OTPP Gains 8.6% in 2020
Ontario Teachers’ Pension Plan Board (Ontario Teachers’) today announced a total-fund net return of 8.6% for the year. Net assets reached $221.2 billion as at December 31, 2020, a $13.8 billion increase from a year earlier. Ontario Teachers’ earned $18.0 billion in investment income in 2020.
“Our portfolio proved to be very resilient during a turbulent year. Through the headwinds of a global pandemic and volatile investment landscape, we delivered strong financial results and high service levels for our members,” said Jo Taylor, President and Chief Executive Officer. “Our ability to navigate the many challenges posed in 2020 was anchored around the skill, agility and application of our team, which augurs well for the future despite the ongoing market uncertainties.”
As of January 1, 2021, the plan was fully funded for an eighth consecutive year with a preliminary surplus of $8.5 billion using prudent assumptions, with 100% inflation protection being provided on all pensions. The plan’s funding ratio was 103%.
As at December 31, 2020, Ontario Teachers’ has had an annualized total-fund net return of 9.6% since inception. The five- and ten-year net returns were 7.0% and 9.3%, respectively.
“The pandemic highlighted the importance of robust portfolio diversification across different assets, geographies and sectors,” said Ziad Hindo, Chief Investment Officer “Our strong results were a result of significant exposure to fixed income and outstanding performance by our public and private equity asset classes.”
Detailed Asset Mix
Total fund local return was 9.4%. Ontario Teachers’ invests in dozens of global currencies and in more than 50 countries but reports its assets and liabilities in Canadian dollars.
“I want to personally thank the entire Ontario Teachers’ team for their tireless efforts in 2020. I am incredibly proud of what we accomplished and how we navigated through the pandemic while delivering on our key investing and member service activities. As we look to the balance of 2021, we remain focused on delivering for our members, and continuing to strive for investment excellence while leaving a lasting, positive impact on the world,” concluded Taylor.
About Ontario Teachers’
The Ontario Teachers' Pension Plan Board (Ontario Teachers') is the administrator of Canada's largest single-profession pension plan, with $221.2 billion in net assets (all figures at December 31, 2020). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.6% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region offices are located in Hong Kong and Singapore, and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario's 331,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.
Take the time to read OTPP's 2020 Annual Report here.
Earlier today, I had a quick virtual chat with OTPP's CEO JoTaylor and its CIO Ziad Hindo (thanks Dan Madge).
I will come back to our discussion below but first, I want to go over some important items from the Annual Report.
I read the message from OTPP's Chair, Steve McGirr, as well as Jo Taylor's message.
Steve McGirr, the Chair, states this which I think is critically important:
COVID-19 presented many challenges, including for governance. In the early months of the year, the priorities of the board pivoted to pandemic response. We participated in weekly updates with the executive team to review changing financial markets, the needs of our portfolio companies, the migration to remote work, the condition of our business operations and, importantly, the health and well-being of employees.
While the board readjusted its priorities to navigate through the choppy waters of 2020, our focus did not waver from the post-pandemic world on the horizon. Defined benefit pension plans like Ontario Teachers’ are, by design, lifetime benefits, so we need to have a long-term mindset even when dealing with immediate crises. Considerable time at the board and management tables was spent on strategy and vision for the future.
Foremost is the diversification challenge. In a “lower for longer” interest rate environment, we need to innovate and keep a steady focus on generating returns to pay pensions.
Increasingly, this will mean being creative, going further afield and investing more in private assets. Doing so is made even more complicated by the fact that many asset classes are at sky-high valuations and competition is more intense than ever.
Keep in mind, Ontario Teachers' has a professional and independent board that operates at arm's length from the government.
Mr. McGirr, the Chair, has an impressive resume. He was Senior Executive Vice-President and Chief Risk Officer of CIBC until 2007. Prior to that, he was President of CIBC World Markets, and held a number of key leadership positions over a 24-year career at CIBC World Markets and Wood Gundy.
That tells me he understands risks and investments very well but he also understands the challenges that DB plans have to fulfill their mandate in a "lower for longer" interest rate environment.
