Fully Funded OTPP Gains 4% in 2022

James Bradshaw of the Globe and Mail reports Ontario Teachers’ Pension Plan posts 4-per-cent annual return as rate-sensitive investments gain:

Ontario Teachers’ Pension Plan reported a 4-per-cent return in 2022, helped by a conscious shift toward investments in assets that are sensitive to higher interest rates in a year market volatility spurred widespread losses in public markets.

Teachers’ annual return beat its internal benchmark of 2.3 per cent, and its net assets increased to $247.2-billion. Over 10 years, Teachers has returned 8.5 per cent, and the plan was considered fully funded at year-end.

Pension plans faced a tough year in 2022 as high inflation and rapidly rising interest rates created volatility in markets. But pension fund managers found refuge in the large portfolios of investments they have built in privately held assets such as infrastructure and private equity, which were more stable, as well as commodities and natural resources that are highly sensitive to interest rates and had a boom year.

Teachers, which manages the pensions of Ontario’s 336,000 active and retired teachers, has ramped up its investments in several of those asset classes, and started to move back into fixed-income securities as interest rates rose. Chief executive officer Jo Taylor has been vocal about the need to be brave in the plan’s investment choices in order to find stable returns in a tumultuous market.

“On a relative basis they’re good results. A lot of our peers find it more challenging to get it to positive territory,” Mr. Taylor said in an interview. “I think we’ve been very much living to that agility principle in the last two years by making bold choices around which areas we think we can make returns.”

On Monday, OPSEU Pension Trust announced a net investment loss of 2.2 per cent for 2022, bringing its 10-year average return to 7.8 per cent. And in recent weeks, Ontario Municipal Employees Retirement System said it returned 4.2 per cent in 2022, while Caisse de dépôt et placement du Québec lost 5.6 per cent. But wide variations in the plans’ portfolios and membership make them difficult to compare directly.

As the recent collapse of Silicon Valley Bank creates new paroxysms in markets, Mr. Taylor said he expects the immediate impact on Teachers from the banking crisis will be “really, nil.” But as the fallout unfolds, he said the widespread uncertainty it creates could start to make deals more difficult if banks pull back on lending and financing for mergers.

“What’s really the issue? I think it’s wider confidence in markets,” Mr. Taylor said. “And then secondly, will it actually mean that some of our banking partners are a little more cautious about being active at the moment on helping us with transactions?”

Last year, Teachers put more money into fixed-income assets, starting to rebuild a portfolio that it had reduced when interest rates fell to ultralow levels after the onset of the COVID-19 pandemic. The plan pushed further into credit, setting up a private credit team in London, and chief investment officer Ziad Hindo said “there is clearly more room for us to grow that asset class” even after it reached its largest share of Teachers’ portfolio at year-end, at 14 per cent of assets or $35-billion.

Teachers has also significantly increased its infrastructure portfolio in recent years. Those investments are in assets such as toll roads, airports, digital infrastructure and power generation that tend to have predictable cash flows tied to inflation. Last year, infrastructure assets delivered some of the strongest returns for Teachers, gaining 18.7 per cent, which beat a 15.1-per-cent benchmark.

Investments in commodities and natural resources returned 19.5 per cent and 29.6 per cent, respectively, though those assets make up smaller slices of the overall portfolio.

Private equity gained 6.1 per cent, surpassing a benchmark loss of 3.9 per cent, helped by foreign currency gains from a strengthening U.S. dollar.

Teachers underperformed in public stocks and bonds as well as real estate. Public equities lost 12.5 per cent, which was worse than a benchmark loss of 10.2 per cent. Bonds lost 5.9 per cent.

And the $28.1-billion real estate portfolio lost 3.5 per cent, missing its benchmark of a 6.7-per-cent gain as valuations on its Canadian retail and office portfolios fell, affecting capitalization rates. Teachers owns Cadillac Fairview, which has a high concentration of retail and office properties in Canada, which underperformed last year.

Mr. Hindo said retail sales productivity levels at many properties are back to pre-COVID levels, “so they’ve recovered quite well.” But the recent decision by Nordstrom Inc. to wind down its Canadian operations creates renewed pressure on malls, including three major properties owned by Cadillac Fairview where the luxury retailer was an anchor tenant.

