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Ontario Teachers’ Pension Plan made a strong shift to bonds in the first half of the year and benefited from robust returns in fixed income.

The pension plan said it posted an overall 6.3 per cent return in the first half of 2019 and closed the quarter with a portfolio of $198.5-billion. Fixed income led the returns, Teachers said.

Bonds made up 36 per cent of the Teachers portfolio at June 30, up from 31 per cent at the end of 2018. The pension plan’s entire fixed-income category, which also includes additional “real-rate” investments that are inflation-protected, represented 47 per cent of the portfolio at June 30. Total fixed income holdings amount to $92.8-billion, compared with $77.7-billion six months ago.

The shift in asset mix toward fixed income represented a combination of positive returns and reallocation, Teachers executives said in a conference call on Wednesday. Teachers does not release returns by asset class in its mid-year report.

“The role for fixed income is simple: providing us with diversifying returns in times when the global economy slows or when you run into a recession,” said Ziad Hindo, Teachers’ chief investment officer. “And I think it’s fair to say that over the last year or so, we have seen a slowdown in global economic activity for a variety of reasons, including the lagging effect of monetary policy tightening and a slowdown in the global manufacturing cycle.”

“We are at a point in the cycle that it’s getting probably a little bit longer in the tooth and it is challenging from a valuation perspective across all asset classes, not just fixed income,” he said.

By comparison, Canada Pension Plan Investment Board reported $133-billion in government and corporate bonds and money-market investments, or one-third of a $400-billion portfolio as of June 30.

The Canada Pension Plan serves all Canadian workers and, demographically, is a “younger” plan than some other major Canadian pensions. It can have a greater appetite for risk than plans that have more retirees, relative to workers.

Teachers serves Ontario’s 327,000 active and retired teachers, many of whom have longer lifespans – and more pension payments in retirement – than other workers. The ratio of active to retired members in 2018 was 1.3 to 1, compared with 4 to 1 in 1990.

Teachers chief executive Ron Mock said Wednesday said “we look at the liabilities very carefully and they’re taken into account in the design of the asset mix and risk balancing.” However, “the shift in fixed income wasn’t wholly motivated by the liability side of the equation. It was really more about making sure that the risk is balanced between equities and credit, real estate and infrastructure, all sorts of things.”

Teachers reports that its plan is more than 100-per-cent funded, meaning assets exceed the pension payments it estimates it must make. Its ability to scale back the inflation-protection provisions of its pension payments and increase them at a rate less than the consumer price index, Mr. Mock said, combat its demographics and “have done a Benjamin Button on our plan, making it young again.”