Growth in assets despite hurdles highlights strategic resilience
The Ontario Teachers’ Pension Plan Board (Ontario Teachers’) has announced its 2023 financial outcomes, revealing a one-year total-fund net return of 1.9 percent as of December 31, 2023.
This performance primarily stemmed from robust returns in public equities and credit, despite facing losses in infrastructure and real estate. The net assets of the plan increased to $247.5bn, indicating progress towards the strategic goal of $300bn in net assets by 2030.
The year saw investment income of $5.5bn and contributions of $3.3bn, which were largely offset by benefits payments totaling $7.6bn and administrative expenses of $0.9bn.
The results underscored an underperformance relative to the benchmark return of 8.7 percent, marking a 6.8 percent or $15.8bn negative value add. This was a departure from the 2022 performance, where the total-fund net return of 4 percent exceeded the benchmark by 1.8 percent, translating into a $4.4bn value add.
The underperformance was attributed to several factors, including a relative underexposure to listed equities, which saw strong performances throughout the year, and valuation adjustments in the infrastructure and real estate portfolios.
These adjustments were due to higher interest rates and specific events that negatively impacted select investments.
Despite these challenges, Ontario Teachers' maintained its robust financial health, being fully funded as of January 1, with a $19.1bn preliminary funding surplus. This marked the 11th consecutive year the plan has been fully funded, highlighting its long-term stability and financial resilience.
Jo Taylor, president and chief executive officer, remarked on the year's performance, acknowledging that while strategic areas of focus advanced in 2023, the investment results did not reach the desired levels.
Taylor attributed this to the portfolio's positioning for a more challenging economic environment than what transpired, a relatively lower exposure to public equities, and valuation adjustments in certain real estate and infrastructure assets.
Despite these factors, Taylor emphasized the importance of the plan’s positive return and fully funded status, which are vital for the members' financial metrics. Taylor also noted that Ontario Teachers’ investment strategy is intentionally designed for stable long-term returns, considering its multi-generational liabilities.
With an annualized total-fund net return of 9.3 percent since its inception in 1990, and 7.2 percent and 7.6 percent over the last five and ten years, respectively, Ontario Teachers’ performance over time underscores its commitment to delivering strong and stable returns for its members.
