A 9.7 per cent net return for 2017 has helped the Ontario Teachers’ Pension Plan report a funded status of 105 per cent in its annual report.
Among the highlights of the report was the plan’s intention to use its funding surplus as a contingency fund to support the long-term goal of maintaining steady contribution and benefit levels in the event of adverse market conditions. ”It’s the concept of saving for the inevitable rainy day,” said Ron Mock, president and chief executive officer of Ontario Teachers’, during a conference call on Tuesday.
Last year “marked Ontario Teachers’ fifth consecutive year of surplus. The plan now has 105 per cent of the assets it needs to meet today’s pension promise,” he said.
In addition, the Ontario Teachers’ Federation and the Ontario government filed a valuation Jan. 1, 2017, that restored full inflation protection on all pensions and lowered contribution rates by 1.1 per cent for all active members. Both of those measures were effective as of Jan. 1, 2018.
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“These figures speak directly to the health of the plan and to what members can expect in terms of contributions and benefits,” Tracy Abel, chief pension officer at Ontario Teachers’, said on the conference call.
As for the investments that led the plan to surplus results, the plan made certain changes to its categorizations for its asset classes last year. Newly added was credit as a distinct asset class, which made up $13.6 billion of the plan’s assets at the end of the year. As well, the natural resources segment changed to the broader inflation-sensitive category, which encompasses natural resources, commodities and inflation-hedged assets and totalled $26.6 billion. For 2017, that segment of the portfolio was the poorest performer with a negative return of 3.2 per cent.
When it comes to equities, the mix shifted to the private side, which totalled $31.9 billion at the end of 2017. They surpassed public equities, which totalled $35.2 billion at the end 2017, down from $39 billion the year before. Overall, the equity portfolio posted a 17.6 per cent return for the year.
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Mock emphasized the global nature of the plan’s investment strategy in the future. Specifically, he mentioned investments in Italy, Germany, Hong Kong, Spain, France and China.
“We had notable performance from our European infrastructure portfolio this year,” said Mock.
“It was a year when the value of our global platform really shone through,” he added.
The global nature of the investments does present certain risks, Mock noted. ”We wanted to dampen down some of the risk that currency represents,” he said, noting there was no particular currency that contributed to the negative impact of 1.8 per cent on the fund’s total net return for 2017.
Notably, Mock is now acting as interim chief investment officer for the fund, as Bjarne Graven Larsen has chosen to return to his family in Denmark. Mock noted that was purely a family decision and said there was no tension regarding investment strategy. The search is on to find Graven Larsen’s replacement.