A Conversation With OTPP CEO Jo Taylor on Their 2024 Results
Ontario Teachers' Pension Plan is reassessing its appetite for U.S. investments in the face of tariffs and trade tensions, looking for ways to boost the share of its overseas assets as economic risks rise.
Teachers has more than two-thirds of its $266-billion of assets invested in Canada and the United States - 36 per cent at home and 33 per cent south of the border.
With U.S. president Donald Trump promising to press ahead with punishing tariffs on Canada, Mexico and other trading partners, “one of the questions inevitably will be, well, what do we want to do next vis-a-vis our U.S. activity?” chief executive officer Jo Taylor said in an interview on Thursday.
Teachers is in “a live process” to determine whether to change the geographic mix of its investments, he said, in the same way that individual companies are looking to diversify their trade and reduce their reliance on the U.S.
“We are an international investor, we invest all over the world: What’s the right balance in the current climate of looking at other destinations, potentially, to where we’ve been investing recently?” he said. “And can we get the right risk-return if we do that?”
For investors, the huge U.S. market has historically been highly attractive because it offers a broad range of investment partners, strong capital markets, good management teams and consistent conditions.
“But I think what we’ll layer on top of that now is more a more uncertain geopolitical situation,” Mr. Taylor said.
“If I was contrasting our approach to perhaps some U.S. investors that I was working alongside at Davos and some other places recently, I mean, I think we are much more open to looking at the world through an international lens than some of our peers who’ve really hunkered down to really North America only,” he said.
That doesn’t mean Teachers will pull back on investments in Canada, even as the country faces a potentially severe economic shock. “We are clear that we would like to do more in Canada,” Mr. Taylor said, but a shortage of large projects is the main barrier.
On Thursday, Teachers reported a 9.4-per-cent return for its portfolio in 2024, bouncing back from a weak 1.9-per-cent return in 2023.
The pension fund’s 2024 returns fell short of its internal benchmark of 12.9 per cent, mostly because private equity returns lagged the stock market’s performance, and real estate assets such as office buildings and shopping malls continued to struggle.
Over 10 years, Teaches has an average annual return of 7.4 per cent.
In 2024, the pension fund’s publicly-traded stocks gained 23.2 per cent and the value of its venture capital investments increased by 25.8 per cent. Private equity investments rose by 11.7 per cent - but lagged a benchmark portfolio of mostly public stocks that gained 23.7 per cent. Real estate assets lost 0.9 per cent.
“I’m pretty pleased with the way our portfolio is standing up to the uncertainties that are around today,” Mr. Taylor said. “Over the last few months, post the year-end, the portfolio’s held up really well.”
Even as Teachers looks more skeptically at U.S. investments, nearly one-third of the $23.7-billion of investment income the pension fund earned last year - roughly $7-billion - came from currency gains as the gap widened between the U.S. dollar and a sinking Loonie.
Teachers reviewed its portfolio for exposure to tariffs and found “a relatively light impact so far,” Mr. Taylor said, with few investments in companies in sectors such as manufacturing that will be most directly affected.
Even so, the pension fund is looking to get more out of its network of international offices - in London, Singapore, Mumbai and San Francisco, plus one in Hong Kong office that will close - so it is less reliant on North America.
“Geopolitically, life’s got more complicated,” Mr. Taylor said, “So we’re trying to work out how we use that network of great people around the world as best we can.”
Layan Odeh of Bloomberg also reports Ontario Teachers’ gains 9.4% in 2024, boosted by venture investments and stocks:
Ontario Teachers’ Pension Plan gained 9.4% last year, driven by strong returns in stocks, venture growth and commodities.
The performance boosted the fund’s net assets to C$266.3 billion ($185.2 billion) as of the end of 2024, according to a statement Thursday, although it missed its overall benchmark of 12.9%.
“We have some categories where it’s been a deliberate policy decision by us to be different where it’s paid off,” Chief Executive Officer Jo Taylor said in an interview. “Gold was our highest performer in 2024, and we’ve been relatively light on bonds and fixed income.”
Venture growth holdings gained about 26% last year, as several assets performed well, with SpaceX standing out, according to Taylor.
