Ontario Teachers’ Pension Plan has reported a small gain for the first half of 2022, a period that saw markets across the globe melt down.
Teachers reported a 1.2-per-cent return for the six months ended June 30. By way of comparison, Royal Bank of Canada’s RBC I&TS All Plan Universe saw defined benefit pension plan assets – as measured by a typical mix of publicly held stocks and bonds – shrink 14.7 per cent over that period.
Teachers, like the other members of the “Maple Eight” large Canadian pension plans, owns more than stocks and bonds, however; it has moved into infrastructure, real estate and other private assets, as well as commodities, one of the “inflation-sensitive assets” that Teachers says perform well in an environment of rising prices.
“I think we’re pleased to be reporting positive results,” Teachers CEO Jo Taylor said in an interview Monday. “We flagged at the end of last year that we were going to move into more inflation-related investing. So commodities and inflation-sensitive assets – those both performed well in the first half of the year for us.”
Teachers believes many private assets, particularly in infrastructure, have predictable cash flows that serve as protection against inflation, and Mr. Taylor had said in March that the pension fund didn’t see inflation as transitory.
Teachers doesn’t release the return figure for its benchmark – a portfolio of similar assets it uses to measure its performance – or exact return figures for each asset class in its mid-year reporting.
However, the fund said it saw positive returns in its inflation-sensitive, infrastructure and absolute return strategies asset classes, which were partially offset by losses in public equities, venture growth and credit.
Its inflation-sensitive portfolio – commodities, natural resources and inflation-hedging financial instruments – made up a little more than $50-billion, or about 20 per cent of the portfolio, at June 30, about the same as at the beginning of the year.
“We didn’t feel we need to increase it a lot more,” chief investment officer Ziad Hindo said Monday. “We did a little bit earlier this year, but it felt like with that much allocation, which is quite high, it’s well-positioned.”
Now, with interest rates moving higher, Teachers is moving back into longer-duration bonds, an asset that it largely abandoned when rates were at record lows, Mr. Hindo said. “With yields in developed markets shifting to north of 3 per cent to 4 per cent, they felt much more attractive than we’ve seen in quite a while.”
Teachers, which manages the pensions of Ontario’s 333,000 active and retired teachers, had $242.5-billion in assets at June 30. It said it returned 8.3 per cent over the prior 12 months, and its five- and 10-year annualized net returns were 7.9 per cent and 9 per cent, respectively.
In the long term, Mr. Taylor noted, Teachers aims to achieve a 4-per-cent annual “real” return – the nominal return minus the annual inflation rate.
“We’re happy with the [first-half] returns other than they’re not at the 4 per cent,” he said. “So we’re still very conscious for our membership that we want to try and aim for that target, but we’re well-funded and we’re really now turning ourselves to how we continue to make a good return as best we can in tricky markets, which will be with us, I think, throughout this year. And possibly next.”
Teachers is the first of three major Canadian pension plans with Dec. 31 fiscal years expected to report half-year returns in 2022; Caisse de dépôt et placement du Québec and the Ontario Municipal Employees Retirement System (OMERS) are expected to follow. Also, Alberta Investment Management Corp. now releases quarterly results, one of only two members of the Maple Eight to do so – Canada Pension Plan Investment Board being the other.
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David Milstead