Despite challenges, Teachers’ 2015 return climbs

Pension fund returns 13% during tough year

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592163_chalkDespite low interest rates, slow global growth and sliding commodity prices, the Ontario Teachers’ Pension Plan (Teachers’) saw its investment return increase in 2015 – a year when Canada’s other top pension funds experienced declines in their investment returns.

The pension fund’s infrastructure and real estate assets were some of the best performers, so the fund says it will continue to invest in those assets despite the recent terrorist attack on Brussels Airport, which it partially owns.

The March 22 terrorist attack on Brussels Airport, which together with another attack an hour later on a Metro station in downtown Brussels claimed the lives of more than 30 people and injured about 300, doesn’t change the pension fund’s view on infrastructure, said Ron Mock, president and chief executive officer at Teachers’, speaking at a press conference in Toronto on Wednesday.

Teachers’ has a stake of 39% in the airport. Despite the tragedy and the damage to the airport, the pension plan will continue to invest in infrastructure because terrorism is simply one of many risks, Mock added. He said Teachers’ still has no information about the monetary value of the damages or about when the airport will reopen.

Teachers’ posted an investment return of 13% in 2015, up from 11.5% the year before. Its net assets climbed to $171.4 billion, compared with $154.5 billion in 2014.

“We are pleased with what we did in 2015,” said Mock.

The real assets portfolio, consisting of real estate and infrastructure, was one of the strongest performers, producing a return of 16%. The portfolio had $40.6 billion in 2015, compared to $34.7 billion the year before. The real estate portfolio totaled $24.9 billion in assets and returned 12.9%. The infrastructure portfolio had $15.7 billion in assets and returned 21.4%.

The pension fund’s private capital investments produced the best return – 32.3%. The value of these investments rose to $28.4 billion in 2015, up from $21 billion a year earlier.

The fund’s stocks returned 17.7% in 2015. The value of public and private equities totaled $77.5 billion, up from $68.9 billion in 2014.

Despite the low interest rates, the fund’s fixed income portfolio didn’t take a hit. “My expectations were not that we would have [5.9]%,” said Bjarne Graven Larsen, chief investment officer of Teachers’, speaking at the same press conference. Fixed income assets increased to $69.1 billion in 2015, compared to $65.6 billion the year before.

But “natural resources really had a difficult year,” Larsen added. Assets shrank to $10.2 billion from $11.9 billion in 2014. They produced a return of -1.3%.

Unlike Teachers’, which manages 80% of its assets in-house, Canada’s other major defined benefit pension plans saw their investment returns decline in 2015.

The Ontario Municipal Employees Retirement System posted an investment return of 6.7% in 2015, down from 10% in 2014. The Healthcare of Ontario Pension Plan saw its return shrink to 5.12% from 17.7% in 2014. And OPTrust, which manages the OPSEU Pension Plan, had a return of 8%, down from 12% in 2014.

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