Ontario Teachers’ Pension Plan earns 11.8% return for 2014
Net assets hit record $154.5 billion; Pension plan is 104% funded
TORONTO – Ontario Teachers' Pension Plan (Teachers') today announced a rate of return on investments of 11.8% for the year ended December 31, 2014, resulting in an increase in net assets to a record $154.5 billion from $140.8 billion at the end of 2013.
Investment earnings for the year were $16.3 billion, up from $13.7 billion in 2013. Measured against a consolidated investment benchmark of 10.1%, the plan's excess return of 1.7 percentage points resulted in $2.4 billion in value added. Since the plan's inception in 1990, total investment income has accounted for 78% of the funding of our member's pensions, with the other 22% coming from member and government contributions.
"These strong results were achieved in a turbulent investment environment," said Ron Mock, President and Chief Executive Officer. "With continuing low interest rates, intense competition pushing up asset prices, the slide in oil prices and resulting stock-market volatility, 2014 was not an easy year for investment success."
"As Teachers' celebrates its 25th anniversary as an independent organization, our 10.2% annualized rate of return since inception shows the benefits of managing risks and investing for the long term with a global, diversified portfolio," he said. "We will continue to carefully manage the plan's assets to provide retirement security for our members for generations to come."
Teachers' continues to be the leader in pension service among global pension funds, according to CEM Benchmarking Inc., an independent company that measures performance of global pension funds. The plan's Quality Service Index (QSI) was 9.2 out of 10 in 2014. The QSI measures members' satisfaction with the Member Services group, based on survey responses.
Primarily as a result of strong investment returns in 2014, the plan had a preliminary funding surplus of $6.8 billion at January 1, 2015, the second surplus in as many years. The plan was 104% funded at the start of the year, based on current contribution and benefit levels.
Mr. Mock credited the plan's sponsors, Ontario Teachers' Federation and the Ontario government, for taking steps to add flexibility to the plan. The main move in this regard was making inflation protection conditional on the financial health of the plan.
"We remain convinced that an evolved defined benefit pension is the best model, and the least expensive way of providing retirement security. The ability to pool funding, longevity and asset-mix risk across a broad group of people is what makes these plans attractive," Mr. Mock said.
2014 investment return highlights by asset class
The value of the plan's public and private equity investments totalled $68.9 billion at year-end, up from $61.9 billion at December 31, 2013. The investment return in the equities portfolio of 13.4% matched the benchmark.
Investments by Teachers' Private Capital (TPC) rose to $21.0 billion at year-end from $14.8 billion a year earlier. Part of the increase in assets was due to 13 new direct investments in 2014. As well, TPC's investment return was 22.0%, above the 16.3% benchmark.
Fixed Income had $65.6 billion in assets at year-end, compared to $56.9 billion at December 31, 2013. 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 December 31, 2013. The one-year return of negative 19.4% was in line with the benchmark return of negative 19.8%.
Real assets, a group that consists of real estate and infrastructure, had total assets of $34.7 billion at year-end, compared to $30.9 billion at December 31, 2013. The real estate portfolio, managed by the plan's subsidiary Cadillac Fairview, totalled $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%.
With $154.5 billion in net assets as of December 31, 2014, 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 311,000 active and retired teachers in Ontario. For more information, including our annual reports from 2014 and previous years, visit www.otpp.com. Follow us on Twitter @OtppInfo.