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Ontario Teachers’ Fund Prepares for Shakeup in Private Markets

Ontario Teachers’ Fund Prepares for Shakeup in Private Markets

(Bloomberg) -- Private assets were one reason Ontario Teachers’ Pension Plan underperformed in 2019. Now the fund is preparing for the fallout from the turmoil in public markets in 2020.

The C$207 billion ($147 billion) pension fund delivered a 10.4% return last year, lagging its 12.2% benchmark. The failure to beat the hurdle tends to happen when public equities have exceptional returns, the plan said in a statement.

But public equity markets are on course for their worst quarter in more than a decade as the economy is brought to a halt by the coronavirus pandemic. That may actually help parts of Teachers’ portfolio, which is heavy on bonds and infrastructure, and will shake up private markets as well.

“When dislocations happen at such a rapid pace, there’s usually a time lag until they started to feed through private assets, particularly when it comes to valuation,” Ziad Hindo, the fund’s chief investment officer, said by phone.

It is still too soon to tell how private assets will fare in this crisis, Hindo said. It’s not clear what business will look like after the economic shutdown. The pension fund’s managers are trying to stay close to the more than 100 private companies in their portfolio, to help them deal with the crisis.

“Every situation is different, we’ve been working closely with management of all of our portfolio holdings, and will provide whatever help they need from our end,” he said. “It’s really been all hands on deck for our private equity, infrastructure and natural resources teams.”

While nobody could have possibly predicted a pandemic, the last economic expansion was already too long, he said.

“We’ve been preparing for an economic downturn for quite some time now. We’ve built up a fair amount of liquidity in our balance sheet, increased our fixed income exposure over the last couple of years, and added to our gold exposure,” he said.

Ontario Teachers’ said it earned C$20.2 billion in investment income in 2019, the most in the organization’s history.

Teachers’ had 37% of its assets in equities, both public and private. Fixed-income products made up 46% of the portfolio.

The pension fund has offices in Toronto, London and Hong Kong. Jo Taylor, who became Teachers’ chief executive officer on Jan 1, said in a call with journalists Tuesday that the pension fund is still keeping plans to open an office in Singapore this year.

Caisse de Depot et Placement du Quebec returned 10.4% last year as stocks and fixed income shielded Canada’s second-largest pension fund manager from a poor performance in real estate. Ontario Municipal Employees Retirement System returned 11.9% on its investments last year, pushing assets to C$109 billion. The pension fund cut its stock holdings last year and added to its infrastructure bets.

©2020 Bloomberg L.P.