Ontario Teachers Pension

Plan
FNCE6004 – Advanced Portfolio Management
Petar Miljkovic
 Description as provided by the Statement of Investment
Policies and Procedures January 1, 2018
• “It is a contributory, defined benefit • The annual pension payable is equal
pension plan co‐sponsored by the to 2% of the member’s highest 5-year
Ontario government and the Plan average salary multiplied by the
members, who are represented by number of years of service.
Ontario Teachers’ Federation.”

• Coverage for the plan consists of

nearly all of the certified teachers
employed in education for the
Province of Ontario. Participation is
mandatory for these individuals.

Statement of Investment Policies and Procedures for

Ontario Teachers’ Pension Plan (“SIPP”)
 Plan Overview and Management responsibility as
provided by the 2016 Annual Report
• Investments and benefits managed • “Management’s Role:
for 182,000 currently employed • Invest plan assets to help pay
teachers and 136,000 pensioners in pensioners
the Province of Ontario. • Administer the plan and pay pension
benefits to members and their
• Approximately 1,100 employees survivors
located in 3 major hubs (Toronto, • Report and advise on the plan’s
London, and Hong Kong) funding status and regulatory
• Ontario’s Teachers Federation and requirements”
Ontario’s government jointly
decide the contribution rate,
benefits received, and any funding
shortage or surplus.

OTPP 2016 Annual Report pp 5

Reported Fund Historical Performance Figures

• Relatively consistent growth Asset Growth Since Inception

• Last drop in assets was during

the financial crisis

https://www.otpp.com/investments/performance
 OTPP Fund Performance compared to select
OECD member country averages
• The Organisation for Economic Co-operation
and Development provides data for global
comparison.
• The 5-year average for Canadian funds is the
4th largest in terms of nominal returns and
the largest in terms of real returns.

OTPP 2016 Annual Report pp 2

OECD report: Pension-Markets-in-Focus-2016 pp 18
 OTPP and the Financial Crisis
• OTPP reports in their 2008 annual report a
return of -18.0%
• Plan to reduce equity allocation from 45%
to 40% and fixed income from 22% to 15%
OTPP 2009 Annual Report pp 2-3
• OECD reports that in 2008 countries with
equity dominated portfolios suffered the most.
• OTPP still performed better than the average
Canadian fund
OECD: Pensions at a Glance 2009 pp 35-36
 Global Operations & Investing
• “Our exposure to the economies of different
countries around the world, like our
investments in a diversified range of asset
groups, reduces overall volatility and offers
the potential for better returns. Because we
invest globally and report in Canadian dollars,
we actively manage our currency exposures.”1
• Due to the political atmosphere in the U.K.
CIO Bjarne Graven Larsen said that OTPP took
a partially hedged currency position in the
British Pound.2
• In 2016 the impact of currency had a -2.8%
impact on total-fund return while in 2015
there was a +8.3% impact on total-fund
1) https://www.otpp.com/investments/performance/investment-strategy/asset-mix
return.3 2) https://www.bloomberg.com/news/articles/2017-03-29/ontario-teachers-
returns-decline-from-previous-year-on-currency
3) Source：OTPP 2016 annual report, page 2,16
 Global Investment: Grupo BTG Pactual
• BTG was the largest independent
investment bank in Latin
America.
• CEO was arrested for attempting
to obstruct a corruption probe in
the investigation of Petrobras
and for money laundering and
politicians for accepting bribes.
• One of nine financial institutions
placed under surveillance by
Brazil’s central bank.
• Teachers investment of $206
million made in December of
2010 fell below $150 million in
December of 2015.
• “We remain an investor,”
Teachers’ spokesperson Allan
confirmed in an email, adding,
“it remains part of our
relationship investing portfolio,
in our public equities asset
class.”
http://business.financialpost.com/news/fp-street/buyer-beware-how-
teachers-got-caught-up-in-the-fallout-of-brazils-biggest-scandal
 Notable Recent Investments

http://www.farms.com/ag-industry-news/ontario-s-teachers-starting-to-
invest-in-agriculture-532.aspx
Private Equity and Alternative Investments
• The private equity group of OTPP
has brought in 20% returns, net of
costs.
• The group has grown from 2010,
when it represented 11% of assets
under management to 15% as of
August 2017.
• SVP of private capital, Jane Rowe,
comments on an intention of
growing the group to at least 19%
of AUM in the future.
• OTPP has very stringent rules,
including an 8% hurdle rate, when
investing as a LP in alternatives.
• There is still a preference for co-
investing, in which the fee is
removed and OTPP has a say in
operations.
• Rowe also comments as to
management preferring their long
term investment style over the
traditional 3 to 4 years of private
equity.
https://www.top1000funds.com/profile/2017/08/03/o
tpps-private-equity-revolution/
Leverage Risk
 References

ANNUAL SURVEY OF INVESTMENT REGULATION OF PENSION FUNDS(Publication). (2017). Retrieved January 18, 2018, from Organisation for Economic Co-operation
and Development website: https://www.oecd.org/daf/fin/private-pensions/2017-Survey-Investment-Regulation-Pension-Funds.pdf

Deveau, S. (2017, March 29). Ontario Teachers' Posts Worst Return Since 2008 on Pound's Drop. Retrieved January 19, 2018, from
https://www.bloomberg.com/news/articles/2017-03-29/ontario-teachers-returns-decline-from-previous-year-on-currency

Liquidity. (n.d.). Retrieved January 19, 2018, from https://www.otpp.com/investments/performance/investment-strategy/liquidity

Pensions at a Glance 2009(Publication). (2009). Retrieved January 20, 2018, from Organisation for Economic Co-operation and Development website:
http://www.oecd-ilibrary.org/finance-and-investment/pensions-at-a-glance-2009_pension_glance-2009-en

Pension-Markets-in-Focus-2016(Publication). (2016). Retrieved January 20, 2018, from Organisation for Economic Co-operation and Development website:
https://www.oecd.org/daf/fin/private-pensions/Pension-Markets-in-Focus-2016.pdf

Ontario’s Teachers’ Pension Plan (2016). 2016 Annual Report: A Plan for All Seasons, 2, 5-9, 13-14, 6-17, 29, 56.

Ontario’s Teachers’ Pension Plan (2008). 2008 Let us explain how the economic crisis has affected your pension plan’s performance. And what we’re doing about it., 2, 5-9,
13-14, 6-17, 29, 56.

Statement of Investment Policies and Procedures for Ontario Teachers’ Pension Plan (“SIPP”) (2018). 2016

Tedesco, T. (2016, June 26). Buyer beware: How the Ontario Teachers' Pension Plan got caught in the fallout of Brazil’s biggest scandal. Retrieved January 19, 2018, from
http://business.financialpost.com/news/fp-street/buyer-beware-how-teachers-got-caught-up-in-the-fallout-of-brazils-biggest-scandal

Rundell, S. (2017, August 03). OTPP's private equity revolution. Retrieved January 19, 2018, from https://www.top1000funds.com/profile/2017/08/03/otpps-private-equity-
revolution/
Q&A