“Mall anchors has never been an easy story, particularly for the larger malls, but it’s something that Cadillac Fairview has had to deal with multiple times in the past, whether it was Sears or Target, so they’re pretty good at turning that space around and reconfiguring it in a profitable way,” Mr. Hindo said.

Barbara Shecter of the National Post also reports Ontario Teachers' not interested in SVB's Canadian assets, CEO says:

The Ontario Teachers’ Pension Plan has invested heavily in tech and financial services companies in recent years, but the chief executive of the $247.2 billion fund says he isn’t lining up to buy the Canadian business of failed Silicon Valley Bank.

“We’ve not really looked at it so far,” Jo Taylor said Mar. 14, after the fund released annual results for 2022.

Though Teachers bought HOMEQ Corp., the parent company of reverse mortgage specialist HomeEquity Bank, last year and is building a venture investing platform that could triple in size over the next decade, Taylor suggested there are reasons SVB — which lends primarily to venture firms — would not be a good fit for the pension fund.

“Were we to look at the project, we’d obviously be then owning a bank and regulated accordingly and there’s a lot of issues that go with that,” he said.

“So personally, I’m not sure that’s necessarily our first choice just at the moment.”

Teachers’ posted a net return of four per cent for the year ended Dec. 31, driven primarily by strong returns from inflation sensitive and infrastructure asset classes.

Net assets grew to $247.2 billion, approaching the pension’s goal of $300 billion by 2030 and Teachers’ beat its benchmark return of 2.3 per cent.

The plan was fully funded as of Jan. 1, for the tenth year in a row, with a $17.5-billion preliminary funding surplus.

“We delivered positive results for our members in 2022, leveraging our portfolio diversification and flexible asset allocation capabilities in a difficult investment environment,” said Taylor.

He added that the relative investment performance was impressive, given that many public equity and fixed income indices experienced double-digit losses during the year.

The latest results contributed to an annualized net return of 9.5 per cent since the pension management organization’s inception in 1990, and five and 10-year annualized net returns of 7.3 per cent and 8.5 per cent, respectively.

When it came to Silicon Valley Bank, Taylor referenced how the bank failure was handled in the U.K., where the operations were placed with an established lender.

“They picked HSBC because actually they wanted somebody who had a huge amount of reassurance and cover in terms of what might happen, and I don’t know whether that’s something you (as a pension fund) want to be committing to to a regulator,” he said.

Taylor said the job for Teachers’ will be to manage any tremors and opportunities that arise in the aftermath of the bank failure.

“I doubt anybody saw the SVB (Silicon Valley Bank) thing coming but you know, that’s not necessarily that relevant — it’s really more how you cope with the impact of the situation,” he said. “We’re very lucky we don’t have any real exposure to them. So that’s not really going to be front of mind for me or for (chief investment officer) Ziad (Hindo) over the next few days.”

Ontario Teachers’ issued a pres release stating it delivered a solid investment performance in 2022:

2022 Highlights:

  • One-year total-fund net return of 4.0%, driven primarily by strong returns from inflation sensitive and infrastructure asset classes
  • Value added beyond benchmark of $4.4 billion 
  • The plan is fully funded for a 10th straight year
  • Ten-year annualized total-fund net return of 8.5% and return since inception of 9.5%
  • Advanced diversification with numerous investments globally and the establishment of new offices in Mumbai and San Francisco
  • Reduced portfolio carbon emissions intensity by 32% compared to the 2019 baseline and unchanged from 2021

TORONTO (March 14, 2023) -- Ontario Teachers’ Pension Plan Board (Ontario Teachers’) today announced a one-year total-fund net return of 4.0% for the year ended December 31, 2022, exceeding its benchmark return of 2.3%. Net assets grew to $247.2 billion (all figures are in Canadian dollars unless noted), making continued progress toward its goal of $300 billion in net assets by 2030.

These results contributed to the plan being fully funded as at January 1, 2023, with a $17.5 billion preliminary funding surplus. This marks the plan’s 10th consecutive fully funded year, underscoring its long-term financial health and sustainability.

