Public Equities Spur 10.2% Return for University Pension Plan Ontario in 2023

Strong gains in public equities helped fuel the University Pension Plan Ontario’s 10.2% investment return for 2023, which raised its asset value to C$11.7 billion ($8.6 billion) from C$10.8 billion a year earlier. This was a sharp turnaround from 2022, when public equities were the UPP’s worst-performing asset class.

“Returns were driven primarily by our return-enhancing asset class, where we were well positioned to benefit from a rebound in public equity,” UPP CIO Aaron Bennett said in the pension fund’s annual report.

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Public equity was by far the top asset class for the UPP investment portfolio for the year, returning 19.5%, followed by absolute return investments, which earned 8.8%. Fixed income returned 7.2%, followed by infrastructure, which was up 6.7%. The fund’s private debt assets gained 6.1%, while its short-term money market and funding assets increased 5.7%.

The portfolio’s real estate and private equity investments were the only asset classes to decline in value during the year for UPP, losing 4.6% and 2.1% respectively.

As of the end of 2023, the UPP investment portfolio’s asset allocation was 41.8% fixed income, 34% public equity, 9.4% absolute return, 6.8% private debt, 5.6% private equity, 3.5% infrastructure, 3.4% real estate, and a -4.5% asset allocation to short-term money market and funding.

Compared with a year earlier, the pension fund lowered its allocation to public equity by 4.4% and cut its private debt and private equity holdings by 1.9% and 0.7% respectively. It also shaved its real estate allocation by 0.3%. At the same time, the pension fund increased its allocation to fixed income and infrastructure by 1.8% and 1.0% respectively, while it raised its absolute return allocation by 0.5%.

The UPP said that with its decreased public equity holdings it redeployed capital into lower-risk assets, such as interest rate–sensitive and inflation-sensitive assets, which it is said are better aligned with its strategy and pension liability. The fund said that in the short to medium term it aims to further diversify its portfolio in line with its investment beliefs, which includes increasing its exposure to private markets and other assets that respond well to inflation.

Looking ahead to 2024, Bennett said he believes inflation, economic growth, and interest rates will moderate relative to current levels; however, he added that “the chance of all three happening in a way that achieves a ‘soft landing’ across major economies may be lower than many expect, which could lead to a more serious disruption in the investing and economic environment.”

UPP, which serves higher education employers in Ontario, was founded in 2021. It serves more than 40,000 from 16 participating organizations, according to the 2023 annual report.