With the exception of the pension plan’s real estate portfolio, which lost 0.7%, all of the fund’s asset classes earned returns last year. Stock holdings gained 23.2%, with commodities surging 25.2%. Meanwhile, private equity notched an 11.7% gain and credit returned 17.2%.
With markets being mired in uncertainty amid the US’s trade war with other countries, Ontario Teachers’ is taking a cautious approach. “It’s hard to invest with confidence in the time of volatility, Taylor said.
Still, the pension fund is on the hunt for companies but has increased the bar in terms of the quality threshold, he said. Ontario Teachers’ has been active in venture, private equity — particularly financial services — and infrastructure.
The one sector where the opportunity set has changed is defense. “Everybody’s now realizing they have to spend money on defense, building their own capabilities,” Taylor said. “If you invest in defense companies, I think you have to be quite careful about does it meet your values and your view of what’s an appropriate company to be putting investment behind.”
The Toronto-based pension plan created a department last year to “focus our value creation efforts and drive the predicted outcomes from the portfolio,” according to the statement. The new group, called Portfolio Solutions, is led by Kevin Kerr, who was the head of the fund’s infrastructure team in the Americas.
According to Taylor, the team is trying to do a few things, including giving an accurate assessment of what to do with an asset, maximizing the potential of the company beyond just the investment teams, and “if there is an asset where we think it’s probably the right time to dispose of it, make sure it’s really ready ahead of that process,” he said.
Ontario Teachers’, which manages around 80% of its assets internally, made several investments last year. This includes selling an equity stake in New Zealand’s mobile tower company Connexa and acquiring a co-control stake in Stockholm-based financial adviser Max Matthiessen from private equity firm Nordic Capital.
In 2024, Ontario Teachers’ posted a foreign currency gain of nearly C$7 billion, primarily driven by the appreciation of the US dollar compared with the loonie. The fund’s net exposure to the greenback is “significantly” larger than any other foreign currency.
Barbara Shecter of the National Post also reports that according to Teachers' CEO, defence investments will be winners in Trump world:
There will be winners and losers as United States President Donald Trump shakes up the world order through tariffs and shifting military strategies, but one area poised to prosper is defence, says Jo Taylor, chief executive of the Ontario Teachers’ Pension Plan Board.
“If you look for a sector where there’s going to be more activity and investment over the next five years, it probably is in defence, for all the reasons you know and you’ve seen,” he said.
In February, a broadcasted meeting between Trump and Ukraine President Volodymyr Zelenskyy in the Oval Office erupted into a testy exchange, with Trump saying Ukraine would be lost without U.S. support and that Zelenskyy didn’t “have the cards” to set the agenda on the U.S.’s attempts to broker a ceasefire with Russian President Vladimir Putin.
Taylor said the $266.3-billion Teachers’ pension plan, which on Thursday reported a total fund return of 9.4 per cent for the year ended Dec. 31, 2024, will be cognizant of its members’ views on assets in the defence sector when making investment decisions.
Last year, teachers’ unions called on the pension plan to stop investing in weapons manufacturers.
“We want to be careful about that … our values and our relationship with our members. They have strong views about what they are comfortable with us investing in in that sector and where they’d probably be less comfortable,” he said.
“We also screen companies out there where we think that doesn’t meet those objectives. But that will be one sector where you could say, ‘Look, actually, it looks like it’s going to have some future growth.’”
Taylor said tariffs and further trade threats Trump is making about Canada and other trading partners, and the resulting ripple effects, including countertariffs, are injecting uncertainty into investing.
Canada and the U.S. are where the bulk of Teachers’ assets reside, so the fund is looking very closely at the models it uses to determine whether to rebalance where to put its money.
The trade wars and other protectionist policies are likely to drive more need for local partnerships and potentially influence investments around the world, including in Asia, Taylor said.
“We haven’t decided yet to change any of our models about how we analyze or the risk we take because we’re at the lower end of the risk spectrum overall, and our portfolios are currently in the sort of neutral-to-defensive zone,” he said.
