Ontario Teachers' Pension Plan is Fully Funded for Fifth Consecutive Year

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Ontario Teachers' Pension Plan

03 Apr, 2018, 15:16 GMT

TORONTO, April 3, 2018 /PRNewswire/ --

  • Net assets reach $189.5 billion, up tenfold since the Plan's inception 
  • Plan was 105% funded as at Jan. 1, 2018 
  • Surplus to be allocated to contingency reserve 
  • Net investment income of $17.0 billion 
  • Bjarne Graven Larsen resigns, Ron Mock acting as interim CIO 

Ontario Teachers' Pension Plan (Ontario Teachers') today announced it was 105%-funded as of January 1, 2018. This is the fifth consecutive year that the plan is fully funded, underscoring its long-term financial health and sustainability.

The Plan had a total fund net return of 9.7% for the year ending December 31, 2017, bringing net assets to $189.5 billion and marking approximately a tenfold increase since the Plan's inception in 1990.

"That we were able to achieve this funding surplus while using a prudent discount rate of 4.8%, one of the lowest in the pension industry, testifies to the financial health and sustainability of the Plan," said Ron Mock, President and Chief Executive Officer. "Being in a surplus position in the Plan is the true measure of success."

Balancing assets and the cost of future pensions is fundamental to meeting the needs of pensioners today, without compromising the financial health of future generations.

The Plan sponsors - Ontario Teachers' Federation (OTF) and the Ontario government - chose to file the January 1, 2017 valuation restoring 100% inflation protection on all pensions and reducing contribution rates by 1.1% for all active members - both measures being effective January 1, 2018.

The Plan sponsors have decided to file the January 1, 2018 valuation and to allocate the $10.3 billion Plan surplus to a contingency reserve that would buttress the Plan in the event of a severe market event. The feature of Conditional Inflation Protection, introduced by the Plan sponsors in 2010, is also a powerful support to plan sustainability.

In 2017 Ontario Teachers' progressed in the evolution of its investment strategy to better combine a proven bottom-up approach to asset selection with a robust, top-down approach to risk management and asset allocation. This work has been led by Chief Investment Officer Bjarne Graven Larsen, who after two years at Ontario Teachers' has resigned and plans to move back to Denmark with his family.

"I want to thank Bjarne for his many contributions over the past two years, and wish him all the best," said Mr. Mock, who will act as interim CIO during the process to find Mr. Graven Larsen's replacement.

The Plan exceeded its total fund benchmark of 8.2% in the year to December 31, 2017. Net investment income for the year of $17.0 billion nearly matched the size of the entire Plan when it started its direct investing program.

"This year we lowered our exposure to passive investments and moved further into active strategies where we can add value by leveraging our experience as well as our capital," said Mr. Mock. "Our investment strategy is built to last; it guides us through the changing markets landscape."

Ontario Teachers' five- and 10-year total fund net returns as at December 31, 2017 were 9.6% and 7.6% respectively. Since inception, the Plan has had an annualized total fund net return of 9.9%, as at December 31, 2017. More than three quarters of the Plan's funding comes from investment returns, with the remainder coming from member and government contributions.

Investment Return Highlights by Asset Classes[1]

       
                              Asset value at   Asset value at
                              Dec. 31, 2017    Dec. 31, 2016    2017 Rate
    Asset class                ($billion)       ($billion)      of Return   2017 Benchmark
    Equity                        $67.1           $66.0           17.6%          15.4%
             Public Equity        $35.2           $39.0           15.9%          15.9%
             Private Equity       $31.9           $27.0           18.8%          14.6%

    Fixed Income[2]               $61.4           $75.2            2.6%          2.6%

    Credit[3]                     $13.6             -              1.7%          1.1%

    Inflation Sensitive           $26.6           $10.5           -3.2%          -4.0%

    Real Assets                   $45.7           $44.3           10.9%          7.1%
             Real Estate          $25.5           $26.5            6.9%          7.3%
             Infrastructure       $18.7           $17.8           18.2%          8.0%
             Real Rate
             Products             $1.5              -             -              -

    [1] The Plan's absolute return strategies asset class, currency overlay
    and money market portfolios are only included in the Total Fund Net
    return and not shown separately.
    [2] The lower amount reflects the separation of credit from the fixed
    income asset class into its own separate asset class.
    [3] Comparative data is not available for 2016 as this asset class was
    established in 2017

Ontario Teachers' asset classes were redefined in 2017 as part of the OneTeachers' investment strategy. From five asset classes in 2016, we now have six: Equities (public and private), Fixed Income, Credit (includes corporate and emerging market debt), Inflation Sensitive (includes natural resources, commodities, inflation hedge), Real Assets (real estate and infrastructure), and Absolute Return Strategies (seeks returns with low correlation to markets; includes hedge funds).

In local currencies, the return on our investments in 2017 was 11.9%, marking an uptick from the same year-ago period of 7.2%. Converting the return back into Canadian dollars had a -1.8% impact on the Plan's total fund net return. This, combined with administrative expenses, brought the net return to 9.7%. 

Foreign currency exposure is part of our overall portfolio construction, and we take the risk associated with currency into consideration. In certain circumstances, we will take hedging measures to reduce our exposure to the currency risks which come from investing globally.  This dynamic approach, rooted in risk management, supports our comprehensive OneTeachers' investment strategy.

Ontario Teachers' continues to show strong performance in pension services. Our Member Services division again was ranked in the top two globally for service, and earned high satisfaction scores in member surveys. The Plan's Quality Service Index (QSI), which measures members' service satisfaction, was rated 8.8 out of 10, and the Plan was ranked second, by CEM Benchmarking Inc., for pension service in its peer group and internationally.

About Ontario Teachers'
The Ontario Teachers' Pension Plan (Ontario Teachers') invests and administers Canada's largest single-profession pension plan, with $189.5 billion in net assets at December 31, 2017. It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annualized total fund net return of 9.9% since the Plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region office is located in Hong Kong and its Europe, Middle East & Africa region office is in London. The defined-benefit pension is fully funded. It serves the province of Ontario's 323,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

Note to Editors: Please See Attachments:

Attachments:

Deborah Allan, Managing Director, Communications, (416)-730-5347, deborah_allan@otpp.com