Ontario Teachers' Posts 15% Return

Date: Tuesday, March 15, 2005
Author: Bloomberg

Ontario Teachers' Pension Plan, Canada's second-biggest pension-fund manager, returned 15 percent last year as it benefited from gains in real estate, hedge funds and stocks such as Fording Canadian Coal Trust. Income from investments was C$10.8 billion ($9 billion), down from C$11.4 billion in 2003, Toronto-based Teachers' said on its Web site today.
Net assets rose to C$84.3 billion as of Dec. 31, up from C$75.7 billion a year earlier. Teachers' performance, which declined from an 18 percent return in 2003, outpaced most Canadian pension funds. According to Royal Bank of Canada's RBC Global Services unit, the median Canadian balanced fund returned 10 percent last year.
``We have earned much better returns in each of the past two years than we were expecting,'' the pension fund said in its annual report. Teachers' manages pensions for 158,000 active and 97,000 retired teachers in Ontario, Canada's most populous province.
The Caisse de Depot et Placement du Quebec, Canada's largest pension-fund manager, returned 12.2 percent last year, while the Ontario Municipal Employees Retirement Board returned 12.1 percent. The Standard & Poor's/TSX Composite Index gained 12.5 percent. Canadian public and private equity led the way for Teachers' last year, posting a 21 percent return. Infrastructure investments such as toll roads and timberland returned 18 percent, real estate climbed 17 percent, fixed-income and so- called ``absolute-return'' holdings such as hedge funds gained 13 percent and commodities returned 9 percent. Dollar Bet Teachers' said it made C$60 million by betting on the Canadian dollar's increase against the U.S. currency.
The fund also lost C$320 million by cutting back equity holdings as stock prices climbed. As of Dec. 31, investments in public and private equities amounted to 49 percent of the pension fund's net assets, up from 46 percent a year earlier. That compares with 17 percent for fixed-income securities such as bonds and 34 percent for ``inflation-sensitive'' investments such as real estate and commodities.
Bond holdings fell to 10 percent of assets, from 14 percent. Even with the performance of the past two years, Teachers' said it faces a funding shortfall of C$19.4 billion, up from C$6.2 billion a year ago. The increase, which the fund blamed in part on falling real interest rates, may result in higher contributions when the next valuation is conducted in January.
In the past decade, Teachers' has returned an average of 11.4 percent annually. That beats the 10.3 percent median return calculated by RBC Global Services for Canadian pension funds over the period. Fewer Stocks Teachers' said it plans to reduce its investments in equities because it expects stocks to post ``single-digit'' returns over the next 10 years. At the end of 2004, Teachers' cut its target weighting for equities to 45 percent of total assets from 50 percent. ``With this modest outlook for stocks and bonds, we will search for additional value by investing more of the fund in other investments, such as private equity, infrastructure, hedge funds and real estate,''
Teachers' wrote in its annual report. As of Dec. 31, private equity and ``infrastructure'' holdings such as pipelines and toll roads amounted to C$7.4 billion, up from C$3.9 billion in 2000. Teachers' last year boosted its holdings in ``absolute- return'' investments by about 5 percent to C$11.2 billion. The amount includes C$4.5 billion invested in more than 150 hedge funds, which contributed C$250 million in income last year. Coal As of Dec. 31, Teachers' biggest investment in a publicly traded equity was its C$1.1 billion stake in Fording Canadian Coal Trust. Fording shares have more than doubled in the past 12 months.
The fund's 19.3 million shares of oil and gas producer Nexen Inc. were worth C$944.3 million, while its holding in Maple Leaf Foods Inc. was worth about C$640 million. Teachers' said Chief Executive Claude Lamoureux got total compensation of C$4.55 million last year. The amount includes C$446,673 in salary, an annual bonus of C$585,300 and a long-term incentive payment of C$3.5 million. Bob Bertram, the fund's executive vice president of investments, was the next highest-paid executive at C$3.73 million, including a long-term incentive payment of C$2.72 million.
To contact the reporter for this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net. To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net