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Teachers says it underperformed its 10.7-per-cent benchmark by more than two full percentage points.

A bond-heavy portfolio proved to be a boon for Ontario Teachers’ Pension Plan in pandemic 2020, as the fund posted an 8.6-per-cent return for the calendar year.

The plan came into 2020 with 46 per cent of its roughly $200-billion portfolio in fixed-income investments – and the asset class returned 20.7 per cent, Teachers disclosed Tuesday. That result – driven by holdings in long-term debt that skyrocketed in value during the pandemic – was just above what a benchmark portfolio should have been expected to return, Teachers said.

That asset allocation helped Teachers outpace other large Canadian pensions that had put their money elsewhere. The Ontario Municipal Employees Retirement System – which entered the year with 5.5 per cent of its portfolio in bonds, posted a 2.7-per-cent loss in 2020 because it didn’t have a counterweight to real estate and private-investment losses.

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“We can’t say we anticipated the pandemic, but we did see that things might be slightly more difficult or turbulent,” said Teachers chief executive officer Jo Taylor, who assumed the pension’s top job just a few weeks before the pandemic struck.

“It was a great advantage for us in 2020. ... We had a lot of liquidity that had been rightly set aside for adverse events, and that served us very well both to defend the portfolio we had, but also have liquidity to invest in new opportunities as they came up.”

Teachers’ bond results helped offset similar troubles in its real estate portfolio: It lost 13.7 per cent in those investments, compared with a benchmark loss of 4.7 per cent. A return of 2.6 per cent on its infrastructure assets underperformed the benchmark of 7.5 per cent.

Mr. Taylor said Teachers was more heavily weighted in retail real estate, such as shopping malls, than other pensions. “We really think it’s a very high-quality portfolio, which we want to continue to own, and we do expect that to bounce back,” Mr. Taylor said. “We have to be thoughtful about to what extent.”

Teachers’ infrastructure portfolio has five European airports, which were punished in the pandemic by the drop in air travel. “They’ve been a very strong performer over a long period of time, and we do expect air travel to revert in due course. That’s probably a slightly longer proposition – that might be a year or two away.”

All told, Teachers says it underperformed its 10.7-per-cent benchmark by more than two full percentage points. The fund’s four-year return of 7.8 per cent is slightly less than its 7.9-per-cent benchmark.

“We have beaten the benchmark eight of the last 10 years, so I think that over all that’s a solid performance from us,” Mr. Taylor said.

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The fund closed the year with $221.2-billion in assets. The defined-benefit pension plan serves the province’s 331,000 active and retired teachers. Teachers said it closed 2020 fully funded, with a $8.5-billion surplus when $46.1-billion in estimated future contributions are included.

Mr. Taylor said Teachers has been putting more money into credit investments – things such as corporate bonds and other company borrowings – as well as infrastructure and real estate. It’s also been increasing investments in its innovation platform, which to this point has mostly made equity investments in disruptive tech companies.

“The acceleration we’re seeing in digitization post-COVID is a theme that will stick for a long, long time,” said Ziad Hindo, Teachers’ chief investment officer. “So we’re excited about [investing] in that space, and we’ve built very strong capabilities across the world for that asset class.”

Infrastructure assets are “of particular importance for us because [they] provide stable, inflation-linked cash flows,” Mr. Hindo said. “We’re still on the lookout for both core infrastructure assets, but also assets with a climate-smart, climate-friendly theme like renewables and others.”

In a statement Tuesday, Shift Action for Pension Wealth and Planet Health, a group that advocates for less fossil fuel exposure in pension portfolios, blamed energy exposure for some of Teachers’ underperformance and said it sees a clear multiyear trend of the pension fund reducing its allocation to fossil fuel investments in favour of climate solutions.

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