However, about $99 billion of Teachers’ assets are in the U.S., which remains a key part of the fund’s diversified portfolio of public and private assets, including infrastructure, private equity and real estate.
“We have significant assets in the U.S. It’s been a very profitable territory for us for a long time. It’s got a lot of attractive things still very much working for it,” Taylor said. “The question is: How much more do we want to build on top of that versus other parts of the world?”
He said navigating the Trump administration while maintaining good risk-adjusted returns will involve assessing regulation and other factors state by state.
“It’s a state decision as much as a federal decision, so there’ll be certain states where it’s probably easier for us to see a way of navigating both regulation and future returns and where it’s more difficult,” he said.
Teachers’ often partners with other funds when investing, and Taylor said there is likely to be an uptick in this style of investing in the U.S. to reduce risks from potential hurdles such as regulatory changes.
“Probably now is the time to be doing more with local U.S. partners so that we actually get that covered to some extent, and also that local interpretation of what’s going to work and what’s not going to work so well,” he said.
In some cases, Taylor said the Trump administration’s protectionist policies could influence where Teachers’ invests in other parts of the world.
“Taiwanese semiconductors would be an example,” he said, adding that if the fund invests in U.S. semiconductors, there could be prohibitions, regulatory or otherwise, placed on investments elsewhere.
“At some point, it’s quite possible that we will find that,” he said. “Are you predominantly investing in the U.S. space, semiconductor manufacturers, or things out of Asia?”
Teachers’ has turned in a 10-year annualized net return of 7.4 per cent and a 9.3 per cent return since inception.
Earlier today, OTPP announced positive 2024 results:
- Achieved a one-year total-fund net return of 9.4%.
- Strong returns across public equity, venture growth, credit and inflation sensitive assets.
- Underperformed the 2024 benchmark return of 12.9% resulting in negative value add of $7.6 billion.
- Delivered a ten-year annualized total-fund net return of 7.4% and return since inception of 9.3%.
- Continued to have a strong preliminary funding surplus of $29.1 billion and is fully funded for the 12th straight year.
- Achieved our 2025 interim target of reducing our portfolio emissions intensity, compared to a 2019 baseline, one year early.
TORONTO (March 20, 2025) -- Ontario Teachers’ Pension Plan Board (Ontario Teachers’) today announced a one-year total-fund net return of 9.4% for the year ended December 31, 20241, compared to 1.9% return in 2023. Net assets grew to $266.3 billion, up from $247.5 billion in 2023. Investment income of $23.7 billion and member and employer contributions of $4.3 billion for the year were partially offset by benefits paid of $8.1 billion and administrative expenses of $1.0 billion.
The plan is fully funded as at January 1, 2025, with a $29.1 billion preliminary funding surplus. This marks the plan’s 12th consecutive year being fully funded (meaning plan assets exceed future pension liabilities), underscoring the plan’s long-term financial health and stability.
"Our teams worked methodically in 2024 to create value in the portfolio, delivering a 9.4% return, significantly above the outcome for 2023 and more in line with our long-term returns. We had positive contributions from across the plan, with notable success in venture growth, credit, inflation-sensitive and public equity investments. The resilience of our portfolio, combined with our proactive approach to creating value, has positioned us strongly in an unpredictable economic climate," said Jo Taylor, President & Chief Executive Officer. “Our investment portfolio is well placed to deliver strong risk-adjusted returns for the plan in 2025 and meet our long-term obligations to the members we serve."
Results reflect underperformance relative to the benchmark return of 12.9% by 3.5%, or $7.6 billion in negative value add2. The benchmark underperformance was primarily attributed to assets in private equity and real estate trailing their respective benchmarks.
1 All figures are as at December 31, 2024, and denominated in Canadian dollars unless noted.
2 Value-add is the amount of return in excess of (below) benchmarks after deducting management fees, transaction costs and administrative costs allocated to the Active programs (includes annual incentives but does not include long-term incentives).
Impact of currency on returns
In 2024, the fund experienced a foreign currency gain of $6.9 billion as assets denominated in foreign currencies appreciated in value when converted back into Canadian dollars. This gain was primarily driven by the appreciation of the U.S. dollar compared to the Canadian dollar. The fund’s net exposure to the U.S. dollar is significantly larger than any other foreign currency.
