Ontario Teachers Pension Plan CEO aims for a bolder, ‘entrepreneurial’ future

Open this photo in gallery:

Jo Taylor, CEO of Ontario Teachers’ Pension Plan for the past 18 months, wants the fund manager to be bolder. More entrepreneurial. Dare we, or he, say it: ballsier.

“Teachers has had a history of being quite ballsy, right, at times,” Mr. Taylor said Wednesday in his first lengthy Canadian interview. “Look at when it bought [real estate company] Cadillac Fairview. That’s a pretty brave bet, but it did it many years ago. And the returns we made from Cadillac Fairview have been great over a long period of time.”

Mr. Taylor said the fund’s history can be broken into three stages. The first, under founding chief executive officer Claude Lamoureux and chief investment officer Robert Bertram, was “where they were very entrepreneurial, kicking things off super well in terms of growing the business.” Next came CEOs Jim Leech and Ron Mock, “who were basically professionalizing and systemizing the business, in no small measure prompted by the global financial crisis.”

“And my job, I think, is to say, well, what’s next for Teachers?” he said. “And I do see that as really trying to make sure it’s a great international investing institution. But also I think it’s bringing some entrepreneurial spirit back into the business, because we need that to be able to pivot to find the right places to invest and also make sure we’ve got the risk culture to actually try things out.”

Open this photo in gallery:

In a way, Mr. Taylor is an outsider insider, an internal successor who’s spent little time on Bay Street. Teachers announced Mr. Taylor as the incoming CEO in July, 2019, after he’d spent little more than a year as the pension’s head of international investing.

A native of Britain, he’s been at Teachers since 2012, when he joined the pension to lead its Europe, Middle East and Africa operations. (His name “Jo” is a derivation of Jonathan, the name his mother gave him, subsequently tweaked on childhood playgrounds because of the A.A. Milne poem “Jonathan Jo,” in which the titular character “has a mouth like an ‘o.’”)

“I’m not Canadian, so I’m actually coming at it from a slightly different perspective,” he said. “I hope that’s actually helpful because I can be direct, honest and challenging within the organization. Sometimes you can feel hamstrung because you’re part of the community. ... I think we don’t always say what we think. So I’ve pushed really hard for a bit more authenticity and directness on the communications side.”

Mr. Taylor has spent his career in a wide range of finance roles – including venture capital – in a number of countries, and his appointment was widely seen as a desire to internationalize Teachers’ portfolio: By Dec. 31, the pension had 70 per cent of its portfolio in the United States and Canada, with an additional 14 per cent in Europe. Only 11 per cent is in the Asia-Pacific region, with 5 per cent in South America.

Currently, Teachers has investments in 50 countries. Part of Mr. Taylor’s internationalization plans, however, involve winnowing the focus even as more money goes global: Teachers has identified nine focus countries, with clear strategies for each, part of 20 countries where they intend to actively invest.

Teachers has fewer global offices than other Canadian peers within the “Maple Eight” funds such as Canada Pension Plan Investment Board, which is larger by asset size, and Ontario Municipal Employees Retirement System, which is smaller. “If we can do the right mix of being effective internationally with a sensible cost base, so we can say that responsibly to our members and our stakeholders, I think that would be good.”

Mr. Taylor’s observations about the cost of offices point to a constraining truth about the pension fund he and his team manage: Teachers is the largest single-employer pension in Canada, and that employer’s demographics are shifting, unfavourably. Thirty years ago, the average plan member paid into the pension for 29 years, then collected benefits for 25. Now, the average member pays in for 26 and collects for 32. In 1990, there were four active teachers for every pensioner; now it’s a one-to-one ratio.

“The amount of risk we take will be less than some of our peers because of our funding dynamic,” Mr. Taylor said. “So we’ll have a different allocation to say, equities, than perhaps some of our Maple Eight counterparts. And that’s deliberate. ... Our ability to recover from bad years is going to be more challenging than perhaps some others. We try to be really thoughtful about the return we make on risk.”

Teachers weathered COVID-19, with an 8.6-per-cent return in 2020, because it had an outsized position in bonds and fixed income in early 2020 when equity markets collapsed; it largely sold out of the position in early 2021. The near-term goal is more money in private assets such as real estate and infrastructure, areas where many institutional investors are rushing.

Mr. Taylor has set a goal of hitting $300-billion in assets by 2030, up from the $221.2-billion at year-end 2020. The goal may sound modest from a returns basis, but Teachers’ demographics cause different fund flows than other plans, with significant amounts of benefits paid out each year. The goal works out to about a 4.5-per-cent real return, which is after inflation and after all investing costs.

One of Mr. Taylor’s other emphases is Teachers’ Innovation Platform, an investment program targeting “disruptive” companies, tech or otherwise. At less than $3-billion today, and the goal of $10-billion “reasonably soon,” it’s a small part of the portfolio. But it’s an attention-grabbing one, particularly when its first investment was in SpaceX, the brainchild of controversial alpha CEO Elon Musk. The latest deal was a Teachers-led financing that valued a Waterloo, Ont., educational startup, ApplyBoard, at US$3.2-billion.

“I’ve lived in the venture world for a bit of my life and I think the question you keep coming back to is how disruptive and how large can the company become, because often with these businesses, if they can really deliver on their potential, your entry price becomes pretty irrelevant quite quickly because it grows at an exponential scale relative to others,” he said.

“That’s not to be glib about valuations which are high – let’s just be honest, they are very high at the moment – but I think if you want to play in that space, you’ve got to be willing to bite the bullet on businesses you really have high conviction around and invest regularly.”

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.