Invest Like a Fund Manager - Ontario Teachers' Pension Plan (OTPP)

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In this edition of Invest like a Fund Manager, we take a look at Ontario Teachers' Pension Plan. 

The largest single-profession pension plan in Canada, Ontario Teachers’ Pension Plan (OTPP), manages $204.7 billion in net assets administering the pensions of 329,000 active and retired teachers in Ontario. The investments are segmented into broadly diversified asset groups including Equities, Infrastructure & Natural Resources, Real estate, and private equity.

OTPP has remained one of Canada’s largest institutional investors with an excellent track record for investment performance reporting an average annual return of 9.7% since its inception in 1990. In 2019, the pension plan earned nearly $20 billion in investment income, the highest in its history. The fund’s 10.4% return in 2019 helped the fund end the year with over $200 billion but still fell short of its benchmark’s 12.2% return. The fund’s asset allocation is equities 34% (16% publicly traded), fixed income 23%, inflation-sensitive (commodities, natural resources) 16%, real assets 21%, absolute return strategies 9%, and money market, which funds investments,  -12%.  

Public Investments (Top 30 holdings)

Source: Refinitiv Eikon. As of November 25, 2020

Sector Breakdown

 

Source: Refinitiv Eikon. As of November 25, 2020 

OTPP holds over 1000 public securities and has completed a minimum of 193 private transactions (active, LBO, acquired, or IPO’d). It is interesting to note that while CPPIB had higher weights allocated to technology and financial sectors, OTPP mostly allows itself to go overweight on industrials, consumer cyclical, and financials. As of June 30, 2020, publicly traded securities comprise just 16% of OTPP’s asset base. On the other hand, via its 2019 launched Teachers’ Innovation Platform, OTPP focuses on late-stage venture and growth equity investments in disruptive technology. As such, on the private investments side, since the beginning of the year, OTPP has completed investments in several technology-related companies. Some notable ones include Epic Games, operator of Fortnite, and KRY, Europe’s largest digital healthcare provider.

Regional Breakdown

 

Source: Refinitiv Eikon. As of November 25, 2020 

Recent activity

Source: Refinitiv Eikon. As of November 25, 2020

Despite a COVID-induced stock market correction, OTPP ended the first half of 2020 with a 0.4% loss. Some of the fund’s hardest hit investments were the private assets. This should not come as a surprise as balanced funds or diversified funds trailed behind funds placing concentrated technology bets since the beginning of the year, and even more so since the March correction. The stance taken by central banks allowed for public equities, especially tech, to rally at exponential rates compared to OTPP’s other segments such as real estate, private equity and infrastructure. Given the otherwise slow growth in industrials and consumer cyclical, OTPP, amongst many large pension funds, have to step up and invest in tech-related disruptive companies to remain competitive and produce returns. So while the ‘public portfolio’ seems to relay a low growth portfolio, OTPP’s private portfolio consisting of expansive investments is what will move the needle going forward.

Happy Investing!

Barkha's Signature

 

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Disclosure: Employees, directors, officers and/or partners hold a financial or other interest in BABA, MSFT, JPM.