OTPP CEO Jo Taylor on Why Liquidity Concerns Him

OTPP CEO Jo Taylor was interviewed by Bloomberg at Davos recently discussing how the plan is overcoming a lack of liquidity in its portfolio. 

Jo began by stating they are lucky at Teachers because they answer to one community whereas their peers have multiple stakeholders.

He said they have roughly 300,000 members, half working half retired and their retired members have strong views about where they'd like them to invest in.

He explained that the challenge for Teachers' is they have a group of members who live a long time, they work for a short period because typically they do something before becoming a teacher, and therefore they need to make sure the plan's liabilities are covered over a longer period.

He said they're fully indexed and inflation is challenging for them. 

When asked if this necessitates a change in the way they invest, Jo said they learned the hard way over 34 years that you stay the course and plan for longer term.

Their dynamic is to look for 4% real return "but obviously when real is 5, 6, 7%, that makes the issue that much more challenging."

Lisa Abramowicz then asked Jo if they are moving away from the direct private equity model that has served them so well now that their real return target is easier to achieve.

Jo stated they've been investing in private equity for over 25 years and they have had a 20% return "net of all fees and carry," so it has served them very well to date.

However, going forward, the lack of liquidity in private equity concerns him and they are asking themselves as a long-term pension plan whether they need to sell assets at a discount to find that liquidity at the moment.

He said they are investing carefully, looking at businesses that are better than what is already in the portfolio and find solutions that are not predicated on bank debt. "Sometimes we can buy companies without any debt at all and then leverage it later and we have the balance sheet to do that."

In infrastructure he said they find the pricing of deals aggressive and challenging.

He also said most people at Davos "are keen on credit" because they don't like equities too much and reiterated you can make mid-teen returns there using less risk (not sure, think he's overly optimistic on private credit).

He also stated their bogey right now is 7.5% (4% real plus 3.5% inflation in Canada) and they are still able to achieve it but the concern is higher rates have impacted high return asset classes like private equity and venture. "Businesses are making as much as before and we have to hold them longer, so we have to work harder to make returns."

In terms of politics, Jo rightly noted it's already complicated and in the US, they adopted a state by state approach on where they want to invest.

Surprisingly, not a single question on real estate and Teachers' long-term strategy to diversify away from Canada and to internalize their global real estate operations.

Anyway, take the time to watch this interview below, first clip is on liquidity concerns and second one is full interview.

Also, earlier this week, Eduard van Gelderen, Senior Vice President and Chief Investment Officer, PSP Investments, Brandon Gill New, Managing Director, Head of External Partnerships, AIMCo and Puneet Kohli, Senior Managing Director, Ontario Teachers' Pension Plan, spoke at the iConnections Global Alts conference discussing the Maple model. 

I thought the panelists were great but the topic is old and stale and truthfully, take it from me, there hasn't been anything innovative at the Maple Eight in a long time (not saying this to be harsh, it's the truth).