Ontario Teachers’ Pension Fund Misses Benchmark with 8.6% Return in 2020

The Ontario Teachers’ Pension Plan Board reported a net return of 8.6%, or C$18 billion (US$14.3 billion) of investment income, for the year ended Dec. 31 to raise the portfolio’s total asset value to C$221.2 billion. However, the return fell short of the plan’s benchmark, which earned 10.7% for the year.

“Our portfolio proved to be very resilient, with many of our companies rebounding significantly from a dip earlier in the year,” Ontario Teachers’ President and CEO Jo Taylor wrote in the fund’s annual report. “Our fixed income and equity asset classes performed particularly well amid ultralow interest rates and strong global equity markets.”

Taylor added that “ample liquidity gave the fund the flexibility to support its companies through the toughest part of the pandemic and pursue attractive opportunities when public markets tumbled.”

As of Jan. 1, the Ontario Teachers’ plan was fully funded for an eighth consecutive year with a preliminary surplus of C$8.5 billion for a funding ratio of 103%. The fund has an annualized net return of 9.6% since inception as of the end of 2020. It also has five- and 10-year annualized net returns of 7.0% and 9.3%, respectively, compared with its benchmark’s returns of 7.0% and 8.5%, respectively, during the same time periods.

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Fixed income was the top performing asset class for the fund in 2020, returning 20.7% and just beating out its benchmark’s performance of 20.6%, followed by public equities, which returned 15.2%, compared with 11.2% for its benchmark. Private equities earned 13.5%, above the 12.3% return of its benchmark, while the plan’s credit portfolio earned 2.6%, beating its benchmark’s 1.5% return.

The plan’s infrastructure portfolio also returned 2.6%, but this was well off its benchmark’s 7.5% return. Meanwhile, the fund’s worst performing asset class was real estate, which lost 13.7%—far more than its benchmark, which lost 4.7%.

The fund’s asset allocation for 2020 was 19% in publicly traded equities, 19% in non-publicly traded equities, 16% in fixed income, 12% in real estate, 8% in commodities, 8% in infrastructure, 5% in inflation hedge, and 4% in natural resources, with the remainder in credit, absolute return strategies, real-rate products, and money market funds. The fund had significantly pared back its fixed-income holding, as bonds only accounted for 8% of the portfolio in 2020, down from 36% in 2019.

“The pandemic highlighted the importance of robust portfolio diversification across different assets, geographies, and sectors,” Ziad Hindo, CIO of Ontario Teachers’, said in a statement. “Our strong results were a result of significant exposure to fixed income and outstanding performance by our public and private equity asset classes.”