In his message, Jo Taylor begins by stating this:
2020 was quite a year! It tested all of us as individuals, as companies and as a society. Our members – Ontario’s teachers – were able to rise to the challenge admirably, and we were also able to play our part.
I am incredibly proud of what we accomplished and how the Ontario Teachers’ team worked with conviction and agility. When COVID-19 took hold around the globe, our team was able to seamlessly transition to a remote work model without interruption to our key investing and member service activities.
This was my first full year as CEO, and it is safe to say it did not go quite as I anticipated. That said, in trying circumstances we demonstrated financial resilience while delivering outstanding service for our members.
He goes on:
Despite the tumultuous year, we delivered strong results in 2020. We achieved a total-fund net return of 8.6% for the year, exceeding the annual rate of return that is required to keep the plan sustainable over the long term. The returns were achieved by skillfully managing risk and return across a broad portfolio of assets.
Our portfolio proved to be very resilient, with many of our companies rebounding significantly from a dip earlier in the year. Our fixed income and equity asset classes performed particularly well amid ultra-low interest rates and strong global equity markets. Ample liquidity gave us the flexibility to support our companies through the toughest part of the pandemic and pursue attractive opportunities when public markets tumbled.
On the strength of our financial results, we ended 2020 fully funded for an eighth straight year. Our preliminary funding surplus totaled $8.5 billion and our funding ratio equaled 103% as at January 1, 2021. This is a strong achievement for a defined benefit plan like Ontario Teachers’.
Our Member Services team continued to deliver brilliant service levels again this year, achieving a service score of 93/100. This places us as the second-best pension plan globally. It is a remarkable achievement that we have been ranked first or second in a group of leading global pension plans for service over the past 10 years.
OTPP's sole purpose is to service its 331,000 members (active and retired) so Jo is right to highlight the accomplishments of its Member Services team, one of the best in the world.
He's also right to highlight the funded status of the plan -- 103% as at the beginning of the year -- because that's what ultimately counts the most for members who are worried if there are enough assets to cover future liabilities (a full discussion of the plan's funded status is available on pages 14-17 in the Annual Report).
He also notes "ample liquidity" which is something he mentioned to me and that to is critical because it allows OTPP to capitalize on opportunities as they arise in a post-pandemic world.
Looking toward the future, he states the following:
As we look to the future, we expect many of the key macro trends to continue in a post-COVID world. Plan demographics, “lower for longer” returns, a more crowded and competitive global marketplace and growing expectations around environmental, social and governance (ESG) issues are just some of the challenges that we will face. In fact, the global pandemic has made these key trends even more acute. Despite this changing environment, we have a clear plan for the future.
BUILDING A CULTURE OF EXPERIMENTATION
It starts with unlocking a culture of experimentation and entrepreneurship at Ontario Teachers’ to adapt to these challenging market conditions. We have a proud legacy of leading the industry and taking measured risks. To achieve our targets, we need to be bold, ambitious and global.
How we go to market around the world will be key. More than ever, we need to pick the right partners, hire the right people and invest in the right countries. Last year, we opened an office in Singapore and made key senior strategic hires in our international offices. Moving forward, we will look to expand our international footprint in the markets where we need to grow.
Attracting and retaining top talent and becoming a truly inclusive organization remain significant priorities for Ontario Teachers’. We have a real focus on building and embracing diversity of thought and experience, as this will invariably lead to better decision making.
DELIVERING LONG-TERM GLOBAL GROWTH
Of course, we have to keep delivering the investment returns and long-term growth needed to keep the plan fully funded. Last year, I set out an ambitious goal of reaching $300 billion in net assets by 2030. In 2020, we grew our net assets to over $220 billion, so we are making good progress toward that goal.
To get there, we expect 50% of our private investments to be made outside North America. To do this, we aim to build focused, distinctive partnerships in our selected markets, and continue to build world-class talent in all of our locations. We also plan to pursue bold investment strategies to build new sources of returns.
