Ontario Teachers' Pension Plan posted a return of 2.5 per cent for 2018.
Ontario Teachers Pension Plan posted a return of 2.5 per cent for 2018, joining other larger Canadian plans that relied on returns from assets such as real estate, infrastructure and the shares of private companies as global equity markets struggled.
Teachers said its total gains added $1.6-billion to a portfolio that closed the year at $191.1-billion, making the pension plan fully funded for a sixth straight year. Teachers said its benchmark return, given its portfolio mix, was 0.7 per cent for calendar 2018. The returns are net of expenses.
“Headwinds for investors intensified last year,” Ziad Hindo, the fund’s chief investment officer, said Tuesday. “We’re in a position of strength with a healthy balance sheet.”
The fourth quarter was particularly bad for global stock markets, bringing down overall 2018 returns. A global stock index from MSCI, represented in U.S. dollars, fell 7.7 per cent in 2018. The S&P/TSX 60 Index lost 7.6 per cent. Teachers CEO Ron Mock on Tuesday called 2018 “one of the most volatile investing environments of recent years.”
Teachers’ private-equity portfolio returned 19.5 per cent in 2018 and, by year-end, it had $33.4-billion in investments – good for 18 per cent of the fund. Infrastructure assets returned 8.8 per cent to close the year at $17.8-billion, or 9 per cent of the fund. The real estate portfolio returned 5.8 per cent to close the year at $27.5-billion, or 15 per cent of the fund.
In May, Teachers also sold its majority stake in apparel maker Helly Hansen to Canadian Tire Corp. Ltd. for $985-million after six years of ownership. The plan bought more than 70 per cent of Helly Hansen in 2012 for a reported US$326-million, but quickly found itself engaged in a turnaround situation. The Canadian Tire sale – after three years of increased profits - represented a validation of its efforts.
Also in 2018, Teachers and other shareholders agreed to sell a majority stake in U.S.-based Heartland Dental, the largest dental support organization in the United States, to investment firm KKR & Co. Inc. Teachers retained an ownership stake in Heartland.
Major 2018 investments for Teachers included a recapitalization of Toronto’s GFL Environmental Holdings Inc. in partnership with investment firm BC Partners; the purchase of German heat- and water-meter company Techem GmbH alongside Caisse de dépôt et placement du Québec and others; and the outright purchase of Broetje Orchards, a Washington state apple producer rebranded as First Fruits.
Mr. Hindo also said Tuesday that Teachers repositioned its portfolio to boost its fixed-income holdings in order to reduce exposure to equities and take advantage of rising rates. Bonds made up 31 per cent of the Teachers portfolio at the end of 2018, up from 22 per cent at the end of 2017.
Teachers recorded a loss of 3.6 per cent on publicly traded equities in 2018. They closed the year at $31.6-billion, or 17 per cent of the portfolio.
For 2018, the Ontario Municipal Employees Retirement System reported a 2.3-per-cent return after expenses, while Caisse said it achieved a 4.2-per-cent return for the year. Canada Pension Plan Investment Board uses a fiscal year that ends in March; its nine-month return for the period that ended Dec. 31 was 3.6 per cent after expenses. In all cases, the plans offset low or negative returns in public equities in 2018 with higher returns in private assets.
By the close of 2018, Teachers had five- and 10-year net returns of 8 per cent and 10.1 per cent, respectively. Teachers, with 327,000 active and retired members, bills itself as Canada’s largest single-profession pension plan.
David Milstead