OTPP's CEO Aims for a Bolder, Entrepreneurial Future
Jo Taylor, CEO of Ontario Teachers ' Pension Plan for the past 18 months, wants the fund manager to be bolder.
More entrepreneurial. Dare we, or he, say it: ballsier.
"Teachers has had a history of being quite ballsy, right, at times," Mr. Taylor said Wednesday in his first lengthy Canadian interview.
"Look at when it bought [real estate company] Cadillac Fairview. That's a pretty brave bet, but it did it many years ago.
And the returns we made from Cadillac Fairview have been great over a long period of time."
Mr. Taylor said the fund's history can be broken into three stages. The first, under founding chief executive officer Claude Lamoureux and chief investment officer Robert Bertram, was "where they were very entrepreneurial, kicking things off super well in terms of growing the business."
Next came CEOs Jim Leech and Ron Mock, "who were basically professionalizing and systemizing the business, in no small measure prompted by the global financial crisis."
"And my job, I think, is to say, well, what's next for Teachers?" he said.
"And I do see that as really trying to make sure it's a great international investing institution. But also I think it's bringing some entrepreneurial spirit back into the business, because we need that to be able to pivot to find the right places to invest and also make sure we've got the risk culture to actually try things out."
In a way, Mr. Taylor is an outsider insider, an internal successor who's spent little time on Bay Street.
Teachers announced Mr. Taylor as the incoming CEO in July, 2019, after he'd spent little more than a year as the pension's head of international investing.
A native of Britain, he's been at Teachers since 2012, when he joined the pension to lead its Europe, Middle East and Africa operations. (His name "Jo" is a derivation of Jonathan, the name his mother gave him, subsequently tweaked on childhood playgrounds because of the A.A. Milne poem Jonathan Jo, in which the titular character "has a mouth like an ‘o.' ") "I'm not Canadian, so I'm actually coming at it from a slightly different perspective," he said. "I hope that's actually helpful because I can be direct, honest and challenging within the organization. Sometimes you can feel hamstrung because you're part of the community. ... I think we don't always say what we think. So I've pushed really hard for a bit more authenticity and directness on the communications side."
Mr. Taylor has spent his career in a wide range of finance roles - including venture capital - in a number of countries, and his appointment was widely seen as a desire to internationalize Teachers' portfolio: By Dec. 31, the pension had 70 per cent of its portfolio in the United States and Canada, with an additional 14 per cent in Europe. Only 11 per cent is in the Asia-Pacific region, with 5 per cent in South America.
Currently, Teachers has investments in 50 countries. Part of Mr. Taylor's internationalization plans, however, involves winnowing the focus even as more money goes global: Teachers has identified nine focus countries, with clear strategies for each, part of 20 countries where they intend to actively invest.
Teachers has fewer global offices than other Canadian peers within the "Maple Eight" funds such as Canada Pension Plan Investment Board, which is larger by asset size, and Ontario Municipal Employees Retirement System, which is smaller. "If we can do the right mix of being effective internationally with a sensible cost base, so we can say that responsibly to our members and our stakeholders, I think that would be good."
Mr. Taylor's observations about the cost of offices point to a constraining truth about the pension fund he and his team manage: Teachers is the largest single-employer pension in Canada, and that employer's demographics are shifting, unfavourably. Thirty years ago, the average plan member paid into the pension for 29 years, then collected benefits for 25. Now, the average member pays in for 26 and collects for 32. In 1990, there were four active teachers for every pensioner; now it's a one-to-one ratio.
"The amount of risk we take will be less than some of our peers because of our funding dynamic," Mr. Taylor said. "So we'll have a different allocation to say, equities, than perhaps some of our Maple Eight counterparts. And that's deliberate. ... Our ability to recover from bad years is going to be more challenging than perhaps some others. We try to be really thoughtful about the return we make on risk."
