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The Ontario Teachers' Pension Plan Board office is shown in Toronto on Tuesday, Sept. 28, 2021.Cole Burston/The Canadian Press

Ontario Teachers’ Pension Plan is looking to refocus its mix of investments after a disappointing year in which its portfolio only gained 1.9 per cent, missing its internal benchmark by a wide margin.

Teachers fell short of the 8.7-per-cent benchmark it uses to measure its own performance, as losses on real estate and infrastructure dragged down returns. Though the value of its portfolio increased overall, the pension fund’s investment decisions led to $15.8-billion of lost value when compared with a reference portfolio of assets last year, Teachers said in a statement Tuesday.

One reason for the fund’s underperformance was its cautious stance toward the stock market. The publicly traded stocks Teachers owns did well, gaining 20 per cent last year against a 20.3-per-cent benchmark, but they make up just 10 per cent of its assets. At the start of last year, Teachers was betting on “some correction in listed stock markets, which didn’t happen,” chief executive officer Jo Taylor said in an interview.

Teachers also has an aging membership and pays out more in pension benefits each year than it takes in from contributions, which is one reason it invests conservatively. When public stock markets that make up large parts of the benchmark soar, “we’re going to always struggle … to keep track with it,” he said.

High interest rates prompted Teachers to mark down asset values in its real estate portfolio, which lost 5.9 per cent, as well as its infrastructure arm, which lost 2.8 per cent. Both portfolios fell far short of internal benchmarks, gaining 2 per cent and 7.6 per cent.

“Those returns really aren’t the returns that we want on a long-term basis. And we strive to do better for our members,” Mr. Taylor said. “And that’s why we’re being very active and focused around what we’re doing in 2024.”

Teachers manages pensions for about 340,000 members in Ontario, including working and retired teachers, and its total assets were $247.5-billion at the end of 2023, roughly unchanged from a year earlier.

The fund entered the new year with revamped leadership for its investment team. Last September, it announced that chief investment officer Ziad Hindo would leave at the end of the year. In his place, Teachers appointed co-CIOs Gillian Brown and Stephen McLennan; named a chief strategy officer, Jonathan Hausman; and promoted three other executives to key roles.

The fund manager also restructured its real estate arm, bringing the investing team in-house from subsidiary Cadillac Fairview Corp. Then it hired Pierre Cherki to lead the group and tasked him with reviewing the real estate portfolio, creating a better balance between office, retail and other types of commercial properties, and rethinking how Teachers invests in real estate internationally.

“Let me be honest with you: When you have a year when you’re less happy with it, you probably up your focus on, how do you drive performance? And that is certainly what we’re doing in 2024,” Mr. Taylor said.

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Over 10 years, Teachers has had an average annual return of 7.2 per cent. The plan was fully funded to start 2024, with a preliminary surplus of $19.1-billion.

Real estate had a tough year, mirroring losses reported by other large Canadian pension funds. Teachers also has significant exposure to office buildings and retail outlets such as shopping malls, which have been hit hard by changing trends, and adjusted its property values to reflect the pressure caused by higher interest rates.

“The prognosis for real estate, to me, remains pretty challenging,” Mr. Taylor said.

Teachers also said that “asset-specific events” had a negative impact on some investments, and he said it made “write down adjustments” on a couple of infrastructure assets it owns as a result of continuing issues from the aftermath of the COVID-19 pandemic as well as regulatory changes. Mr. Taylor did not specify which assets the fund marked down.

About 35 per cent of Teachers’ assets are in Canada, which Mr. Taylor expects will grow, as CEOs and investment leaders debate the level of pension fund investment in the country and whether governments should intervene to increase it.

“We have been, and will continue to be quite happy … to invest in Canada where we see good opportunities.”

Mr. Taylor said pension funds prefer Canadian investments, all else being equal, because there is no risk from exposure to foreign currency. But he said in categories such as infrastructure, there have been limited investment opportunities in Canada or expected returns that don’t match what a fund thinks it could earn abroad.

“If the ask is to invest here for a lower rate of return … then I’d struggle a little bit because my fiduciary duty is to our members to be able to provide them with the best returns I can to make sure the plan’s funded.”

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