A portfolio full of bonds proved to be a boon to the Ontario Teachers’ Pension Plan in Pandemic 2020 as the fund posted an 8.6% return for the calendar year .
The plan entered 2020 with 46% of its roughly $ 200 billion portfolio in fixed income investments – and the asset class returned 20.7%, Teachers revealed Tuesday. That result – driven by long-term debt holdings that skyrocketed in value during the pandemic – was just above what a benchmark portfolio should have been expected to return, teachers said.
This asset allocation helped teachers get ahead of other large Canadian pensions that had invested their money elsewhere. The Ontario Municipal Employees Retirement System – which started the year with 5.5% of its bond portfolio, posted a loss of 2.7% in 2020 because it had no counterweight to property and private investment losses.
“We can’t say we anticipated the pandemic, but we saw that things could be a bit more difficult or turbulent,” said Teachers chief executive Jo Taylor, who has served as the director of the pension a few weeks before the outbreak of the pandemic.
“It was a big advantage for us in 2020.… We had a lot of cash that had rightly been set aside for adverse events, and which served us very well both in defending the portfolio we had, but also have cash to invest in new opportunities as they arise.
Teachers’ bond results helped offset similar problems in his real estate portfolio: he lost 13.7% of those investments, compared to a benchmark loss of 4.7%. A 2.6 percent return on its infrastructure assets underperformed the benchmark by 7.5 percent.
Mr Taylor said teachers were more heavily weighted in retail real estate, such as malls, than other pension plans. “We really think this is a very high quality portfolio, which we want to continue to own, and we expect that to bounce back,” Taylor said. “We have to think about how much.”
The teachers’ infrastructure portfolio includes five European airports, which have been punished in the pandemic by the decline flight. “They have been performing very well for a long time, and we expect air travel to return in due course. It’s probably a slightly longer proposal – it could be in a year or two.
In total, Teachers claims to have underperformed its benchmark by more than two full percentage points by 10.7%. The fund’s four-year return of 7.8% is slightly below its benchmark of 7.9%.
“We’ve beaten the benchmark eight in the last 10 years, so I think overall it’s a solid performance from us,” Mr. Taylor said.
The fund ended the year with assets of $ 221.2 billion. The defined benefit pension plan serves the 331,000 active and retired teachers in the province. Teachers said it closes 2020 fully funded, with a surplus of $ 8.5 billion when estimated future contributions of $ 46.1 billion are included.
Mr Taylor said teachers are investing more money in credit placements – things like corporate bonds and other corporate loans – as well as infrastructure and real estate. It has also increased its investments in its innovation platform, which so far has mainly invested in stocks in disruptive technology companies.
“The acceleration we are seeing in post-COVID digitization is a theme that will remain for a long, long time,” said Ziad Hindo, Director of Investments at Teachers. “So we are excited about [investing] in this space, and we have developed very solid capacities around the world for this asset class. “
Infrastructure assets are “of particular importance to us because [they] provide stable and inflation-linked cash flow, ”Mr. Hindo said. “We are always looking for basic infrastructure assets, but also assets with a climate-smart and climate-friendly theme such as renewable energies and others.”
In a statement Tuesday, Shift Action for Pension Wealth and Planet Health, a group that advocates for less exposure to fossil fuels in retirement portfolios, blamed energy exposure for some of teachers’ underperformance and said said he sees a clear multi-year trend for the pension fund to reduce its allocation to fossil fuel investments in favor of climate solutions.
Your time is precious. Get the Top Business Headlines newsletter delivered to your inbox in the morning or evening. register today.