INVESTING WITH PURPOSE
Beyond returns, I believe we also have a responsibility to create a lasting, positive impact on the people, companies and communities that we touch around the world. It is my view that investment returns and purpose go hand in hand, and this means delivering on our pension promise and investing to shape a better future.
Earlier this year, we made the commitment to reach net-zero greenhouse gas emissions by 2050, leveraging our scale and influence to transition to a low-carbon economy and create a sustainable climate future. We also increased our focus on “social” elements of ESG, recognizing that we have a responsibility to be part of meaningful, systemic change.
Ultimately, these efforts serve multiple goals: they can lead to better long-term returns, they will attract the right talent, and they will have a positive impact on the world.
And he ends his message by reaffirming they are operating from a position of strength:
There's a reason why I posted Jo's message, it's very well written and he really covers the critical points that everyone needs to understand.
We entered 2021 with many enviable advantages: a funding surplus, plentiful liquidity, top-notch portfolio companies, a respected brand, best-in-class partners and an experienced, dedicated global workforce. We also have the good fortune to represent Ontario’s educators on the world stage.
These strengths, along with the right leadership and the right strategy, position us very well for the future. While 2021 will undoubtedly continue to bring many challenges, I remain very confident in our team and our ability to provide outstanding service and retirement security to our members over the long term.
Importantly, there's no interview, including the brief chat we had earlier today, that can cover the critical points as well as his message and the passages I highlighted above.
Alright, let's move on to the Q&A with OTPP's CIO Ziad Hindo:
How did Ontario Teachers’ portfolio perform this year?
Our portfolio had strong performance in 2020. Despite headwinds from the global pandemic and a volatile investment landscape, we achieved a total-fund net return of 8.6%.
In the first half of the year, COVID-19 wreaked havoc in global financial markets, severely impacting a number of our investments. Strong returns generated by our fixed income asset class and an equity hedge to protect downside risk helped us offset losses in most other areas of the portfolio.
The prompt and unprecedented monetary and fiscal support from governments around the world helped jumpstart the global economy. Many of our portfolio companies showed incredible resilience and were able to bounce back quickly. This, combined with robust returns from public markets, helped fuel this year’s returns.
The pandemic highlighted the importance of effective portfolio diversification across different assets, geographies and sectors. While we could not have anticipated the pandemic, we had already set up the portfolio to be resilient in difficult conditions, and that has served us and our members well.
Crucially, we were able to achieve this as a result of the tireless efforts of the investment professionals and support staff at Ontario Teachers’. In the early stages of the pandemic, they provided vital support to our portfolio companies through the toughest period. As businesses adapted, the team pivoted seamlessly into looking for new value creation and investment opportunities.
Why did Ontario Teachers’ reduce allocation to fixed income in the second half of the year?
Fixed income has traditionally been a great source of returns and diversification. In fact, we were able to generate over $10 billion in investment income through this asset class in 2020 as interest rates declined drastically, with the majority of this coming in the first half of the year.
With a persistent low interest rate environment expected in the coming years, fixed income will be a less effective source of diversification and returns in the immediate future. Consequently, we've reduced our exposure to this asset class and are seeking new sources of return and risk management through more diversification and increased allocation to other asset classes.
What is Ontario Teachers’ doing to show leadership on climate change?
Recently, we made an ambitious commitment to achieve net-zero greenhouse gas emissions by 2050. As we are a long-term and global investor, our performance depends on widespread global growth and prosperity, which are inextricably tied to climate change. It is imperative that we act as a responsible and engaged owner of businesses. You can read more on our net-zero commitment on page 28.
Moving forward, we will increase our focus on financing climate solutions that replace fossil fuels and reduce emissions. Our investment in Equis, a leading developer of renewable energy and biomass generation assets in Asia, is a perfect example of this.
More broadly, we continue to examine our investments in the context of the UN Sustainable Development Goals, which include numerous environmental and social factors.
Given ongoing trade tensions, is it prudent for Ontario Teachers’ to be investing internationally?
We face a significant challenge to achieve the risk-adjusted returns needed to keep the plan fully funded over the long term. To do this, we will need to further diversify our investments in regions where economic growth is higher. Even though there are risks to going farther afield with our investments, being active in high-growth markets like China and India is vital.
