Ontario Teachers' Pension Plan Yielded Modest Returns Amid Booming Markets

The Ontario Teachers' Pension Plan (OTPP), one of the largest pension funds in Canada, reported a net return of 1.9% for the year 2023, a figure that stands out due to the fact that it fell short against the backdrop of a surging market. The pension plan, which manages a substantial $247.5 billion in assets, was positioned cautiously in anticipation of a potential recession that did not materialize, causing it to miss the broader market gains experienced by more aggressively positioned investors.

Conservative Approach Amid Market Success

OTPP's conservative stance was evidenced by its reduced involvement in publicly traded equities; such investments constituted only 10% of its entire portfolio. Instead, the focus for OTPP was largely on infrastructure and real estate investments, sectors that later experienced valuation adjustments as a result of rising interest rates. These adjustments together with a continued fallout in certain retail spaces stemming from the COVID-19 pandemic, and regulatory changes affecting European infrastructure projects, contributed to the subdued performance.

Real Estate and Infrastructure Challenges

Within its real estate holdings, particularly challenging was a negative return of 5.9% against a positive benchmark of 2%. Similarly, the infrastructure segment saw a return of negative 2.8% compared to a 7.6% positive benchmark. Reflecting on the investments in real estate and infrastructure, OTPP's CEO Jo Taylor shared that the current prognosis for the real estate sector in 2024 and possibly 2025 is tough, though he mentioned that Canadian real estate, particularly in major cities such as Toronto and Vancouver, has fared relatively better with decent occupancy levels.

Perspective on Home Market Investments

In discussions about whether Canadian pensions should invest more domestically, Taylor highlighted OTPP's ongoing strategy that sees significant investments within Canada, totaling approximately $100 billion, representing 35% of their portfolio. He noted that while less is invested in Canadian listed equities, the OTPP compensates with substantial investments in other sectors such as private equity.

OTPP remains fully funded for the eleventh consecutive year despite the modest returns, retaining a preliminary funding surplus of $19.1 billion, and records a ten-year annualized total-fund net return of 7.6%.

pensions, investing, markets