Ontario Teachers trims ties to Eike Batista

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The Ontario Teachers' Pension Plan has been reducing its investments in companies run by Brazilian billionaire Eike Batista, joining the legions of investors paring back ties to his struggling financial empire.

Teachers' chief investment officer Neil Petroff said Tuesday his fund has reduced its stake in the Brazilian's operating companies to total exposure today of $355-million.

A year ago, Teachers owned stakes worth $506-million in Mr. Batista's MMX Mineracao e Metalicos SA and LLX Logistica SA. At the end of 2010 the pension plan had a total of $1.2-billion invested in Mr. Batista's companies, including a huge $680-million investment in energy company OGX Petroleo e Gas Participacoes SA that it no longer holds.

The decision to reduce the holdings has nothing to do with a lack of interest in emerging market investment. Teachers has 15 per cent of its assets invested in emerging markets, where returns have been stronger than developed markets, and Mr. Petroff told reporters Tuesday he plans to increase the allocation further.

But it has been shrinking its exposure to companies run by Mr. Batista's Grupo EBX, which has been struggling with financing problems. Mr. Batistia's fortune has shrunk by two-thirds in the past year, with a recent Reuters report calculating his companies have lost an average of 70 per cent of their share value in the past year as his fortune has dropped by $20-billion.

"Over time we have reduced that exposure significantly," Mr. Petroff said. "So we've earned a lot of money with Eike Batista and we've kept a lot of the money we've earned, but we still have exposure to him. And we believe over the long term some of these assets are going to generate lots of income."

Teachers first invested with Mr. Batista in 2007, leading a $1.3-billion private placement in his OGX energy company as the pension fund embraced a strategy to invest in Brazil's booming economy. In June, 2008, OGX launched the largest IPO in Brazilian history. Teachers appears to have sold much of that stake in 2011 with the company no longer appearing on its list of major holdings by the end of that year.

Mr. Batista recently sold a stake in his power company MPX Energia SA to a German firm to raise $1-billion (U.S.) to help finance other investments in his empire.

(Janet McFarland is a Globe and Mail Business Reporter.)

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