Investment performance
Given the plan’s liabilities stretch decades into the future, results over longer periods are particularly important. Ontario Teachers’ has delivered an annualized total-fund net return of 9.3% since inception in 1990, and five- and 10-year annualized total-fund net returns of 6.9% and 7.4%, respectively.
The table below summarizes Ontario Teachers’ investment returns and related benchmark returns by investment asset class for the current and previous year.
3 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.
The table below summarizes Ontario Teachers' portfolio mix by asset class for the current and previous year.
4 During 2024, investments of $10.1 billion formerly included in the Real-rate products were transferred to other investment strategies within Fixed income ($9.2 billion) and Credit ($0.9 billion). Prior period comparatives have been updated to conform to current year’s presentation)
5 Includes funding for investments (term debt, bond repurchase agreements, implied funding from derivatives, unsecured funding and liquidity reserves) and overlay strategies that manage the foreign exchange risk for the total fund.
6 Comprises investments less investment-related liabilities. Total net assets of $266.3 billion at December 31, 2024 (2023 - $247.5 billion) include net investments and other net assets and liabilities of $5.4 billion (2023 - $3.6 billion)Investment highlights
Ontario Teachers’ manages approximately 80% of its assets internally, with a focus on deploying capital into a mix of active and passive strategies around the world.
Transaction highlights in 2024 include:
- Through our Boreal IM joint venture, expanded our logistics real estate portfolio across Europe, acquiring eight fully leased logistics assets in France and three warehouses in Germany.
- Signed an agreement to sell an equity stake in Connexa, New Zealand’s largest mobile network.
- Our portfolio company, Fairstone Bank of Canada, merged with Home Trust Company to create one of Canada’s largest alternative lenders.
- Led a funding $95 million series round for Instagrid, a European provider of high-performance portable battery systems.
- Reached an agreement to co-acquire Max Matthiessen, a leading financial services advisor for pensions, insurance and wealth management companies in the Nordics.
- Signed an agreement to invest in Omega Healthcare, a leading technology-enabled healthcare management solutions provider.
- Successfully closed the sale of Shearer’s Foods, a leading contract manufacturer and private label supplier serving the snack industry in North America.
- Co-led a $140 million fundraising round of SmartHR, a leading cloud-native human resources management platform in Japan.
Corporate news
- In 2024, we announced the following executive appointments:
- Mabel Wong was appointed Chief Financial Officer;
- Stephen McLennan and Gillian Brown appointed into Chief Investment Officer roles;
- Jonathan Hausman appointed Chief Strategy Officer; and
- Nick Jansa joined the executive team in his role as Executive Managing Director, Europe, Middle East and Africa
- Expanded the investment senior leadership team, including appointing Bernard Grzinic as Executive Managing Director, Capital Markets; Steve Saldanha as Executive Managing Director, Total Fund Management; and Robert Sturgeon as Senior Managing Director, Global Investment Strategy.
- Kevin Kerr was appointed Executive Managing Director, Portfolio Solutions, a new function aimed at driving enhanced value creation efforts within our portfolio.
- Congratulated Chief Operating Officer Tracy Abel on her retirement at the end of 2024, after 37 years with the organization.
- Following year-end, we made the decision to optimize our Asia-Pacific office footprint with a focus on our Singapore and Mumbai locations. As a result, we have made the decision to close our Hong Kong office. We established this office in 2013 as our first in the region and have since opened additional regional offices in Singapore and Mumbai, where we have teams working across asset classes and markets. We believe activities currently undertaken in Hong Kong can be effectively and efficiently served out of Singapore going forward.
Climate ambition
- At the end of 2024, Ontario Teachers’ met its 2025 interim target of decreasing its portfolio emissions intensity by 45% compared to a 2019 baseline, achieving a 49% reduction over that timeframe. This goal was met one year early.
Note to Editors: To read our annual report, please click here.
