Strong investment returns of 13% in 2009 were not enough to bolster the fortunes of Ontario Teachers’ Pension Plan (Teachers’), which is now facing unfunded liabilities of $17.1 billion.
The year saw the fund’s assets rise to $96.4 billion, more than four percentage points over its benchmarked return. However, its traditional allocation stalwarts—private equity, infrastructure and real estate—performed poorly and delivered returns below the market benchmarks, according to its annual report.
Falling interest rates heaped more pressure the fund’s bottom line, making it even more difficult to meet its future obligations and pushed unfunded liabilities to levels almost seven-fold over its2008 numbers.
“[Last year] was great from an investment and member service perspective, yet may seem confounding from a funding perspective,” said Teachers’ president and CEO Jim Leech in a statement. “The fund’s preliminary funding valuation shows a $17.1 billion shortfall, resulting primarily from historically low real interest rates, which continue to prevail.”
Still, Teachers’ outperformed its largest peers.OMERS posted a 10.6% investment gain while the Caisse de dépôt et placement du Québec posted returns of 10%.
The fund’s private equity arm has been busy as of late, as it recently acquired the operator of Britain’s lottery corporation and aluminum-container maker Exal Group. However, a falling U.S. dollar has hurt this portfolio, just as the global crisis hammered its infrastructure portfolio by idling large projects and slowing international trade.
The Ontario government and the Ontario Teachers’ Federation have previously agreed that inflation indexing of pensions for future years of service will become contingent on investment returns if necessary. A joint government/teacher committee is expected to table a report this summer on further options for shoring up funding valuations.