“We delivered positive results for our members in 2022, leveraging our portfolio diversification and flexible asset allocation capabilities in a difficult investment environment,” said Jo Taylor, President & Chief Executive Officer. “Our relative investment performance in 2022 was impressive, as many public equity and fixed income indices experienced double-digit losses during the year. We were also able to maintain our fully funded status again for the 10th straight year, which will allow us to operate from a position of strength in the near term in markets that we expect to remain volatile.”

As at December 31, 2022, Ontario Teachers’ has delivered an annualized total-fund net return of 9.5% since inception in 1990, and five- and 10-year annualized total-fund net returns of 7.3% and 8.5%, respectively.

Investment Performance (all as at December 31, 2022)

Time Period On- yearFive-year 10-yearSince Inception
Total-fund net return4.0%7.3%8.5%9.5%

“Our diversified portfolio demonstrated resilience in 2022 with excellent returns from our infrastructure, inflation sensitive and private equity assets,” said Ziad Hindo, Chief Investment Officer. “The changes made to the portfolio over the past few years addressed many of the challenges of high inflation. Assets correlated to inflation such as commodities, natural resources and infrastructure all performed well last year.”  

Returns relative to benchmark

The one-year total-fund net return of 4.0% exceeded its benchmark return of 2.3%. This outperformance relative to its benchmark resulted in a value add of $4.4 billion and was driven largely by its private equity, infrastructure and credit asset classes, all of which meaningfully outperformed their benchmarks, partially offset by real estate and public equity which underperformed their benchmarks.

Fund returns by asset class are reported in the table below.

Portfolio Performance by Asset Class (all figures as at December 31)

Fund returns (%)1ActualBenchmarkActualBenchmark
Public equity(12.5)(10.2)9.013.1
Private equity6.1(3.9)29.017.5
Fixed income    
Real-rate products7.37.3 (1.4)(1.4)
Inflation sensitive    
Natural resources29.628.228.1 24.1
Inflation hedge9.
Real assets    
Real estate(3.5)
Credit3.60.03.5 1.2
Total-fund net return4.02.311.18.8


1 The total-fund net return is calculated after deducting transaction costs, management fees and investment administrative costs. Asset-class returns are calculated before deducting investment administrative costs.

2 Benchmarked to actual return during an initial incubation period, after which it will be measured against an active benchmark. Starting January 1, 2023, the innovation asset class will be compared to an active benchmark.

Detailed Asset Mix (all figures as at December 31)

Asset Class$ billions%$ billions%
Public equity$21.99%27.211%
Private equity58.324%55.123%
Fixed income    
Real-rate products9.84%11.95%
Inflation sensitive    
Natural resources10.14%9.4 4%
Inflation hedge12.75%12.25%
Real assets    
Real estate28.112%26.311%
Absolute Return Strategies18.78%14.96%
Funding for investments4(98.8)(40%)(34.7)(14%)
Net investments5$244.1100%$239.0100%


3 Includes strategies that manage the foreign exchange risk for the total fund.

4 Includes term debt, bond repurchase agreements, implied funding from derivatives, unsecured funding and liquidity reserves.

5 Comprises investments less investment-related liabilities. Total net assets of $247.2 billion at December 31, 2022 (2021 - $241.6 billion) include net investments and other net assets and liabilities of $3.1 billion (2021 - $2.6 billion).

Impact of currency

In 2022, a weaker Canadian dollar led to a foreign currency gain of $3.8 billion as assets denominated in foreign currencies appreciated in value when converted back into Canadian dollars. This corresponds with a return impact from currency of 1.5%. This gain, partially offset by our currency hedging activities, was primarily driven by the depreciation of the Canadian dollar against the U.S. dollar, influenced by the U.S. Federal Reserve’s proactive approach to raising interest rates to combat inflation.  

Investment Highlights

Ontario Teachers’ manages approximately 80% of its assets internally, with a focus on deploying capital into active strategies around the world. During 2022, the fund diversified investments globally and acquired assets across five continents. It also expanded its international footprint, opening offices in Mumbai and San Francisco. Being physically located in these key financial markets will provide more opportunities to source attractive investments and access local talent.