Teachers weathered COVID-19 with an 8.6-per-cent return in 2020 because it had an outsized position in bonds and fixed income early that year when equity markets collapsed; it largely sold out of the position in early 2021. The near-term goal is more money in private assets such as real estate and infrastructure, areas where many institutional investors are rushing.
Mr. Taylor has set a goal of hitting $300-billion in assets by 2030, up from the $221.2-billion at year-end 2020. The goal may sound modest from a returns basis, but Teachers' demographics cause different fund flows than other plans, with significant amounts of benefits paid out each year. The goal works out to about a 4.5-per-cent real return, which is after inflation and after all investing costs.
One of Mr. Taylor's other emphases is Teachers' Innovation Platform, an investment program targeting "disruptive" companies, tech or otherwise. At less than $3-billion today, and the goal of $10-billion "reasonably soon," it's a small part of the portfolio. But it's an attention-grabbing one, particularly when its first investment was in SpaceX, the brainchild of controversial alpha CEO Elon Musk. The latest deal was a Teachers-led financing that valued a Waterloo, Ont., educational startup, ApplyBoard, at US$3.2-billion.
"I've lived in the venture world for a bit of my life and I think the question you keep coming back to is how disruptive and how large can the company become, because often with these businesses, if they can really deliver on their potential, your entry price becomes pretty irrelevant quite quickly because it grows at an exponential scale relative to others," he said.
"That's not to be glib about valuations which are high - let's just be honest, they are very high at the moment - but I think if you want to play in that space, you've got to be willing to bite the bullet on businesses you really have high conviction around and invest regularly."
A fairly candid interview with Jo Taylor, OTPP's President and CEO.
What I like about Jo is that he doesn't sugarcoat things, pretty much tells it like it is and he has tremendous experience to back up what he's saying.
Let there be no doubt, Jo Taylor was chosen to succeed Ron Mock to internationalize OTPP's brand and operations and to take bold, entrepreneurial opportunities to address an aging demographics at the plan.
The word "bold" is apt. Back in May, I discussed OTPP's bold new property venture in the Asia Pacific region.
Last September, OTPP opened a new office in Singapore to enhance its existing capabilities in the Asia Pacific (APAC) region:
“Expanding our presence in Asia is critical to our future growth,” said Ben Chan, Regional Managing Director, Asia, who will oversee operations for the Singapore office.
“Asia Pacific offers numerous emerging and developed markets across two continents. Expanding our local capabilities will allow us to further generate returns to deliver on our pension promise.”
The Singapore office will target investments across India, Australia-New Zealand (ANZ), and the Association of Southeast Asian Nations (ASEAN). Ontario Teachers’ Hong Kong office, established in 2013, will continue to focus on the north APAC geographies including Greater China, South Korea and Japan.
You need boots on the ground to develop relationships in this region and find new opportunities.
Of course, as stated in the article above, there is increased competition, not just from other large Canadian pensions setting up offices abroad, but also from global pensions and sovereign wealth funds that are also looking to expand their investments internationally.
This is why the Ontario Teachers' brand has to be there, to attract more deals from local partners looking for the right long-term investor.
Luckily, OTPP's brand is still widely recognized and respected but as Jo Taylor knows very well, you can't take that for granted. You need to be constantly evolving.
Take Teachers’ Innovation Platform (TIP) which Jo referred to above. He's absolutely right, if you enter relatively early with the right company and experience explosive growth over the long run, your entry price becomes pretty irrelevant.
Of course, finding those innovators/ disruptors of tomorrow isn't easy and there's huge competition.
Two weeks ago, I discussed Olivia's Steedman's thoughts on investing in the new frontier as they look to invest in late-stage venture.
Last week, OTPP announced three big deals in financing late-stage venture companies:
- ApplyBoard, the online platform that empowers students around the world to access top quality education, today announced it has raised C$375 million (US$300 million) in Series D funding at a post-money valuation of C$4 billion (US$3.2 billion). The round was led by Ontario Teachers’ Pension Plan Board (Ontario Teachers’), through its Teachers’ Innovation Platform (TIP).