When we invest in global markets, we do so in a prudent, responsible manner. We nurture relationships with trusted partners with local expertise. We have also been growing our international workforce in Hong Kong, London and Singapore. By enhancing our partnerships and talent, we are better able to source the best opportunities and more effectively manage our assets once we have invested.
Where do you see investment opportunities in a post-COVID world?
When we look past the present pandemic, we see an altered investment environment. We believe this will be a period of increased disruption, bringing some new risks, but also significant opportunities. These include taking advantage of the digitization tipping point that the pandemic has accelerated through increasing our exposure to sectors that benefit from this trend, especially in the consumer area, as well as looking for opportunities in areas of the credit market that have experienced stress but have good longer-term prospects.
What would you want to tell members about their plan?
We are operating from a position of strength. We entered 2021 with a well-diversified portfolio and ample liquidity to pursue attractive opportunities. Events of the year demonstrated the durability of our portfolio.
We have the right strategy, expertise and ambition to continue generating the long-term returns needed to keep contribution and benefit levels stable, and the plan fully funded.
There's is no doubt about it, OTPP is operating from a position of strength and it's reflected in all facets of its operations:
Now, let's delve deeper into OTPP's asset mix and performance for 2020:
A few comments:
- The 1-year total-fund net return of 8.6% was largely driven by strong results in fixed income and public and private equities, along with strategic allocations to gold and an equity hedge.
- Still, over a 1-year period, OTPP underperformed its benchmark by 210 basis points (8.6% vs 10.7%) and over a 4-year period it's pretty much flat (7.8% vs 7.9% for its benchmark).
- Over a 1-year period, Equities outperformed their benchmark by 110 basis points (13.2% vs 12.1% for benchmark) and that strong performance came from both Public Equity (15.2% vs 11.2% for benchmark) and Private Equity (13.5% vs 12.3% for benchmark).
- In 2020, Fixed income added solid gains that were pretty much in line with its benchmark (20.7% vs 20.6%) and most of those gains came from Bonds (24.6%) which Teachers’ leverages as part of its liability-driven investing program.
- Real Assets underperformed their benchmark by 7.5% (-7.6% vs -0.1%) and the bulk of that underperformance came from Real Estate which not surprisingly, posted big declines last year (-13.7% vs -4.7% benchmark).
- Infrastructure did post a gain of 2.6% last year but it underperformed its benchmark by 490 basis points (2.6% vs 7.5% for benchmark).
- Natural Resources also got hit hard, declining by 11.2%, underperforming its benchmark by 260 basis points (-8.6% for benchmark).
- The Teachers' Innovation Portfolio delivered solid gains of 16.3% last year (no benchmark returns as it's still new).
- Credit outperformed its benchmark by 110 basis points (2.6% vs 1.5%)
- Absolute returns strategies (internal and external hedge funds) delivered CAD $13.6 billion net investment last year.
- Money markets which represent leverage were at $18.3 billion on a $217.9 total or -8.4% leverage on total fund, mostly in Bonds.
- Lastly, currency losses cost the Fund 80 basis points last year as the Canadian dollar gained on the US dollar.
In terms of leverage and asset class ranges, I invite you to read OTPP's Statement of Investment Principles and Policies here.
There, you will find OTPP's long-term strategic asset mix and a lot more details on their investments:
Admittedly, the ranges for Money Market make it appear as if the Fund takes on a lot more leverage than it actually does but it's mostly bond repos to buy bonds for their liability-driven investing program and to fund other assets (each Canadian pension should have an explicit leverage policy for each asset class).
In the Annual Report, you will find details on Money Market activity last year on page 44:
The money market allocation represents the net implicit funding for the overall asset mix. Money market includes exposures such as bond repurchase agreements used for managing day-to-day liquidity, implied funding from derivatives used to efficiently gain passive exposure to global equity and commodity indices, short-dated and term unsecured funding guaranteed by Ontario Teachers’, and liquidity reserves. These activities result in a negative net money market exposure in the overall asset mix, and the amount is expected to vary from year to year based on the implementation of the asset mix.
