11.2% rate of return boosts Teachers’ net assets to all-time high of $117.1 billion
But record low interest rates, demographic trends increase liabilities: preliminary shortfall of $9.6 billion projected
TORONTO - The Ontario Teachers' Pension Plan (Teachers') today reported that net assets reached an all-time high in 2011. Its 11.2% rate of return added $11.7 billion to the plan's net assets, reaching $117.1 billion at December 31, despite the crisis of confidence and market volatility that followed the European debt crisis.
Overall, the pension fund earned 1.4% above its 9.8% benchmark, or $1.4 billion in value-added returns (returns above the fund's composite benchmark). Private capital, fixed income and infrastructure were the fund's asset class leaders. Active management has added $53.0 billion to the plan's asset size since inception in 1990. In a report released in 2011, CEM Benchmarking, the world's leading authority on pension plan benchmarking, said Teachers' had the highest 10-year total fund and value-add returns of the pension plans they study around the world.
"Our team's 2011 performance was especially impressive, given the market volatility and economic uncertainty that accompanied the Eurozone debt situation, and was compounded by the year's natural disasters," said Jim Leech, Teachers' President and CEO.
Mr. Leech highlighted that the Member Services division enjoyed similar success, serving more members during the implementation of a record number of plan changes. "We ranked first among our North American peers for exceptional pension service, and have maintained service scores in the 9 out of 10 range for many years," he noted.
Even with this success, however, and the plan sponsors' having raised contribution rates and lowered benefits to balance the fund as of January 1, 2011, the issues of persistent low real interest rates and changing demographic trends continue to affect the plan. "The result is a preliminary $9.6 billion funding shortfall, as of January 1, 2012," said Mr. Leech. "Our liabilities, that is, the projected cost of providing future pensions, continue to outpace our projected asset growth. Accordingly, we are working with our sponsors, Ontario Teachers' Federation and the Ontario government, to advise them on the various options for closing this gap at a reasonable cost."
"Teachers' has a reputation for leadership in investment innovation, service delivery and pension fund governance. I am confident that we can continue to lead the way by helping our sponsors deliver fair, realistic and sustainable pension funding solutions for the long term," he stated.
Asset class summary
The combined value of the plan's public and private equities was $51.7 billion at year-end, compared to $47.5 billion as of December 31, 2010. Private equity assets managed by Teachers' Private Capital totaled $12.2 billion at year-end compared to $12 billion at December 31, 2010. These private investments returned 16.8% for $1.6 billion in value added, compared to a benchmark return of -0.2%. See table >>
Fixed income assets rose to $55.8 billion at year-end, compared to $45.9 billion at December 31, 2010, and returned 19.9%, compared to a benchmark return of 19.5%, for $163.4 million in added value.
The fund's commodities investments totaled $5.7 at year-end compared to $5.2 billion at December 31, 2010, returning -2.3% compared to the -1.5% benchmark return.
Real assets, which comprise real estate, infrastructure and timberland, totaled $25.8 billion as of December 31, 2011, compared to $26.2 billion at the end of 2010.
Infrastructure assets returned 7.7%, compared to a benchmark return of 6.1%, for $176.9 million in added value. Timberland investments totaled $2.1 billion at year-end compared to $2.2 billion in 2010, returning 0.8% in 2011, compared to the 10.2% benchmark. Real estate properties and investments managed by the plan's wholly owned subsidiary, Cadillac Fairview, were valued at $15.0 billion at year-end, compared to $16.9 billion the previous year. The net decrease is primarily due to the issuance of new debt and disposition of our investment in Hammerson plc, offset by an appreciation in value of our real estate assets. The portfolio earned an 18.2% return, compared to a benchmark of 21.8%.
With $117.1 billion in assets as of December 31, 2011, the Ontario Teachers' Pension Plan is the largest single-profession pension plan in Canada. An independent organization, it invests the pension fund's assets and administers the pensions of 300,000 active and retired teachers in Ontario.
Director, Communications and Media Relations
Ontario Teachers' Pension Plan