- Motif FoodWorks, the food technology company on a mission to make plant-based food better tasting and more nutritious, today announced it has raised $226 million in Series B funding. The round was jointly led by Ontario Teachers’ Pension Plan Board, through its Teachers’ Innovation Platform (TIP), and funds and accounts managed by BlackRock.
- Beamery, the leading talent operating system that helps companies attract, engage and retain top talent, has announced US$138m in Series C funding led by the Ontario Teachers’ Pension Plan Board (Ontario Teachers’), through its Teachers’ Innovation Platform (TIP).
You can read all these press releases here along with another one on how Ontario Teachers’ and IFM Investors officially took ownership of Enwave recently. Enwave is one of the largest commercial operators of community-based thermal energy systems in North America.
Interestingly, Dale Burgess, OTPP's Head of Infrastructure and Natural Resources, sat down for an interview with Bloomberg recently to talk about their focus on core infrastructure, going global, balancing ESG factors and our plans to double investments in infrastructure over the next 5 years:
“We are very much focused on the core infrastructure spectrum, but not exclusively,” senior managing director for infrastructure and natural resources Dale Burgess said in an interview.
“We have a very global mindset and a great global perspective, we have a global investment committee, we all sit on it and we evaluate, you know, a toll road in Australia against a toll road in Mexico against a toll road in Europe,” Burgess said.
“We try to compare and contrast, and one of the benefits of infrastructure is that you are looking at a smaller group of assets that, for the most part, have a similar purpose profile and it is easier to make those relative trade-off comparisons.”
The pension fund is seeing rich valuation of assets across the board. It’s seeing “a healthy level of competition” for core assets in both developed and emerging markets.
“We can’t simply look at one or the other, but we do need to be selective in terms of the assets that we choose to go after. We want to make sure that we’re getting a premium for the risk we’re taking by going further afield to find that type of risk profile,” he said.
While Ontario Teachers’ doesn’t set hard targets by geographies, it sees the Asia Pacific region as an underrepresented portion of its overall infrastructure portfolio. The pension fund has recently opened up a Singapore office, that’s set up initially with people from the infrastructure group.
“We have the desire to grow in that part of the world, we want to make sure that it’s done in the right pace,” he said.
You can read more of that interview here:
Dale Burgess sat down for an interview with Bloomberg to talk about our focus on core infrastructure, going global, balancing ESG factors and our plans to double investments in infrastructure over the next 5 years. Read it here: https://t.co/FihzwzGYvx— Ontario Teachers' Pension Plan (@OTPPinfo) June 18, 2021
Anyway, it's clear OTPP is expanding its international presence and getting into late-stage venture to capitalize on tomorrow's innovators.
Jo Taylor is right, the eras of Claude Lamoureux, Jim Leech and Ron Mock all served their purpose but they are over, it's now time to turn the page and focus on the next international growth phase under his watch.
Below, watch the story of ApplyBoard, Motif FoodWorks and Beamery. All excellent companies with huge potential to grow, and now part of the TIP portfolio.
Lastly, Chris Goulakos, The Hellenic Initiative (THI) New Leaders Co-Chair and Managing Director of Balius Partners, talks to Steven Galanis, Co-Founder and CEO of Cameo, a leading marketplace connecting fans directly with tens of thousands of pop culture personalities in the form of customized video messages, live video calls, and direct messages.
Chris sent me this interview at the beginning of the month but I only got around to seeing it this past weekend. It's beyond excellent, Steven shares unbelievable insights for all aspiring tech entrepreneurs and I'm telling you, the first 30 minutes alone before the Q&A are absolutely worth watching as is the Q&A where good questions were asked.
It only hit me after that Cameo was recently featured on CBS Sunday Morning and you can watch that clip here and below. Awesome company and after listening to Steven Galanis, it has an incredible future.
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