The change in money market in 2020 is consistent with the reduction in the fixed income asset class.The funding of the money market investment program allows Ontario Teachers’ to:
- hedge the interest rate risk associated with our pension liabilities;
- achieve the optimal overall risk-return profile for the investment portfolio;
- obtain exposure to certain markets more efficiently;
- increase our holdings of lower-risk asset classes that generate attractive risk-adjusted returns;
- maintain sufficient liquidity.
On page 44, there's also a great discussion on liquidity management and investment funding strategy. I note the following:
The investment funding strategy contains both short- and long-term funding sources, which collectively diversify and mitigate risk. Examples of short-term funding include bond repurchase agreements, commercial paper and securities lending agreements, while long-term funding includes unsecured term-debt issuance (as described below).
Ontario Teachers’ Finance Trust (OTFT), an independent entity, plays an important role in our overall strategy. OTFT issues commercial paper and term debt that is fully, unconditionally and irrevocably guaranteed by Ontario Teachers’.
In addition to OTFT, Ontario Teachers’ Cadillac Fairview Properties Trust (OT-CFPT) provides further investment funding diversity through its issuance of term debt. OT-CFPT is backed by a high-quality Canadian real estate portfolio and is non-recourse to Ontario Teachers’.
Clearly the intelligent use of leverage plays an integral part in Teachers' overall diversification and funding strategy.
Now, I went over the details of each asset class starting on page 35.
I invite you to read this section but here are my quick takes:
- Public Equity posted solid gains in 2020 (15.2% vs 11.2% for benchmark) and the only thing I can note here is that Teacher's had more technology exposure than its peers through Consumer Discretionary (ie. Amazon), Information Technology (Apple and Microsoft) and Communication Services. It also had a decent exposure to Industrials which did very well last year. Still, outperforming their benchmark in Public Equity by 400 basis points last year is quite a feat and the only way to do that is by being overweight tech (great tactical call).
- Private Equity posted a solid gain of 13.5% and remains a very important asset class. Some of the portfolio companies got hit early on in the pandemic but they recovered solidly in the second half of the year. "Assets increased primarily because of acquisitions and higher asset valuations, strong performance of the long-term equity program and value creation activities at portfolio companies, which were partially offset by several dispositions during the year." Also, the PE program is fairly well diversified across sectors and geographies, which helped mitigate downside risk.
- In Fixed Income, I note this: "Given the significant rally in fixed income markets in the first half of 2020 and the further decline in yields, we made the decision to reduce our exposure to fixed income. We did this by eliminating exposure to all sovereign markets with negative interest rates, reducing exposure to other low-yielding markets and establishing an overlay in foreign developed sovereign bonds."
- In Credit I note this: "Given the significant economic impact from COVID-19, we believe there will be attractive opportunities in the credit asset class over the course of the cycle. Thus, we have taken the decision to increase our internal allocation to US high yield, while at the same time partnering with reputable private credit funds."
Then I got to Real Assets where there were some problems last year. In Infrastructure which posted a gain of 2.6% but underperformed its benchmark return of 7.5%, I note this:
The majority of assets in the infrastructure portfolio had a flat to slightly positive change in value year over year. Certain assets were disproportionately affected by the COVID-19 pandemic, particularly Ontario Teachers’ portfolio of five airports, which resulted in underperformance compared to the benchmark.
Not surprised as airport traffic and revenues plunged last year as the pandemic forced shutdowns and restricted air travel.
Importantly, 38% of Teachers' Infrastructure portfolio is airports and another 14% is toll roads, two transportation assets that got hit hard last year (and they make up over 50% of the Infra portfolio).
But it's Teachers' Real Estate that posted the biggest declines last year, -13.7%, and it's important to understand why:
Operating income was $0.8 billion, 30% lower than 2019 due to rent abatements and lower occupancy, particularly for Canadian retail, which was significantly impacted by mandatory COVID-19 shutdowns causing extended mall closures, lower tenant sales revenues, tenant bankruptcies and a worsened outlook over the short term. Net real estate loss of $4.1 billion for 2020 was $5.6 billion lower than 2019 due to significant valuation losses for Canadian retail, a decline in Macerich and Multiplan shares and a substantially weaker Brazilian Real.
