 months to tilt the asset mix towards those that perform well in inflationary environments, particularly commodities and infrastructure.”

The pension plan was fully funded with a $17.2 billion surplus as of Jan. 1, 2022.

In an interview, Taylor said the first-half return was “below what we would like to be making” but added that he remains confident longer-term returns will keep the pension plan well funded with enough liquidity to take advantage of investment opportunities. 

“Relative to others, these are … good numbers given the environment we’ve been working on trying to navigate the first half of the year,” he said. “But having said that, we see the environment still being quite tricky, and it’s going to be, I think, difficult, certainly in the second half of ’22 and beyond.”

Taylor said Teachers’ private equity business was neutral in a difficult market in the first half of the year, attributable to the performance of individual assets including fairly good performance from recent additions that capitalized on inflation sensitivity and commodities.

“It’s a good sign when we move into new areas they’ve they’ve performed as we wanted them to do,” he said.

In real asset segments, Teachers is looking to new and higher-growth areas to adapt to the challenging market conditions. In infrastructure, this has included recent utility deals with a focus on electrification, the executives said. In real estate, it means looking outside Canada and to segments beyond established office and retail to include multi-family dwellings, and industrial and medical real estate.

Taylor said geopolitical concerns and supply bottlenecks are part of the investment picture, but he added that while some investors in the United States may be retrenching to their home market, Teachers remains committed to investing in global markets including the U.S., Europe, and India. 

“We’ve been trying to balance up really more of an equal weighting perhaps between North America and other markets around the world,” he said. 

Taylor and Hindo said Teachers remain committed to growth targets for its late-stage tech venture platform, launched in 2019, despite a dramatic pullback in tech valuations in public markets.

“We’re pretty agnostic, because if the valuation changes, we’re still happy to back a good company, we just average down the cost of our holding for the amount of equity we hold,” Taylor said. “So we can we can play a long-term game with these businesses probably better than a standard venture fund which may have less capital or might be on a slightly different time horizon.”

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