About Ontario Teachers’
Ontario Teachers' Pension Plan Board (Ontario Teachers') is a global investor with net assets of $266.3 billion as at December 31, 2024. Ontario Teachers’ is a fully funded defined benefit pension plan, and it invests in a broad array of asset classes to deliver retirement security for 343,000 working members and pensioners. For more information, visit otpp.com and follow us on LinkedIn.
You can download and read OTPP's 2024 annual report here.
The main highlights are below:
In short, it was a solid year and the funded status remains strong which means the Fund is in excellent position to weather any bad outcomes and capitalize on any opportunities that come along.
Moreover, when I look at long-term performance, 7.4% annualized over the last ten years and 9.3% since inception, it's clear OTPP is delivering the requisite returns:
Earlier today, I had a chance to speak with CEO Jo Taylor to go over the results and I want to begin by thanking him and also thanking Dan Madge for setting up the Teams meeting and sending me material beforehand.
I began by telling Jo "you have a big private equity benchmark problem" and I don't know why I began by stating this but it just hit me like a ton of bricks when I read the results (see what I circled below):
Keep in mind, PE makes up 23% of OTPP's total assets and to be fair, over a 5-year period returns are in line with the benchmark (12.4% vs 12.8%).
Still, if you're trying to understand why OTPP underperformed its total fund benchmark by 350 basis points last year (9.4% vs 12.9%), PE's relative performance versus its benchmark is a big explanation (wasn't the only asset class that underperformed its benchmark (Real Estate and Venture Growth also did) but it underperformed its benchmark by the widest margin.
Jo responded:
We have a big private equity portfolio therefore any benchmark upon it is going to be a question.
We both know this, the last two years, the listed markets in the US have been very positive. The mix of the assets we have in our private equity portfolio aren't the same, we have a lot less tech in there, we have more financial service sand industrials in our portfolio.
It doesn't mean it's a bad portfolio, it just means it's performing at a level which isn't up at those benchmarks.
I guess the question for us is yes we want to beat our benchmarks in all the asset classes we have but we are a long-term investor looking for 7% nominally every year, and if Private Equity comes in with 12-14%, that isn't terrible either.
I try to be thoughtful of what level of change is appropriate rather than just saying if the market is on a tear, we need to do something radically different in that asset class.
I agree and note again, over a 5-year period returns are in line with the benchmark (12.4% vs 12.8%).
Moreover, unlike some of their peers, venture capital is not mixed in with private equity so the lack of tech exposure there will hurt the asset class performance relative to their benchmark when the market is on a tear led by a handful of mega cap tech shares.
Alright, I took a step back and asked Jo to give me his general overview of results and he shared this with me:
I thought the results were good. I'm happy that our results last year were consistent with our long-term returns of roughly 9% annualized since inception.
We did that by being very active around our portfolio, getting people to work on key assets, really driving the performance there. As you saw, we set up this Portfolio Solutions group through Kevin Kerr, doing more of that as well.
We also have a portfolio which is more of an all-weather defensive portfolio than some of our peers we are often compared against. And that portfolio is holding up pretty well during volatile times, so I'm pretty happy about that.
In some ways the challenge is what would you want to add to the portfolio at the moment given the uncertainty that's out there and secondly, a lot of the returns over the years has come from the US and that's looking a lot less obvious destination than it was a year ago.
I told him I did note the geographic exposure the Fund caught me a little off guard given the relatively higher allocation to Canada compared to the US and said they're definitely investing a lot more in Canada than critics claim and asked him whether that's because of their sizable fixed income portfolio.
He responded:
I guess it's been one of those misconceptions. We have consistently invested in Canada, it's more than fixed income although our bond portfolio is a significant proportion of that $111 billion (probably a more recent figure or gross exposure because 36% of $266 billion is $96 billion).
We've got some great assets like Enwave and others where we're invested in Canada. Also, it's fair to say a high proportion of our real estate portfolio is in Canada through Cadillac Fairview.
We have said throughout, we like investing in Canada, we would like to do more investing if the opportunities arise and are large enough to make sense for us.
We invest in Canada because we get good returns and we don't have a currency challenge if we invest here and it's geographically closer to most of our major teams to be able look after if they are private assets after we invested. Lots of reasons why you would like that.
