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

Chris White Dec 01, 2020
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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!

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Dec 10, 2020
Hmmm..great comment and article Douglas. I'm waiting for when governments decide they can no longer afford the defined benefit plans the private sector pay's for? Andrew Coyne is bang on in his assessment of the CPPIB, all employees with defined benefits I'm sure! The private sector gave up these plans long ago (lost mine in 2008 as it's value was commuted and became a defined contribution). Private companies could no longer afford to offer them and yet the private sector employees through taxes continues to pay for the public plans. That is another whole topic for discussion.

I for one have long been wondering how all of this is going to work out in the long term. I can't for the life of me figure how this can possibly end well, especially for those of us who are just retiring or worse are still trying to save for a retirement? First we have a system that reduces "safe" investments like GIC's and government bonds by lowering interest to sub zero returns in real terms to "spur" economic activity. This drives pensioners (and those managing on their behalf) to seek savings returns in the stock market in order to have a hope of building their own retirement nest egg. This drives stock prices to lofty heights increasing the risks to net savers. Through negative real rates, savers are now subsidizing the profligate spenders (governments and households). What I wouldn't give to be able to lock in a 5-6% interest rate and live off income from saved capital instead of taking risks in the market? Now that our policies have encouraged households and governments to live beyond their means and go so deep into debt..the odds of rates going back to a level that we can generate an income to live off without taking risks and spending saved capital is gone.

The only way out now is for governments is to inflate their way out of debt and or start increasing taxes on capital gains, further hitting net savers! This means those who have just retired will not have anything (or dramatically less) to pass onto their children as we live off our savings capital and not the income it generates like our parents did. Another possibility is that governments will look at "inheritance taxes" in order provide incentive to people to spend now what they would otherwise prefer to pass onto their children to help give them a decent start in life.

Governments and banks can no longer raise rates to dampen inflation without fear of throwing the economy into another tail spin and causing massive cuts in government services (due to interest service costs) and causing private bankruptcies. If this occurs it ripples through the economy and drives the stock market down, virtually killing many peoples retirement savings as we increasingly seek returns from the markets that are no longer available from fixed income vehicles. So with inflation we will be dipping into capital faster to keep up or causing hardships in the retiree population..putting further pressure on government to increase CPP and OAS..causing more debt (vicious cycle).

Our short sited policy of not allowing "natural" economic cycles and corrections to take place by continuously providing "stimulus" at the first sign of weakness is ensuring future generations will be worse off as their parents struggle to keep up with a system that is causing them to dip into capital to live. All we keep doing is kicking the can down the road for future generations to deal with..not good. We all need to spend less than we make in order to keep things afloat. We are witnessing an unprecedented hollowing out of a wide segment of the middle class population through these modern monetary and fiscal policies.

Unfortunately, our modern industrial western economies are based on non sustainable continuous growth and consumption and the house of cards will come down at some the end it is all a shell game. God help the politicians in charge when the "middle class" wake up and realize their retirement futures are rapidly being driven into the poor house by these policies.
Dec 2, 2020
And for another take on the large government pension funds, here's this:
From Climate Discussion Nexus Dec 2, 2020 (

With pandemic lockdowns crushing the private sector, it’s obviously time to launch an ambitious redesign of our economy. Or so they tell us. And “they” are not just the architects of the Great Reset whose plans, we noted last week, offer a strange mix of cosmic ambition and predictable futility. But “they” also includes those who keep insisting, against all evidence, that there are vast commercial opportunities in this new economy. If that were true it would mean we don’t need sweeping government intervention, just the same old profit motive and efficient capital markets. Unfortunately neither profits nor efficient capital markets seem to enter the picture. Yahoo! Finance just noted that “The chief executive officers of eight Canadian pension funds, collectively representing about $1.6 trillion in assets under management, are calling for a green recovery from the COVID-19 economic slump.” But every single one of those massive funds is… a government agency gambling with other people’s money. Every one.

We’re talking state capitalism not the private kind because the CEOs who signed the letter in question run “AIMCo, BCI, Caisse de dépôt et placement du Québec, CPP Investments, HOOPP, OMERS, Ontario Teachers’ Pension Plan, and PSP Investments.” All stuffed with public-sector money and insulated by government guarantees from the cost of any failed investment in magic beans. Unlike, say, taxpayers.

