Ontario Teachers’ Pension Sees Strong Returns Yet Rising Deficits

(April 7, 2010) — The Ontario Teachers’ Pension Plan posted a13% return on 2009 investments as a result of gains in fixed income and Canadian stocks, with the value of its assets rising to $96.3 billion.

Despite the strong year, the fund’s shortfall ballooned to C$17.1 billion in 2009, with about C$15 billion of the deficit resulting from historically low interest rates. As plummeting interest rates have made it increasingly difficult to fulfill future obligations, the plan’s deficit was nearly seven times higher than the $2.5-billion shortfall at the end of 2008. Additionally, the plan’s direct investments in companies, infrastructure projects, and real estate that Teachers normally depends on to increase return performed worse than their benchmarks.

“Let’s put it this way: 2009 was a lot better than 2008, and better results,” Jim Leech, chief executive officer of Ontario Teachers’, said in a briefing with reporters in Toronto, according to Bloomberg. “We’ve got this funny thing going on this year: great investment results, yet our deficit continued to go up.”

Ontario Teachers’, Canada’s third-biggest retirement-fund manager, achieved $10.9 billion in investment income in 2009, compared with a net investment loss of C$19 billion in 2008.

The plan is the largest single-profession pension plan in Canada, administering the pensions of 289,000 active and retired teachers in Ontario. The Toronto-based pension manager’s asset mix was 44% in equities, 7% in fixed income and 49% in inflation-sensitive investments such as infrastructure, real estate and real-return bonds at the end of 2009, according to Bloomberg.