Ontario Teachers’ Pension Plan reported an 11.8% rate of return in 2014.
The plan’s assets hit a record $154.5 billion, up from $140.8 billion at the end of 2013. It had a preliminary funding surplus of $6.8 billion and was 104% funded at the beginning of the year.
“These strong results were achieved in a turbulent investment environment,” said president and CEO Ron Mock, noting that low interest rates and lower oil prices made 2014 a difficult year for investment success.
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He also noted intense competition in private equity is pushing up asset prices.
Teachers’ often partners with other Canadian pension plans or sovereign wealth funds. “But from time to time we’ll find ourselves in competition, depending on what syndicate is pulled together,” Mock said during a conference call.
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However, he added that building relationships has also led to undiscovered deals.
“We have relationships globally because oftentimes relationships will reveal unique deals and unique opportunities that are not necessarily put out to auction,” Mock explained. “And we find that that’s a very important source of good risk-adjusted returns for us as well.”
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Teachers’ will continue its strategy of looking at potential investments from a bottom-up perspective.
He noted the plan doesn’t decide to invest in certain countries or regions because of positive demographic prospects, like India.
“There’s no broad continental theme. We look at where the opportunities really are,” Mock said. “It’s really about getting risk-adjusted returns where we can buy assets that we can hold onto for long periods of time to pay pensions.”
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Here’s a look at the returns by asset class:
- The value of the plan’s public and private equity investments totaled $68.9 billion at year-end, up from $61.9 billion at the end of 2013. The investment return in the equities portfolio of 13.4% matched the benchmark.
- Investments by Teachers’ Private Capital (TPC) increased to $21 billion, compared to $14.8 billion in 2013. Part of the increase was due to 13 new direct investments last year. As well, TPC’s investment return was 22%, above the 16.3% benchmark.
- Fixed income had $65.6 billion in assets at the end of the year, compared to $56.9 billion in the year-ago period. The one-year return of 12.0% compares with a benchmark return of 11.9%.
- Investments in the natural resources group were $11.9 billion at year-end, compared to $10.8 billion at the end of 2013. The one-year return of -19.4% was in line with the benchmark return of -19.8%.
- Real assets had total assets of $34.7 billion at year-end, compared to $30.9 billion at the end of 2013. The real estate portfolio totaled $22.1 billion in assets at year-end and returned 11.1%, exceeding a benchmark of 7.3%. The infrastructure portfolio had $12.6 billion in assets at year-end, up from $11.7 billion a year earlier. Infrastructure’s investment return of 10.1% exceeded the benchmark of 5.9%.