At year end, the retail occupancy rate (spaces less than 15,000 square feet and for lease terms greater than one year) was 85% (91% in 2019), while the office occupancy rate was 94% (93% in 2019). Decline in retail occupancy was partially offset by short-term occupancy (lease terms of less than one year) of 6% in response to challenges and uncertainty created by COVID-19. Canadian office properties were not significantly impacted by pandemic shutdowns since tenants continued to honour their rent obligations and the positive view on the long-term value of office markets has persisted.
The construction of two major office projects was completed in 2020: 16 York Street and 33 Dundas Street West, both in Toronto. Development of a third major office complex, 160 Front Street West in Toronto, continued with minor pandemic-related delays. In line with Cadillac Fairview’s focus on scaling and diversifying its global real estate platform, it acquired White City Place in London, UK.
I must say, Cadillac Fairview really needs to scale and diversify its global real estate portfolio. When I saw this, I was dumbfounded:
Importantly, 55% in Canadian Retail and 30% in Canadian Office and 7% Emerging Markets? Where is the geographic and sector diversification? What about US, European, Asian and Australian exposure and what about logistics and multi-family and other sectors?
I'm missing something here and there aren't enough details in the Annual Report or on the Cadillac Fairview website.
How can it be that in 2021, OTPP's real estate portfolio is still so concentrated in Canada (they need to follow BCI's QuadReal and diversify it a lot more).
I understand, liabilities are in Canadian dollars but if it's one thing that Canada's large pensions are good at it's geographic and sector diversification,
Now, to be fair, the pandemic hit Retail real estate assets especially hard and they will bounce back eventually but there's still a tremendous amount of work that needs to be done at Cadillac Fairview to divest from Retail and diversify the portfolio geographically and in terms of sectors.
Again, I might be missing something here but I was shocked reading only 2% of Real Estate assets are in the US and only 1% in the UK, and most are Canadian malls and offices.
Unfortunately, when I spoke to Jo Taylor and Ziad Hindo earlier today, I couldn't cover all these issues in detail because they were pressed for time, but these are the critical issues that need to be addressed going forward.
Of course, Jo Taylor and Ziad Hindo know this, Ziad sits on Cadillac Fairview's Board, so he's painfully aware of the lack of diversity in that portfolio (85% Canadian real estate exposure is way too much for a large Canadian pension).
I'm surprised it took the pandemic to expose this but truth be told, for the longest time, Cadillac Fairview was posting solid and steady gains, until the pandemic hit and exposed some severe structural deficiencies (namely, lack of geographic and sector diversification).
What else? Ziad spoke to me about how the Teachers' Innovation Platform run by Olivia Steedman is doing well and is now shy of 20 people in Toronto and international offices.
I read this about the Innovation asset class:
The innovation asset class comprises investments made by Teachers’ Innovation Platform (TIP), including direct investments and co-investments, funds and strategic partnerships, and platforms. TIP focuses on late-stage venture and growth equity investments in companies that use technology to disrupt incumbents and create new sectors. They seek to access significant global opportunities for investment in new businesses and sectors that are emerging as a result of unprecedented technological change.
Innovation net assets totaled $3.5 billion at the end of 2020. This is the first year that innovation is a distinct asset class so there are no comparable figures for 2019. The asset class had a one-year return of 16.3%, or 17.8% local return. Given the uniqueness of the TIP investment program, we will not report a benchmark during the incubation period, after which it will be measured against an active benchmark like the other asset classes.
Four-year annualized rate of return figures are not available for the innovation asset class as TIP was founded in 2019.
Go back to read an earlier interview of mine with Ziad to understand why Innovation is so important.
Again, it's about offense -- investing in emerging growth companies to capitalize on digitization, space exploration, clean tech and other trends -- and defense to make sure disruptive technologies are understood and adopted in their portfolio companies.
