Ontario Teachers’ Posts 3.8% First-Half Gain, Buoyed by Equities

“We saw strong performance in our private and public equity, innovation and inflation-sensitive asset classes,” Chief Investment Officer Ziad Hindo said Monday. “Gains were partially offset by losses in fixed income and currency.”

The fund manager, which has C$228 billion ($179 billion) in assets, trimmed exposure to debt last year by cutting back on sovereign markets with negative interest rates and reducing exposure to markets such as the U.S., which has seen a significant economic impact from Covid-19. Fixed income accounted for 20% of the portfolio in the first half, up from 16% at the end of December, with bonds representing 15%.

The fund had a 9.3% increase in real estate and infrastructure assets from the end of last year, with the C$47 billion in investments accounting for about one-fifth of the portfolio. Inflation sensitive assets accounted for 21% of the portfolio, up from 17% at the end of December, while assets under its innovation portfolio jumped 63% to C$5.66 billion. Ontario Teachers’ doesn’t break down gains for its various assets classes in its mid-year results.

“We set up the innovation portfolio to give us exposure to private high-growth, disruptive businesses,” Jo Taylor, the fund’s chief executive officer, said in an interview. “It probably needs to be several billion dollars to actually meet that test, but it is meaningful at the moment because it’s making great returns.”

The innovation portfolio also adds value to the rest of OTPP’s investing activities, he said, by letting managers slowly wade into new markets to learn about them.

“This area should grow more, as we’ll probably allocate more capital to it, and also the growth rate of the portfolio is generally higher than other areas,” Taylor said.

Ontario Teachers’ also added to its infrastructure bets this year, buying stakes in the operator of thermal energy systems Enwave Energy Corporation in Canada, electricity transmission platform Evoltz Participacoes SA in Brazil and electricity distribution system operator Caruna Networks Oy in Finland. Over the weekend, OTPP announced it is buying Spark Infrastructure Group, in partnership with KKR & Co. and Public Sector Pension Investment Board, in a deal that values the Australian energy company at about A$5.2 billion ($3.7 billion).

“We have a really wide, ambitious plant to grow our real assets, maybe not as a direct replacement to fixed income” but as the “closest thing” to it,  Hindo said in an interview. “Real assets like core infrastructure provide stable income, stable cash flows that are indexed to inflation, with a good level of certainty, spread through several geographies,” he said. 

The pension fund holds investments in over two dozen currencies across more than 50 countries, but reports results in Canadian dollars. The stronger Canadian dollar had a negative 1.5% impact on the total fund in the first half, subtracting C$3.2 billion from the bottom line.

Its annualized net return since its inception in 1990 is 9.6% and the 10-year return was 9.3%, the fund said.

(Updates to add comments from interview with CEO and CFO)

More stories like this are available on bloomberg.com

©2021 Bloomberg L.P.