I think the challenge that we have seen over recent times has been on the supply side, we just don't see a lot of things that are easy to invest in.
And for a lot of the infrastructure projects we've been looking to consider to invest in, they've been a bit thin on the ground and slow to come to fruition.
I immediately seized upon that last comment, noting there were major discussions last year led by former Bank of Canada Governor Stephen Poloz on how to entice Canada's pension funds to invest more domestically and the infrastructure projects the Canada Infrastructure Bank was proposing were way too small (ie not scalable) and governments have been slow to privatize airports, ports, toll roads, etc. and these are the projects that are attractive to large pension funds.
Jo responded:
I think that's a reasonable assessment. In Infrastructure around the world is an asset category we like, we like the inflation linkage we get with those long-term assets where we are often dealing with a government counterparty. And more of those type of investments at scale, whether it's privatization or new assets, absolutely we'd be interested in.
The permitting and development process seems to take a long time in Canada relative to other parts of the world and that has been one of the challenges.
And then you've got the pan-provincial question which has also had issues in terms of transmission of other assets you might want to go on a pan-Canadian basis like pipelines.
We sit here ready to do more where we can.
I think the point which we also try to do regularly is we are an international investor, we do that for the benefit of our members to have a diversified portfolio.
We fairly consistently had about 70% of our assets in North America, we've been trying to balance that out to be closer to 50/50 but for whatever reason it just hasn't happened, we just continue to do more in Canada and the US.
If I were honest, I'd probably feel more comfortable if it was closer to 50/50 in the current world environment, but to do that we need to find opportunities around the world that can give us the same risk-adjusted returns we can find here in Canada and the US and that hasn't been straightforward.
I told Jo I don't believe they are unique with this dilemma as finding good risk-adjusted returns around the world has become more of a challenge.
I used that to shift my attention to Real Estate where I noted last year they took more of a writedown than most of their peers and that portfolio continues to expand outside of Canada to diversify it more geographically:
As shown above, the bulk of their real estate assets are still in Canada but it has come down significantly over the last five years (it was almost exclusively in Canada back in 2020 when the pandemic hit).
Jo responded:
If you look at our published numbers, our returns in Real Estate were flat which is as good as anybody in real estate across the Maple Eight peers, probably better than most (it is better than most except HOOPP which posted a slightly positive return in Real Estate last year).
We've already taken writedowns so we got that out of the way earlier than some.
As you rightly point out, we are bifurcating our Real Estate team between Cadillac Fairview and our in-house real estate team which looks at investing outside Canada.
I think if you look at real estate all over the world at the moment, the challenge is trying to find projects where we can optimistically look at the returns that are available because if you look historically, you're not going to be too positive about making an investment.
And the issue looking forward for us is largely what is the development cost for the asset or what is the acquisition price.
And where we've changed our approach the most is Cadillac Fairview which was our primary business in real estate was a developer of assets. But if you look at developing real estate assets today, it's quite hard to make the math work with input costs of labour and raw materials, its hard to build something that's worth more at the end of the process than it's cost you to put up.
And that's affecting all real estate activities so we are trying to find the right balance between developing or acquiring the finished product where you make the math work better wherever it is in the world.
I asked him if they're still working with strategic partners even in real estate and he said "we are, we are just picking them carefully".
I moved to Infrastructure noting it's a stalwart portfolio at OTPP consistently producing high single digit returns and asked Jo if it's becoming more challenging there to find good risk-adjusted returns because the asset class is so sought after right now.
He responded:
You are correct, it is sought after by new investors as well as long-standing investors.
We are still actively investing in infrastructure and we are finding opportunities all around the world to be able to do that.
Recent investments in India in some toll roads and other projects which we do in conjunction with the government.
So it's an attractive asset class for all the reasons you described.
From our point of view, if there's any question at all, it's probably in the proportion of infrastructure we invest in which is essentially connected to the climate transition versus other infrastructure projects.
We believe in the climate transition, as you know we've got our carbon intensity objectives we are trying to meet and we've exceeded those so far which is great.