Transaction highlights in 2022 include:  


  • Acquired a co-control stake in GPA Global, a leading full-service provider of premium packaging solutions to brands in North America and Europe;
  • Acquired a significant majority stake in Sahyadri Hospitals, the largest private hospital chain in the Indian state of Maharashtra;
  • Agreed to acquire a stake in and combine group.ONE and dogado group, which will create a leading pan-European one-stop-shop provider of online presence solutions for small- and medium-sized enterprises. 


  • Acquired a 25% stake in SSEN Transmission, an electricity transmission network business that transports energy generated from renewable sources in Scotland to more than a quarter of the U.K. land mass, for total cash proceeds of £1.465 billion;
  • Acquired a 70% stake in the passive mobile tower infrastructure assets of Spark New Zealand for NZ$900 million. The tower company was subsequently rebranded as Connexa;
  • Partnered with Connexa on an agreement to acquire additional mobile tower assets from 2degrees Mobile for NZ$1.076 billion;
  • Invested up to US$805 million in a convertible equity portfolio financing with NextEra Energy Partners;
  • Formed a partnership with Mahindra Group to acquire a significant stake in Mahindra Susten, a leading player in Indian renewable energy sector;
  • Formed a joint venture with Corio Generation to develop 14 offshore wind projects with a capacity of up to 9GW;
  • Through our portfolio company Inversiones Grupo Saesa Ltda., acquired a 99.09% stake in the share capital of listed Chilean power transmission company Enel Transmisión Chile S.A. 

Natural Resources:

  • Provided funding to Haddington Ventures LLC’s ACES Delta Platform for the development of the world’s largest green hydrogen platform;
  • Partnered with Sprott Resource Streaming and Royalty, a global investment manager specializing in precious metals and real assets, in the US$225 million issuance of a royalty convertible note by Seabridge Gold’s wholly owned subsidiary, KSM Mining ULC.

 Real Estate:

  • Our real estate subsidiary Cadillac Fairview (CF) agreed to a joint venture with Thomas White Oxford Ltd to deliver Oxford North, UK, the £700 million new global innovation district;
  • CF committed an additional US$700M to IQHQ, following on its initial US$500M investment in November 2020. IQHQ is a leading life science real estate developer and manager with offices in San Diego and Boston;
  • CF and Boreal IM acquired three logistics assets in the U.K., 15 warehouses across four regions in the Netherlands, and two industrial parks in West London, U.K. and in the Port of Rotterdam, Netherlands;
  • CF began construction of a 288-unit residential rental building integrated with CF Rideau Centre, Ottawa’s largest and busiest shopping mall. 

Teachers’ Venture Growth:

  • Led a US$220 million Series D funding round for Taxfix, Europe's leading mobile tax app;
  • Led the €183 million Series E funding round for Alan, a leading European digital healthcare company.

Climate ambition and investment

As part of its journey to achieve net zero on its investment activities by 2050, Ontario Teachers’ has industry-leading interim targets to reduce portfolio carbon emissions intensity by 45% by 2025 and 67% by 2030, compared to its 2019 baseline. It has made meaningful progress toward the 2025 and 2030 interim targets, with portfolio carbon emissions intensity down 32% from the 2019 baseline. Portfolio carbon emissions intensity remained unchanged between 2021 and 2022 due to an increase in both market value and absolute emissions of its portfolio carbon footprint.

Ontario Teachers' added $3 billion in new green assets in 2022 including SSEN Transmission, Corio Generation, NextEra Energy and Haddington Ventures’ ACES Delta Platform. Green assets now total nearly $34 billion, approximately two-thirds of the way toward Ontario Teachers’ target of $50 billion.

In 2022, Ontario Teachers’ wholly owned subsidiary, Ontario Teachers’ Finance Trust (OTFT), issued a $1 billion green bond with the proceeds being invested in companies or assets that enable the net-zero transition, reduce emissions and build a sustainable economy. This was OTFT’s first green bond issuance in Canadian dollars. 

Investment costs

Ontario Teachers’ is committed to cost effectiveness and links its costs to the investment value creation process. Total investment costs including administrative expenses, transaction costs and external management fees totaled $1,886 million (78 cents per $100 of average net assets) in 2022, compared to $2,030 million (91 cents per $100 of average net assets) in 2021.

