The returns from private equity assets managed by Teachers’ Private Capital wildly outperformed industry benchmark returns last year, boosting the overall assets of Ontario Teachers’ Pension Plan, the $117bn Canadian retirement fund.
Private equity assets managed by TPC totalled $12.2bn at year-end compared to $12bn at 31 December 2010. These private investments returned 16.8 per cent for $1.6bn in value added, compared to a benchmark return of -0.2 per cent.
This contributed to Ontario Teachers’ overall 11.2 per cent rate of return last year, which added $11.7bn to the plan’s net assets despite the crisis of confidence and market volatility that followed the European debt crisis.
Overall, the pension fund earned 1.4 per cent above its 9.8 per cent benchmark, or $1.4bn in value-added returns, or returns above the fund’s composite benchmark.
Private capital, fixed income and infrastructure were the fund’s asset class leaders, it said. Active management added $53bn to the plan’s asset size since inception in 1990.
However, issues of persistent low real interest rates and changing demographic trends continue to affect the plan.
“The result is a preliminary $9.6bn funding shortfall, as of January 1, 2012,” said Jim Leech, Teachers’ President and CEO. “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.”
The combined value of the plan’s public and private equities was $51.7bn at year-end, compared to $47.5bn as of 31 December 2010.
Fixed income assets rose to $55.8bn at year-end, compared to $45.9bn at 31 December 2010, and returned 19.9 per cent, compared to a benchmark return of 19.5 per cent, for $163.4m in added value.
The fund’s commodities investments totalled $5.7bn at year-end compared to $5.2bn at 31 December 2010, returning -2.3 per cent compared to the -1.5 per cent benchmark return.
Real assets, which comprise real estate, infrastructure and timberland, totalled $25.8bnfor the period, compared to $26.2bn at the end of 2010.
Infrastructure assets returned 7.7 per cent, compared to a benchmark return of 6.1 per cent, for $176.9m in added value. Timberland investments totalled $2.1bn at year-end compared to $2.2bn in 2010, returning 0.8 per cent in 2011, compared to the 10.2 per cent benchmark.
Real estate properties and investments managed by the plan’s wholly owned subsidiary, Cadillac Fairview, were valued at $15bn at year-end, compared to $16.9bn the previous year.
The net decrease is primarily due to the issuance of new debt, Ontario Teachers said, and disposition of its investment in Hammerson, offset by an appreciation in value of its real estate assets. The portfolio earned an 18.2 per cent return, compared to a benchmark of 21.8 per cent.
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