Ontario Teachers’ posts 2.5% return for 2018 amid volatile investment environment

The Ontario Teachers’ Pension Plan posted a net return of 2.5 per cent for 2018, down from 2017’s net return of 9.7 per cent.

The pension fund outperformed its benchmark by 1.8 per cent, remained fully funded for the sixth consecutive year and increased its assets by $1.6 billion to a total of $191.1 billion.

“Our balanced portfolio approach helped us navigate one of the most volatile investment environments in recent years, particularly in the last half of last year,” said Ron Mock, president and chief executive officer of the Ontario Teachers’, in a conference call on Tuesday.

On the equities side, the plan lowered its exposure slightly, moving down from 19 per cent in 2017 to 17 per cent of the total asset mix for 2018. Private equity, however, rose slightly from 17 to 18 per cent. The proportion of the plan’s fixed income component rose in 2018, with bonds moving from 22 to 31 per cent of the overall portfolio, while real rate products fell from 11 to 10 per cent.

Ziad Hindo, chief investment officer at the Ontario Teachers’, noted the significant increase in fixed income held by the plan was a defensive move intended to limit the plan’s exposure to potential economic slowdowns. “When markets are turbulent, we protect our capital,” he said during the call, noting there were also rises in yields to take advantage of in the asset class.

Further, Hindo said the plan continues to maintain enough liquidity to allow it to jump on investment opportunities when they appear.

The report’s standout was a strong performance of the pension fund’s alternative asset classes, which resulted in positive returns during a challenging year, he added. “We actively manage our assets with a mix of assets designed to perform well against a variety of economic environments and that is paying off.”

Private equity was the major out-performer, yielding 19.5 per cent. Real assets also performed well, with infrastructure contributing an 8.8 per cent return and real estate 5.8 per cent.

Private equity and real assets are becoming increasingly competitive areas, where more capital is chasing fewer available opportunities, said Hindo, noting the plan is focused on continuing to foster its global footprint to enable strong geographic diversification,

Inflation-sensitive assets stayed roughly the same in terms of portfolio construction, as did real assets, making up 15 per cent and 26 per cent of the portfolio, respectively, in 2018. Meanwhile, credit and absolute-return strategies each rose slightly, to make up eight and seven per cent, respectively.