Ziad also mentioned that they're looking to build out Credit internally and through partners and given how the level of debt and how the pandemic has impacted global economies, there's a strong cycle for private debt.
For his part, Jo Taylor reiterated he wants to see assets grow to $300 billion by 2030 and they want to do so by expanding their investments in Asia Pacific and other regions. This is why they opened an office in Singapore to complement their London, Hong Kong and other international offices.
In other words, through their skilled work force all over the world, they need to monetize on their existing relationships, develop new ones and capitalize on Teachers' global brand.
But Jo was very careful to tell me that they aren't implementing a predetermined capital allocation program by region, they're looking for the best investment opportunities first and foremost.
He also agreed with me that while last year was challenging in some investments, OTPP is well diversified and has strong liquidity and its long term returns remain excellent:
A 9.6% total-fund annualized net return since inception is incredible and more importantly, OTPP remains fully funded.
Yes, last year, Ontario Teachers’ trailed its benchmark return by 2.1% as a number of investments, in particular retail real estate and airports, were hit hard by the COVID-19 pandemic.
It will bounce back but it needs to also address some structural diversification issues in its Real Estate holdings.
Lastly, below is the table featuring executive compensation:
In fact, take the time to read the entire 2020 Annual Report, OTPP always publishes a very comprehensive and well written annual report.
I thank Jo Taylor and Ziad Hindo for taking the time to chat with me earlier but it was too quick, I need an hour with both of them to really cover everything but they had plenty of important commitments today.
Then again, I should have gone over the annual report with them at the end of the day as I would have been better prepared and skipped straight to the tough questions (like lack of real estate diversification).
Hopefully, after reading this comment, both Jo and Ziad can offer me some more insights and I will be glad to edit this comment and add an update if needed.
Before I forget, Ontario Teachers' recently announced that Tim Deacon has been appointed to succeed David McGraw as its new Chief Financial Officer. Mr. McGraw will retire as CFO in June after a successful 16-year career at the organization. Mr. Deacon will join Ontario Teachers' on April 19, 2021 as CFO designate and will work closely with Mr. McGraw to ensure a smooth transition. He will report to President and Chief Executive Officer Jo Taylor.
Below, OTPP's President and CEO Jo Taylor spoke on a panel for the World Economic Forum at Davos earlier this year on accelerating the clean energy transition (fast forward to minute 11).
Make sure you read Jo Taylor's comment on the winding road to net-zero, it's excellent.
Update: After reading this comment, OTPP's CIO Ziad Hindo was kind enough to share additional insights on OTPP's real estate portfolio:
Regarding your question about real estate, we
have a very strong and seasoned team at
(CF) that we work very closely
with. I have included some additional notes on CF/real estate below:
- CF is building up capabilities internationally (London to cover Europe and Singapore to cover Asia). They have just hired heads of Europe. They have also identified strong local partners to deploy capital with.
- Also in the US, CF is establishing a presence in multi-family having acquired a large stake into Lincoln (One of the largest multifamily operators in the US).
- In the US, they’re also focusing on deploying capital into the Life Sciences real estate sector.
- CF will also augment its strong asset base in Canada by diversifying geographically and through different sectors.
- CF is also diversifying its Canadian assets by densifying its retail assets. An example is the residential development in Richmond mall/BC. CF has always been a top notch operator and developer, and the densification program of its shopping malls is going to be quite extensive over the next few years.
- Despite the headwinds suffered as a result of the pandemic, Teachers’ has done exceptionally well since buying CF and making it its wholly owned real estate subsidiary in in 2000 with strong and consistent returns.
- Teachers’ intends to add to its real asset exposure, both infrastructure and real estate (through CF). We’re clearly attracted to the stable, inflation linked cashflows (particularly given the reduction in Fixed Income exposure).
- Also worth highlighting the progress we’ve made in infrastructure investing as a result of our desire to increase exposure to real assets with significant acquisitions (Caruna, SGI, Enwave (Canada), ADNOC and Equis in Asia, all done over the past 12 months).