And we see things like electricity transmission and some elements of power generation as where we can help contribute to that climate transition which our members believe in and we've been very vocal about, we are trying to move forward.
I noted that OTPP is a leader investing in electricity transmission and that this is a major part of their Infrastructure portfolio.
Jo added:
It is and we'll do more of that. I think what is a bit different for us is we've been doing for a little while not only on our own with government counterparty but also with corporates like SSE (Scottish Southern Energy) and others where they bring us in as knowledgeable, trustworthy partner.
I quickly noted Public Equities performed really well but were a bit off their benchmark and asked if they were underweight Mag-7 stocks.
He told me it’s not worth having a big discussion on this as they were pretty close to the benchmark there but "you're also right that we increased our allocation to more passive listed equities than active."
We circled back to Private Equity where I once again repeated there is more of a value tilt and the Venture Growth group isn't part of it, and I asked him straight out: "Why does your Board insist on having a publicly listed benchmark if it doesn't reflect the risk of the portfolio?"
Jo responded:
We've used that benchmark for many years so we try to match the benchmark to the geographic domain of the assets. Doesn't always accord perfectly but that's the way we've done it for some time.
We like consistency rather than moving around benchmarks where it feels like it's being done opportunistically.
I'd say we like to build in an illiquidity premium that we expect from those investments because they are just that relative to investing in listed markets.
Let's not forget Private Equity has been a fabulous asset class for Teachers' over 20 years, we made lots of return in Private Capital over a long time and if it's having a bit more challenges at the moment, which I think it is, I think we have to be quite careful that we don't forget how much it's generated for the business.
If I had any question on Private Equity at the moment, it's probably around what's the right mix for us around direct investing on our own and co-investing with friends on a partner basis.
Remember we shifted to more direct investing on our own and I think the world is sufficiently uncertain at the moment that a few more deals with a few friends is more sensible .
I told Jo that I recall a performance attribution analysis in Private Equity where they got the most bang for their buck in co-investments and not direct and definitely not funds investments.
He corrected me stating they did some analysis and both directs and co-investments performed well "but the part of the portfolio that didn't so as well is funds and syndicated investments where we didn't do our own parallel due diligence."
I noted there have been leadership changes at Private Equity and asked him if he wanted to comment.
He replied:
I think what we are trying to figure out is what are the skills in the senior team more broadly than just the head and how do we pull that together.
We have some great people in our Private Equity team and I've been around the business for a long time.
But equally from time to time, we a looking how we in a relatively purposeful but agile way adapt to current circumstances.
It's hard at the moment to find new investment opportunities that are high quality and well priced.
I completely agree and noted it's hard for the KKRs of this world so I can only imagine how hard it is for Ontario Teachers.
In fact, earlier this week, I posted an interview with Harvey M. Schwartz, CEO at Carlyle who said when there's so much uncertainty in the world, it's much harder executing on your value creation plan.
Jo agreed stating this:
It's fair to say and it's the job of the investor to try get that right, so what is a realistic level of growth for the business and in terms of what you're being asked to pay for, in terms valuation of the business can you make that happen going forward. That's why we have our own value creation team, that's why we have our own investors but sometimes that's why you do it with a small friend or a partner because they have skills you'd like to bring to bear on that asset which actually complements your own team or just provides you with more capacity because you have to take on a lot of heavy lifting to get it to the right endpoint.
I asked him specifically about Kevin Kerr who was appointed Executive Managing Director, Portfolio Solutions, a new function aimed at driving enhanced value creation efforts within their portfolio.
He responded:
Kevin is a longstanding, senior investor, was in our Infrastructure team, he ran the Americas part. He's well respected and well known across all of our private asset groups. That is his job, to look into all of our private assets and what Kevin will do is make sure we accurately assess the challenges for the businesses going forward and the growth that we are trying to make happen. And also to make sure we focus on which assets we put the majority of our surplus resource from that team to bear. And then finally for the assets we are thinking it's time to dispose that those assets are truly ready to be able to be put to a sales process.
Sounds like Kevin Kerr has an awesome job at OTPP, a challenging one but definitely very interesting.