The decrease in investment costs was driven primarily by a decrease in transaction fees incurred from lower direct and fund acquisition volumes this year than in 2021, and a decrease in external management fees due to lower performance-based fees than in the prior year.

About Ontario Teachers’

Ontario Teachers' Pension Plan Board (Ontario Teachers') is a global investor with net assets of $247.2 billion as at December 31, 2022. We invest in more than 50 countries in a broad array of assets including public and private equities, fixed income, credit, commodities, natural resources, infrastructure, real estate and venture growth to deliver retirement income for 336,000 working members and pensioners.

With offices in Hong Kong, London, Mumbai, San Francisco, Singapore and Toronto, our more than 400 investment professionals bring deep expertise in a broad range of sectors and industries. We are a fully funded defined benefit pension plan and have earned an annual total-fund net return of 9.5% since the plan's founding in 1990. At Ontario Teachers', we don't just invest to make a return, we invest to shape a better future for the teachers we serve, the businesses we back, and the world we live in. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

Alright, it's time to cover Ontario Teachers' 2022 results.
Before I begin, it's important to properly read through the 2022 Annual Report which is available here.

Now, I typically have a conversation with OTPP's CEO Jo Taylor and CIO Ziad Hindo covering results.

You'll recall back in August, Jo and Ziad had no problem sitting down with me to discuss their positive mid-year results

To my great surprise and disappointment, Dan Madge, Director of External Communications informed me that Jo and Ziad were not able to take time to discuss results with me, so I’m left on my own analyzing OTPP’s results.

Q&A With Ziad Hindo, OTPP's CIO

Before I begin my analysis of OTPP's results, take the time to read this Q&A with CIO Ziad Hindo

How did Ontario Teachers’ portfolio perform in 2022?

Ziad Hindo: Our portfolio had a positive performance in 2022 despite a difficult investment landscape. We approached 2022 with caution but also took advantage of emerging opportunities during the year to earn a one-year total-fund net return of 4.0%. We were very pleased with this positive return in a year where most public market indices in equities and fixed income had negative returns. Our performance was driven by solid results across the inflation-sensitive and infrastructure asset classes, and on a relative basis, our overall returns exceeded our benchmark by 1.8%, which in dollar terms, contributed an additional $4.4 billion to the fund. We were also able to maintain our fully funded status for the 10th straight year, which will allow us to operate from a position of strength in the near term in markets that we expect to remain volatile.

How is the plan managing through this time of heightened inflation?

ZH: Last year we experienced one of the most challenging investment environments in the past 100 years. Volatility in global financial markets was partly caused by the aggressive tightening in monetary policy to contain rising inflation. The traditional 60/40 portfolio recorded its worst performance since 1937, as both government bonds and equities declined by double-digits. The only major assets across global financial markets to deliver positive returns were those that react positively to inflation, such as commodities and infrastructure.

Emerging from the COVID-19 pandemic, we recognized that significant monetary and fiscal stimulus would boost inflation globally. Inflation is impactful to the fund and can have an adverse impact on both the asset and liability side of the balance sheet. On the asset side, it traditionally adversely impacts asset prices, such and stocks and bonds, and makes earning a real return more difficult. On the liability side, higher inflation increases the cost of future pension payments.

To protect the fund against rising inflation, we adapted the asset mix to lower our sensitivity to interest rates. In 2020 and 2021, ahead of the inflation surge, we decreased the economic exposure of fixed income in the portfolio and shortened the maturity dates of our bond holdings. We increased our investments in assets that offer some inflation protection, securing a heavier weighing of our portfolio in commodities, actively seeking investments in natural resources, and assets like infrastructure – all of which tend to perform better in inflationary environments. We continue to evaluate the risk of inflation and take steps to defend our portfolio against inflation volatility.

Given the heightened volatility in financial markets, are you making any adjustments to the portfolio?

ZH: We continue to focus on diversification as an important lever to earn the required risk-adjusted returns, through careful construction of a portfolio of assets that perform differently across investment environments. In 2022, given the significant sell off in fixed income and credit asset classes, we decided to increase the asset mix exposure to both, thereby increasing portfolio diversification. In addition, we continued our focus to grow real assets, especially core infrastructure, which provides stable cash flows with inflation protection. Those actions helped make the portfolio more balanced from a risk perspective.

