Ontario Teachers’ Returns 1.9% in 2023 | Chief Investment Officer

The Ontario Teachers’ Pension Plan announced it returned 1.9% in 2023, significantly underperforming its benchmark of 8.7%. The fund saw its assets grow to C $247.5 billion ($183.41 billion) in 2023, with the fund setting a goal of reaching C$300 billion in assets by 2030.

Poor returns were attributed to losses from real estate and infrastructure investments offsetting strong performance in equities and credit.

“The benchmark underperformance was driven by several factors, including a relative underexposure in listed equities, which performed strongly through the year, as well as valuation adjustments in the infrastructure and real estate portfolios due to higher interest rates and asset-specific events that negatively impacted select investments,” fund officials wrote in a release.

Ontario Teachers’, formed in 1990, has posted annualized one, five and 10-year returns of 1.9%, 7.2% and 7.6%, respectively.

Public equity, private equity and venture growth returned 20%, 3.6% and negative 0.7% in 2023, compared with benchmarks of 20.3%, 16.3% and 12.8%, respectively. These asset classes represent 10%, 34% and 3% of the portfolio.

Credit, 16% of the portfolio, returned 9.1%, slightly less than the fund’s 9.6% benchmark.

Bonds and real-rate products returned 0.6% and 7.3%, respectively, with these fixed-income assets meeting their benchmarks. These two assets comprised 35% and 4% of the fund’s portfolio.

Inflation-sensitive assets like commodities and inflation hedge assets returned negative 0.5% and negative 3%, matching their benchmarks, with natural resources returning 0.2%, less than their 3.3% benchmark. These assets made up 9%, 5% and 5% of the portfolio, respectively.

Finally, real assets like real estate and infrastructure returned negative 5.9% and negative 2.8%, well off of the benchmarks of 2% and 7.6%, respectively. These two assets comprise 12% and 16% of the portfolio.

These returns are not what was expected, Jo Taylor, Ontario Teachers’ president and CEO, noted in the release: “While we advanced key strategic areas of focus in 2023, we did not generate investment results to desired levels. This was largely due to positioning the portfolio for a more challenging economic environment than ultimately transpired, our relatively lower exposure to public equities, and valuation adjustments in certain real estate and infrastructure assets.”

The pension fund, like many other Canadian funds, has a surplus in funding. Ontario Teachers’ reported a funding surplus of C$19.1 billion by the end of 2023. The fund also reported investment income of C$5.5 billion, contributions of C$3.3 billion, C$7.6 billion in benefits paid and administrative expenses of C$0.9 billion.

“We remain fully funded and delivered a positive return, which are both important financial metrics for our members,” Taylor said in the statement. “As a pension plan with multi-generational liabilities, our investment strategy is intentionally designed for stable long-term returns.”