Ontario Teachers' Returns 6.3% in First Half of 2019

The investment portfolio of the C$201.4 billion ($151.4 billion) Ontario Teachers’ Pension Plan rose 6.3% for the first half of the year, increasing its total market value by C$10.3 billion.

“In the first half of the year, we had positive performance across every asset class in our portfolio, led by fixed income,” Ontario Teachers’ CIO Ziad Hindo said in a statement. “Over the last few years, we have been transitioning the asset mix to a more balanced approach from a risk perspective, and as part of this transition, we increased our allocation to the fixed-income asset class.”

As of June 30, the plan’s total investment in fixed income was C$92.8 billion, up from $77.7 billion as of Dec. 31.

“The role of fixed income is simple—it’s to provide us with diversifying returns in times when the global economy slows and we run into a recession,” Hindo said in a media briefing to discuss the mid-year results, “and I think it’s safe to say that over the last year or two we have seen a slowdown in the global economy.”

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As of the end of 2018, the last date for which the pension provides full-year figures, the pension had an annualized total fund net return of 9.7% since inception. The five- and 10-year net returns, as of the end of 2018, were 8.0% and 10.1%, respectively, which surpassed their benchmark returns of 6.5% and 8.1%, respectively.

The plan invests in 35 global currencies and in more than 50 countries, and currency had a negative 1.3% impact on the total fund, resulting in a loss of C$2.5 billion. The loss was mainly attributed to the appreciation of the Canadian dollar relative to various global currencies including the US dollar, the euro, and the British pound.

Based on the plan’s statement of investment policies and procedures, the portfolio allows an asset mix that includes equities to be in a range of 30% to 40%; fixed income to be in a range of 23% to 77%; real assets in a range of 18% to 29%; inflation-sensitive investments of between 11% and 21%; credit of between 3% and 13%; and absolute return strategies of 4% to 14%.

“Our focus is on achieving stable results that help deliver financial security to our members through a variety of market conditions,” said Ontario Teachers’ CEO Ron Mock in a statement. “Our balanced portfolio approach is delivering strong returns that are in line with our long-term objectives.”

In July, the plan named Jo Taylor to be its new CEO and president effective Jan. 1, as Mock announced he would retire at year’s end. Taylor joined Ontario Teachers’ in 2012, and was appointed to his current role of executive managing director, global development, in August 2018.

The Ontario Teachers’ defined-benefit plan invests and administers the pensions of the province of Ontario’s 327,000 active and retired teachers.

Tags: Canada, Ontario Teachers' Pension Plan, Pension, Returns, Ziad Hindo

After a very modest first half of 2019 for the private capital secondary market in terms of fundraising, prospects for the second half of the year are promising as a number of large funds are currently in market, according to financial data and information provider Preqin.

The data from Preqin showed that during the first half of the year, only seven secondaries funds raised $2.4 billion at final close, which is well off the pace from 2018, when funds raised almost $30 billion. The average size of funds closed was also down, falling by more than half to $395 million during the first half of the year, compared to $876 million in 2018.

Preqin said the sharp drop in secondaries fundraising underestimates the overall strength of the fundraising market. The firm said several large funds are currently in market, and many have already held at least one interim close. It said that in total, there are 51 secondaries funds seeking a combined $77 billion, the majority of which plan to focus on private equity stakes.

“Although fundraising has dipped in the first half of the year, it seems to simply be a lull after the record-breaking fundraising volumes seen in 2017-18,” Patrick Adefuye, Preqin’s head of secondaries, said in a statement. “As funds currently in market hold final closes, we would expect fundraising for the full-year to rebound significantly.”

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Adefuye said secondary funds offer attractive returns, and that most have cash flow projections on much shorter timescales than other private capital strategies.

“There are also increasing opportunities for fund managers to put capital to work, although competition is increasing,” he added, “it will be a key test to see if fund managers can maintain returns in the face of pricing pressure.”

On the deal-making side, record transaction volumes from 2018 have continued through the first half the year, with potential buyers outnumbering sellers, said Preqin, which added that the opportunities coming to market are increasingly diversifying from buyout strategies into other areas of the private capital market.

Private and public pension funds each represent the largest proportion (13%) of sellers within the secondary market. And for potential buyers, buyout (68%) and venture capital (58%) represent the largest pools of funds available on the secondary market, according to Preqin.

Preqin said that the secondary market is in a healthy state for the second half, that transaction volume has accelerated, and that it expects the growth to continue. However, it said that this is provided there are no further economic and political shocks, which is certainly no guarantee based on the way the markets have been gyrating this year.

The firm also pointed out that the market has shown strong growth, as only 15 years ago, the largest fund dedicated to secondaries investments totaled $2 billion, while in 2019, the largest secondaries fund being raised has a target of $18 billion. That would be the sixth-largest private equity fund ever raised, according to Preqin. It also said that since 2013, annual transaction volume in the secondary market has grown at a compound annual growth rate of approximately 40% to an estimated $75 billion last year.

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Tags: Patrick Adefuye, Preqin, Private Capital

Ontario Teachers’ Returns 6.3% in First Half of 2019

Private Capital Secondaries Expected to ‘Rebound Significantly’