In case some of those pension funds are not familiar to you, HOOPP is the “Healthcare of Ontario Pension Plan (HOOPP)” whose website boasts that “As one of Canada’s largest defined benefit pension plans, we are dedicated to providing retirement security to more than 380,000 healthcare workers in Ontario.” As for AIMCo, aka “Alberta Investment Management Corporation”, its website touts first “New Commitments to Diversity & Inclusion” then “Investors Collaborate on Climate Change Mitigation”. Not return on equity. So you’re not astonished to learn from their 2019 Annual Report that they call themselves “Alberta’s investment manager” and that their shareholder, in the singular, is… “the Government of Alberta”. Or that they are “a non-profit, crown corporation responsible for investing on behalf of most of Alberta’s public sector employees and, through the Heritage Fund, on behalf of all Albertans.”

Shall we continue? Let’s. Sure enough, BCI is the “British Columbia Investment Management Corporation” aka “The Investment Manager of Choice for British Columbia’s Public Sector”. Obviously the Caisse de depot is a branch of the Quebec government. It claims its clients are “41 depositor groups. Most are pension plans and public and parapublic insurance plans which, together, pay out benefits to more than two million Quebecers each year.” But of course its real client is the government of Quebec, which appoints the Board of Directors and mandates the Caisse to generate money for the government’s pension plans “while at the same time contributing to Quebec’s economic development” in, you understand, an independent manner.

Where are we? Ah yes, CPP Investments, whose name speaks for itself, though we might add that it is “one of the world’s largest investors in private equity”. So it is not your grandfather’s capitalism we’re seeing here.

Then there’s OMERS, the Ontario Municipal Employees Retirement System, a branch of the Ontario government that, Wikipedia notes, “has become one of the largest institutional investors in Canada”. And as its own website notes, it runs a “defined benefit pension plan” so if the market returns aren’t there, well, the government will come to the rescue with however many billions are needed.

We don’t have to tell you that the Ontario Teachers’ Pension Plan is another of these parastatal behemoths. But we should mention that PSP Investments is… yes… the “Public Sector Pension Investment Board”, a branch of the federal government that is also “one of Canada’s largest pension investment managers” and once again oversees defined-benefit plans.

We dwell on the “defined-benefit” aspect here because it is vital to understand that these outfits are free to gamble with other people’s money for two vital reasons. First, by law their beneficiaries get paid whether the investments work out or not. And second and related, they are free from the sort of scrutiny normal investment firms face from clients concerned about losing their savings if the fund bets heavily on trendy exotic ideas because their clients are not those whose pensions they manage but governments that can just raise taxes, borrow against other people’s assets or, for the federal government, print the stuff to make up for any failure to find a pot of gold at the end of the green rainbow.

This consideration deserves emphasis because when you hear “institutional investors” you might well be inclined to think, well, if sober money managers taking care of Canadians’ hard-won savings are into this stuff it must not be trendy or exotic. Green must be blue chip. But no. It’s just more of the public-sector song and dance you pay for whether you like it or not.

Except for one nasty thing: The bigger they are the harder they fall. Especially now, with public sector balance sheets a soggy red mess, if one or more of these major holders of often badly underfunded public-sector pension assets should bet the wind farm on something that goes thud, as alternative energy generally does, it may not be possible for the government or governments in question to find the tens or hundreds of billions of dollars needed to make up the losses. (The CPP, the Chief Actuary of Canada has said, must earn a real rate of return of 4% for 75 years to cover projected payouts. Good luck with that mate. And as Andrew Coyne has been tireless in exposing, what was once a small outfit pursuing a “Wealthy Barber” plan of passive investment with 164 employees and administrative costs of $118 million has since 2006 become a bloated behemoth whose 1,661-strong host of managers costing $3.3 billion a year pursue risky ventures around the world. So they’re riding the gravy train even if we’re not.)

There is this meme out there that big companies are extra-right-wing entities that send lavish cheques to deniers and oppose regulation. But it’s not true. Like GM, which just switched from Trump’s position on California’s strict new emissions to Biden’s, many are smooth operators convinced they can game the system. They may find, as carmakers in Europe are already finding, that feeding the crocodile in the hope of being eaten last is just exactly as bad an idea as it sounds. But in any case private companies no longer dominate financial markets. Public and parapublic entities do.

As a result, the only meaningful shareholder revolt possible here is that of citizens. And just imagine trying to make OMERS’ investment strategy a key election issue. But it matters, because that CEOs’ letter is full of trendy verbiage like “The pandemic and other tragic events of 2020 have revealed pre-existing business strengths and shortcomings with respect to social inequity, including systemic racism and environmental threats.” And so all your chips, as a taxpayer and as a retired or even current public employee, are on the notion that a Great Reset is a fiscal winner.