A Canadian pension fund has proved itself fully funded for six consecutive years.
The Ontario Teachers’ Pension Plan achieved a 2.5% net return in 2018, growing its assets to $C191.1 billion ($140.1 billion). Its newest annual report also showed some chutzpa in the face of extreme volatility, thanks to a diversified all-weather portfolio.
“In 2018, we were able to generate positive returns even as we navigated some of the most volatile markets in years, thanks to the work we have done to build a diversified investment portfolio that can perform across market scenarios,” said Ron Mock, its president and chief executive officer. “Concurrently, we are pleased to report that as of January 1, 2019, we were fully funded for a sixth consecutive year, with 100% inflation protection being provided on all pensions.”
Investments were allocated across all asset classes, leading to the teacher fund outperforming its 1.8% benchmark. The fund touted its active management approach.
“Times like these show how continuing to rebalance the portfolio for stability is paying off,” said Ziad Hindo, the organization’s chief investment officer, adding that the fund’s private allocations “carried the day.” Private equity alone returned 19.5%.
Additional returns came from infrastructure (8.8%), credit strategies (6.3%), real assets (5.8%), fixed income (2.8%), and inflation-sensitive assets (2.6%). Like many investors, stocks were where the losses are, trailing -3.6%.
That blow, however, was cushioned by an eight percentage point increase to the fund’s fixed income allocation during the year, from 33% of assets to 41%. With the exception of money market assets (cut 11 percentage points, from -21% to -32%), other asset allocations changed by just one percentage point in either direction.
Some of that volatility did hit the plan’s funded status, albeit slightly. Although it remains overfunded at 104%, the ratio declined a full percentage point from 2017’s 105%. Returns were significantly lower from last year’s 9.7% net as well.
Despite the slip, things are still looking good for the pension plan in the long-term. It has returned 9.7% since its 1990 inception, and its five-and 10-year returns as of December 31, 2018, were 8% and 10.1%, respectively.
The fund’s asset mix as of December 31, 2018, was 41% fixed income, 35% equity, 26% real assets, 15% inflation-sensitive assets, 8% credit, 7% absolute return strategies, and 32% money market assets.
The Ontario Teachers’ Pension Plan was unable to be reached for direct comment.
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