The Ontario Teachers' Pension Plan is looking abroad for investment opportunities after posting strong returns in 2014.
The pension plan, which invests on behalf of 311,000 teachers and retirees in Ontario, earned an 11.8-per-cent return on its investments last year and saw its assets grow to $154.5-billion, up from $140.8-billion a year earlier.
This is the second year that Teachers has posted a surplus after a decade of recording annual deficits, with funding levels at 104 per cent at the end of 2014. The plan has $6.8-billion of surplus assets above the estimated liability for providing pensions to members.
Teachers has posted an annualized 10.2-per-cent rate of return since its founding as an independent organization 25 years ago.
The pension plan achieved the results despite turbulent market conditions including the drop in oil prices, a competitive private investment environment and economic uncertainty in Europe, said Ron Mock, chief executive of Teachers, in a press conference announcing the results. And in the past four to five months, Teachers has been re-evaluating its investment strategy with an eye on the coming decade, he said.
"The global environment, the investing environment and quite frankly the sovereign wealth [and] pension environment has changed substantially in the last five to seven years," Mr. Mock said. "So having a strategy that's global … and in our case long, long-term investing, is critically important."
The 2014 financial results included a 13.4-per-cent return on equities and a 22-per-cent return on private capital investments. The fund's fixed income portfolio, including bonds, had a one-year return of 12 per cent, while the real estate group earned 11.1 per cent, and infrastructure earned 10.1 per cent.
Teachers plans to "adapt and modify" its strategy to include looking for more investment opportunities around the world and building up assets in its target regions. "Teachers will need to have global capabilities in the coming years," Mr. Mock said.
"In 2014, we also spent time growing our global footprint," said Neil Petroff, chief investment officer at Teachers. After opening a new Hong Kong office in 2013, Teachers spent the past year hiring more local staff and will look to do more deals in the region.
Late last year, Teachers said it would build out its London office, which opened in 2007 and now has a portfolio of assets worth $22-billion. Major investments in 2014 include buying the half of Bristol Airport it didn't already own in September, and increasing its stake in Birmingham Airport.
"As we look at our global expansion, we're a little different than the average fund. We don't open an office and say let's go find assets," said Mr. Petroff, who plans to retire in June of this year. Instead, Teachers would look to establish offices in regions where it has holdings. The next logical move for an office might be South America, said Mr. Petroff, where Teachers has a "critical mass of assets" in several countries.
Still, Teachers plans to keep its bottom-up investment strategy, which eschews thematic investing in favour of analyzing individual stocks.
These evolving investment goals come as the average age of plan members has been steadily increasing since the 1970s, from an average expected mortality rate of 79 to 90 years of age for women. The majority of Teachers members are women, who tend to live longer than men.
Right now, Teachers has 182,000 active members and 129,000 pensioners, but the pensioner population is catching up quickly to working teachers, said Tracy Abel, senior vice-president of member services, noting that 135 of the plan's pensioners are over the age of 100.
With files from Janet McFarland