In terms of major dispositions, Jo noted a couple, the sale of Techem which they did along with Partners Group and CDPQ and Shearer’s Foods which was sold to CD&R and they concluded that sale last year.
He did note that deal levels last year were a lot lower than the historical average (I definitely noticed this across the Maple Eight).
I also noted the performance in Credit was very strong and he responded:
One we have a really good team. Secondly we've added to a really good team by doing a little more in Private Credit than we were doing historically. And the asset selection that team does is very, very careful. They did a really good job last year and they did it a few years before that.
It's probably one of the teams we don't speak a lot about but our Credit performance has been very consistent and strong in recent years.
I asked him if that team is based in London and he added:
It's two teams, one based in London and one in Toronto and it's led by Bernard Grzinic who is a great guy and we can put you in touch with him.
Lastly, I noted my last comment on the closing of their Hong Kong office and he just added they're trying to optimize their team in Asia by putting them in one place in Singapore but also said it will be a slow exit as they need to meet the demands of the regulator there and they still have bits and pieces of good companies there.
Let me wrap it up there, it's late and I want to once again thank Jo for another insightful discussion.
Below, Ontario Teachers' is a diverse global investment firm with a mission to deliver retirement security to the teachers of Ontario.
Headquartered in Toronto with offices around the world, they operate as one global interconnected team across asset classes and divisions. They are deeply committed towards in investing in their talent.
With more than 1,500 employees worldwide, they take a people-first approach that encapsulates everything from culture to career development to mental health and well-being.
Update: Layan Odeh of Bloomberg posted on LinkedIn:
Ontario Teachers' Pension Plan, which pioneered the so-called Canadian Model, is re-examining its private equity unit, aiming to lean more on partnerships rather than owning entire firms as it seeks to mitigate risk. With all of the uncertainty in the world, “you dial back the risk by doing it with a partner rather than doing it on your own,” CEO Jo Taylor told me in an interview.
Its the third pension plan within the Maple Eight to do this. Last month, CDPQ said it plans to scale back its direct PE investments, and Omers halted direct PE investments in Europe last year.
You can read her article here.
Also, Barbara Shecter of the National Post reports Cadillac Fairview loaned Hudson's Bay $200 million in 2023 to keep it afloat as anchor tenant:
Hudson’s Bay Co. in June 2023 went cap in hand seeking “incremental liquidity” from landlords, financial institutions and other lenders to shore up its Canadian operations, but the only one to step up was Cadillac Fairview Corp. Ltd., a subsidiary of the $266.3-billion Ontario Teachers’ Pension Plan.
Cadillac Fairview (CF) — a large real estate player whose shopping malls house a significant number of the retail chain’s 96 stores now facing liquidation, barring a last-minute financial deal — loaned the struggling retailer $200 million, a deal that made sense at the time, said Jo Taylor, Teachers’ chief executive.
“Clearly, if (HBC) could get through the challenges, it would be good for CF because it was a significant tenant,” he said, adding that HBC’s filing under the Companies’ Creditors Arrangement Act (CCAA) was an “unfortunate” development.
“When those size of tenants vacate our shopping malls, we have to then spend money on redoing the site to actually find new tenants, so continuity is generally better than transition.”
Documents filed in connection with HBC’s court-monitored restructuring and potential liquidation say there are 15 Cadillac Fairview-leased properties, mostly Hudson’s Bay stores, in locations including London, Ont., Markham, Ont., and Pointe Clair, Que.
Taylor said there were negotiations before extending the department store chain the loan, which was later reduced to $176 million following a partial repayment when HBC closed the purchase of luxury United States retailer Neiman Marcus last December.
“Honestly, it was more of a give than a take in that particular case,” he said, referring to the retailer.” We thought about it carefully.”
Read the rest of her article here. It did make sense at the time to loan HBC the money and it is a significant tenant of CF, I'm thinking of Carrefour Laval and Pointe Clair malls here in Quebec, as an example.
On a personal note, I cannot imagine Canada without The Bay, I still remember the good old days when Eaton’s and The Bay competed. Nowadays, it's all online shopping and competition is ferocious.
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