In addition to asset class diversification, we expanded our international footprint, opening an office in Mumbai and San Francisco, our fifth and sixth global offices, a reflection of our growing international presence. Being physically located in these markets will provide us more opportunities to diversify through sourcing attractive investment opportunities. Diversification and global growth are key ingredients in executing on our strategy to help us grow our assets to $300 billion by 2030.

How are you advancing efforts to combat climate change?

ZH: Climate change demands urgent action, and we are playing an active role in helping the transition to a low-carbon economy. In 2022, we advanced our multi-faceted climate change strategy that’s deeply rooted in driving real-world emission reductions. We made continued progress on growing our green assets, adding $3 billion worth of new green assets to our portfolio in 2022. OTFT issued another green bond, its first in Canadian dollars. Recognizing the urgent need to use our influence as a global investor, we also announced an ambitious plan to invest in high emitting businesses with the explicit goal of decarbonizing them faster. We continue to position our portfolio for the low carbon economy, decreasing our portfolio carbon intensity by 32% since 2019 and we’re on track to achieve our interim reduction target of 45% by 2025.

We also continue to engage with our portfolio companies and provide our expertise and influence to support them on their emissions reductions journey. 

Finally, we continue to be guided by our Responsible Investing Principles and are embedded in our internal processes and considered at all stages of our investment lifecycle.

Q&A With Anna Murray, Head of Sustainable Investing

I also think it's worth taking the time to read this Q&A with Anna Murray, Head of Sustainable Investing:

Why did you decide to join Ontario Teachers’?

Anna Murray: I was keen to join an organization where the commitment to making a real-world impact is embedded into the cultural fabric. Ontario Teachers’ has a strong commitment to embedding ESG practices that spans two decades, and it continues to demonstrate leadership and influence in the industry today. As an active and engaged investor, there’s a firm belief at Ontario Teachers’ that the organization can play a role in addressing some of today’s biggest environmental and social challenges and opportunities as we look to ESG considerations to help us deliver on our pension promise to members.

Ontario Teachers’ has been an ESG leader in the industry for more than 20 years. Why do you think that is?

AM: Ontario Teachers’ has been a trailblazer in the industry, taking a lead-by-example approach to advancing corporate governance and responsible investing practices. Our early work focused on progressing practices in corporate governance, such as adding transparency to how we vote our shares and being an influential thought leader in the space.

Over the years, our approach evolved as we applied our approach to investing responsibly. In 2010, we developed guidelines for managing climate change and became a signatory to the internationally recognized Principles for Responsible Investing. We later launched a Low Carbon Economy Transition Framework to build a common language around the energy transition.

We’ve made public commitments to be net zero by 2050 and strengthened our proxy voting guidelines for climate oversight, set interim portfolio carbon footprint reduction targets and targets for our portfolio companies to establish decarbonization plans. We continue to take an active stance on embedding ESG considerations across the investment lifecycle. In the last three years, the Sustainable Investing team was involved in and reviewed an average of over 80 potential and realized transactions valued at more than $35 billion annually across asset classes.

Most recently, through our annual review of our proxy voting guidelines, we reinforced existing focus areas for publicly traded companies such as Diversity, Equity and Inclusion (DEI) and set higher expectations for increased participation of women in board roles. Along our journey, we have developed substantial climate-related expertise and have worked to make our portfolio companies greener and more resilient. We remain committed to being on top of trends and research in the space and seek opportunities to use our capital and influence to make a long-lasting positive impact as we deliver value.

What were our biggest wins in 2022?

AM: Some of our key achievements last year include:

  1. Announced an ambitious plan to invest in decarbonizing high emitters to accelerate the net-zero transition and we plan to have an initial allocation of around $5 billion for these assets and will be providing separate reporting and measurement to reflect our progress;
  2. Added $3 billion in new green assets to our portfolio including Mahindra Susten (a renewable energy business in India), Corio Generation (a global offshore wind development platform), SSEN Transmission (an electricity transmission company in Scotland) and a second investment with NextEra Energy (a portfolio of high-quality renewable energy assets);
  3. Established proxy voting guidelines that advocate for large public companies to seek to increase their board gender diversity to a minimum 40% representation of directors identifying as women, up from prior expectations of 30%.
  4. Voted on nearly 280 shareholder proposals about ESG topics that drive accountability; and
  5. Through our wholly owned subsidiary Ontario Teachers’ Finance Trust (OTFT), issued a $1 billion green bond, OTFT’s third green bond issuance, and the first in Canadian dollars.

