The pension fund underperformed benchmark return as portfolio missed chances
Ontario Teachers’ Pension Plan Board saw its net return for 2023 fall well short of its benchmark as its high exposure to global real estate lost out, while it was underweight some high-performing equities.
Total net return for 2023 was 1.9% compared to its 8.7% benchmark, meaning that value add was negative to the tune of $15.8 billion. This figure is the amount of return in excess of - or in this case, below - benchmarks after deducting management fees, transaction costs and administrative costs allocated to the active programs (includes annual incentives but does not include long-term incentives).
The 2023 stats also reflect worse performance that in 2022 when the net return was 4%, outperforming its 5.8% benchmark for that year, a value add of $4.4 billion.
The pension plan results show investment income of $5.5 billion and contributions of $3.3 billion for the year, but these were largely offset by benefits paid of $7.6 billion and administrative expenses of $0.9 billion.
With underexposure to some strong-performing equities, and interest rates impacting valuations for some real estate and infrastructure assets, the plan’s investment portfolio faced multiple negative impacts.
Asset mix
Ontario Teachers’ asset mix included 39% fixed income, 37% equities, 28% real assets, and 19% inflation sensitive such as commodities and natural resources.
Despite the significant share allocated to equity, just 10% was public equities (less than half its 2022 allocation) while private equity was held at 24%.
However, while public equities returned 20% (in line with benchmark), PE returned just 3.6% compared to a 16.3% benchmark and venture growth was a negative -0.7% compared to a 12.8% benchmark. The total returns for the equity asset classes was 7.4%, far below its 17.1% benchmark.
Real assets had a benchmark of 5.3% but returned a negative -4.1%, while inflation sensitive posted a larger negative return than its benchmark (-1% vs. -0.2%), while fixed income hit its 1.2% benchmark.
Fully funded again
Assets gained though to $247.5 billion, on course for a target $300 billion by 2030 and for the eleventh consecutive year the plan is fully funded as at January 1, 2024, with a $19.1 billion preliminary funding surplus.
“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,” said Jo Taylor, president & CEO. “With that said, we remain fully funded and delivered a positive return, which are both important financial metrics for our members. As a pension plan with multi-generational liabilities, our investment strategy is intentionally designed for stable long-term returns.”
