The Ontario Teachers’ Pension Plan returned 4.2% in 2016, exceeding its benchmark return of 3.5%. The $175.6 billion fund is 105% funded, its fourth consecutive year reporting an overfunded status.
The fund said its 2017 surplus was mostly due to gains attributed to a practice called asset smoothing. In 2017, the fund smoothed asset gains and losses over a three-year period, which makes its funding ratio, contribution rates and benefit levels less volatile.
According to Ron Mock, the fund’s president and chief executive officer, the fund holds investments in 37 global currencies in more than 50 countries. In those local currencies, the return on investments was 7.2%. Converting the return on those investments back into Canadian dollars, the currency in which pensions are paid, had a -2.8% impact on the plan’s rate of return. By contrast, currency gains added 8.3% in 2015, Mock said.
Looking at net returns by asset class, the fund reported that at year-end 2016, six asset classes outperformed in 2016 compared to 2015. The outperforming sectors were Canadian equities, bonds, real-rate products, real estate, natural resources, and infrastructure. Underperforming sectors were non-Canadian equities, absolute return, and money markets.
Since its inception in 1990, Ontario Teachers’ has achieved an average annualized return of 10.1%. The five- and ten-year returns were 10.5% and 7.3%, respectively. Total investment income since 1990 accounted for more than three-quarters of the funding of members’ pensions, with the remainder coming from member and government contributions.
By Chuck Epstein