How does our purpose support a culture of sustainability?

AM: Our purpose is to invest to shape a better future. Our mission is to deliver retirement security for our members. This is what guides us as a global investor: as we work to generate returns and help ensure plan sustainability, we take an active role in creating real-world impact. Our purpose informs the way we think, act and do business, and is embedded into all facets and levels of our organization and its culture. Supported by our core strategies of Culture, Growth, and Impact our teams look to create a lasting, positive impact on the world. We believe this goes hand in hand with delivering the investment returns needed to keep pensions sustainable over the long term.

What’s next for sustainable investing at Ontario Teachers’?

AM: Building from our position of strength, we will continue to stay ahead of emerging ESG topics, trends, risks and opportunities. We will advance our multi-faceted approach to climate change, through actively working with our portfolio companies on decarbonization strategies, investing in green and transition assets, issuing green bonds, and evolving our proxy voting guidelines. We believe that expanding our positive impact through playing a role in addressing some of the world’s pressing environmental and social challenges supports our ability to create long-term value and deliver on our pension promise. As such, we are formalizing our approach to pursuing the positive impact we can have through our business activities.

Analysis of OTPP's 2022 Results

Let me begin by stating these were solid results all around and we shouldn't be surprised given OTPP's  positive mid-year results

Inflation sensitive assets like Natural Resources (+29.6%)  Infrastructure (+18.7%) and Commodities (+19.5%) came through as did Private Equity registering a gain of 6.1% handily beating its benchmark return of -3.9%. 

Now, Private Equity makes up 24% of OTPP's total portfolio so it's an extremely important asset class.

In 2021, that portfolio returned 29%, outperforming its benchmark of 17.5%, so returns are definitely coming down but still very solid given the difficulties in private equity industry

I expect returns in Private Equity will continue to be come down in 2023 as valuations reset to reflect the economic realities and public market comparables.

OTPP recently announced the appointment of Romeo Leemrijse as Executive Managing Director, Equities, taking over Karen Frank who "left" the organization after joining it less than three years ago

I hear nothing but good things about Romeo but he and his team have their work cut out for them, it will not be easy steering that giant portfolio during the next three years.

Still, market disclocations will present amazing opportunities like what is going on right now in US regional banks:

Talk about throwing the baby out with the SBV bathwater, there are tons of US regional banks on fire sale now based on their price to book values (WAL, KEY, FRC, etc.).

And US long bonds look great now given the Fed is closing in on its rate hikes and the US  economy is slowing markedly:

I'm not just talking up my book, now is a perfect time for OTPP and Canada's Maple Eight to take advantage of the major dislocations in public markets to "invest for the long run".

OTPP's Infrastructure and Natural Resources team led by Dale Burgess really impresses me a lot and I'd say this team has really come through with many excellent deals outlined in the press release and their long-term performance is excellent:

As far Real Estate, Cadillac Fairview is still struggling to diversify outside of Canada and Retail but it;'s happening ever so slowly, and this will benefit OTPP's members over the long run.

But it's slow, that portfolio should have followed Oxford Properties back when Blake Hutcheson was running it, diversifying out of Canada and into Industrials and Multi-Family. 

In fact, while both Oxford and Ivanhoe Cambridge delivered strong double digit gains last year, Cadillac Fairview was down 3.5% significantly underpeforming its benchmark of 6.7%.

For this to change, it needs to go full speed ahead with its geographic and sector diversification strategy but Jo Taylor told me they aren't going to sell assets at fire-sale prices.

Ziad Hindo sits on Cadillac's Board and makes sure they're executing ion their strategy, which they are but it will take time.

What else? Returns on the credit asset class were driven primarily by the appreciation of the US dollar compared to the Canadian dollar, as a sizeable proportion of the credit portfolio is denominated in US dollars:

I'm not sure where OTPP is in terms of building out its own private debt team in London but it needs to do this carefully, making sure they underwrite all their loans and know what they are underwriting.

