March 29, 2017
Ontario Teachers' Pension Plan (Ontario Teachers') today announced it was 105% funded as of January 1, 2017, its fourth consecutive year of being fully funded. Net assets rose by $4.2 billion year-over-year in 2016 to $175.6 billion. The total-fund rate of return of 4.2% exceeded the benchmark of 3.5%, resulting in $1.3 billion in value-add.
"I'm very pleased that Ontario Teachers' remained fully funded for the fourth year in a row despite major challenges in the global economy," said Ron Mock, President and Chief Executive Officer. "Being focused on the long-term, we continue to believe having a highly-diversified portfolio is the best way to pay pensions and minimize funding volatility over time. Last year big swings in global currencies had an impact on the short-term value of Plan assets."
Ontario Teachers' has investments in 37 global currencies and in more than 50 countries. In those local currencies, the return on our investments was 7.2%. Converting the return on those investments back into Canadian dollars, the currency in which pensions are paid, had a -2.8% impact on the Plan's total-fund rate of return. By contrast, currency gains added 8.3% in 2015.
Since its inception in 1990, Ontario Teachers' has achieved an average, annualized return of 10.1%. The five and ten year returns are 10.5% and 7.3% respectively. Total investment income since 1990 has accounted for more than three-quarters of the funding of members' pensions, with the remainder coming from member and government contributions.
"We make investments to pay pensions for generations. Stable returns and capital preservation are essential to our ability to deliver retirement security to our members," said Chief Investment Officer Bjarne Graven Larsen. "Our philosophy is that we will perform better than average by having a deep understanding of what is going on in the world rather than trying to make bold forecasts."
In 2016, Ontario Teachers' began implementing a new strategy aimed at better integrating its accomplished bottom-up approach to asset selection with a well-established top-down risk management process. The strategy focuses on three pillars: total-fund returns, value-add (above benchmark) returns, and volatility management.
Ontario Teachers' continues to show strong performance in pension services, according to two independent, annual studies. The plan's Quality Service Index (QSI), which measures members' service satisfaction, was 9.1 out of 10 in 2016, and the plan was ranked second, by CEM Benchmarking Inc., for pension service in its peer group and internationally.
2016 investment return highlights by asset class
The total value of the plan's public and private equity investments totaled $66.0 billion at year-end, compared with $77.5 billion at December 31, 2015. The reduction from the previous year was partly due to a strategic decision to reduce total portfolio risk by lowering exposure to equities and increasing exposure to fixed income securities. The investment return in the equities portfolio was 4.8%, in-line with a benchmark of 4.9%.
Private Capital investments totaled $26.6 billion at year-end, a slight decrease from $28.4 billion a year earlier. Private Capital's investment return was 4.3%, compared to the 5.4% benchmark.
Fixed Income had $75.2 billion in assets at year-end, compared to $69.1 billion at December 31, 2015. The one-year return of 0.8% was slightly below the benchmark return of 1.0%.
Real assets, a group that consists of real estate and infrastructure, had total assets of $44.3 billion at year-end, compared to $40.6 billion a year earlier. The real estate portfolio, managed by the plan's subsidiary Cadillac Fairview, totaled $26.5 billion in net assets at year-end and returned 7.7%, exceeding the 7.4% benchmark. The infrastructure portfolio had $17.8 billion in assets at year-end, up from $15.7 billion a year earlier. New investments and higher valuations for existing assets were partly offset by the impact of a stronger Canadian dollar. Infrastructure assets delivered a one-year return of 1.4%, outperforming the benchmark return of -2.3% (As country benchmarks are assigned to each asset class, conversion back to Canadian dollars results in a negative benchmark).
Natural Resources investments were $10.5 billion at year-end, compared to $10.2 billion at December 31, 2015. The one-year return of 8.3% was above the benchmark return of 6.7%.
About Ontario Teachers'
The Ontario Teachers' Pension Plan (Ontario Teachers') is Canada's largest single-profession pension plan, with $175.6 billion in net assets at December 31, 2016. It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an average annualized rate of return of 10.1% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region office is located in Hong Kong and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario's 318,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.