There is a private debt bubble going on right now and only the smartest and best will survive this space when it bursts.  

What else? Teachers’ Venture Growth portfolio got hit hard last year as the Nasdaq got hit and venture capital hits a brick wall:

Olivia Steedman and her team are doing a great job but it's a tough portfolio which will experience lots of ups and downs:

The innovation asset class comprises investments made by Teachers’ Venture Growth (TVG), including direct investments, co-investments, funds and strategic partnerships. TVG focuses on late-stage venture and growth equity investments in companies that use technology to shape a better future. It seeks to access significant global opportunities for investment in new businesses and sectors that are emerging as a result of unprecedented technological change.

The asset class had a one-year loss of 12.1%, or a 17.6% loss in local currencies. The loss in the innovation asset class was largely due to valuation adjustments primarily driven by lower forecasted business performance at many of our direct investments and multiples compression. The five-year annualized rate of return figures for the innovation asset class are not available as 2022 was only the third full year for the TVG investment department. Since its inception in 2020, the innovation asset class has produced an annualized rate of return of 12.4%.

Given the uniqueness of the TVG investment program, we have not yet compared its performance to a benchmark during the initial incubation period. As of January 1, 2023, the incubation period has expired, and, moving forward, investment returns in this asset class will be compared to a benchmark.

Innovation net assets totaled $7.4 billion at the end of 2022, compared to $7.1 billion as at December 31, 2021. The slight increase in assets is due to new direct and fund investments executed during the year, offset by valuation adjustments to the direct and fund investments in the portfolio. 

As I keep stating, we are heading toward the brutal cold winter of this bear market, so expect a lot of the hot air in speculative fluff to be let out.

Over the long run, there will be winners and losers in Teachers’ Venture Growth (TVG) and hopefully they learned a hard lesson following Sequoia Capital blindly into FTX

That was a total disaster from a reputational point of view, meaningless from a total portfolio point of view (like Celsius was for CDPQ).

And then there's Teachers' absolute returns strategies:

Ontario Teachers’ uses absolute return strategies (ARS) to generate positive returns that have low correlation to other asset classes. Internally managed ARS generally look to capitalize on market inefficiencies. We also use external hedge fund managers to earn uncorrelated returns, to access unique strategies that augment returns and to diversify risk. In 2022, assets employed in ARS totaled $18.7 billion at year end, compared to $14.9 billion in 2021.

This is where they provide no transparency whatsoever. How much did they dole out in fees, what was the exact performance of external hedge funds? Which are the external hedge funds they invest with?

I'd think OTPP needs to bolster its transparency on its external hedge fund program which is significant.

Lastly, executive compensation for 2022:

This may raise some eyebrows for the simple reason that the CEO and CIO are the best paid in Canada.

Well, they delivered the long-term results but let me be clear, Ontario's teachers pay their salaries and I’m sure many of them are scratching their heads trying to figure out executive compensation. 

As I've said many times, compensation in finance is beyond ridiculous. the CEO of Royal Bank doesn't deserve $16 million a year, nobody deserves to make more than 30 times the median salary at any bank or public pension fund.

And OTPP isn't even the biggest and best pension fund in Canada, CPP Investments is and their senior executives don't get paid this well. Makes you wonder why Ontario teachers tolerate such compensation schemes.

I know, you have to pay for talent but give me a break, no CEO deserves to get 20 to 30x the median salary of a bank or pension fund employee (see Senator Clément Gignac's brilliant LinkedIn post here).

And let me be very clear on something, I have nothing personal against Jo Taylor, Ziad Hindo or anyone at OTPP, I think they're all professionals that work very hard, but let's be honest here, they all get paid extremely well for what they do and deliver.

Jo Taylor is actually a very nice and smart guy, one of the best CEOs I've come across in a long time, it's a shame he never came to Montreal to meet me.

Below, watch a video of how OTPP delivered a solid investment performance and remains fully funded for the tenth year in a row. Watch this video to hear their executives discuss their 2022 investment approach and performance, and delivering their strategy.

The most important thing to remember is long-term performance remains solid and that the plan remains fully funded for a tenth consecutive year.