Teachers’ turns in 14.3% rate of return, net assets hit $107.5 billion, but funding challenges remain
Beats benchmark, earns $4 billion value-add
Preliminary funding valuation comparison | Rates of return vs benchmark |
Video: Jim Leech, CEO, on 2010 performance and plan funding
TORONTO - The Ontario Teachers' Pension Plan (Teachers') today announced that it earned the largest value-add dollar amount in its history in 2010. It ended the year with $13.3 billion in investment income, representing a 14.3% rate of return, which is $4 billion above its 9.8% benchmark. Net assets totaled $107.5 billion as of December 31, 2010.
"Our investment team remained true to our investment fundamentals, taking appropriate risks to earn solid returns, while seeking the best diversification to meet our plan's long-term needs," said Teachers' President and CEO Jim Leech. "Our Member Services team also had an exceptional year, scoring a 9-out-of-10 quality service rating from members, second against its peers around the world, and meeting its cost objectives."
"Our employees exceeded expectations this year, but the plan continues to face serious funding challenges," Mr. Leech noted. He explained that the plan is facing systemic funding problems. "The root cause of the $17.2 billion preliminary funding shortfall is a combination of factors: member longevity, retirement periods that exceed working years, low real interest rates, which reflect lower economic growth going forward, and the maturity of the plan, which now receives $1.8 billion less in contributions than it pays out annually," he said.
The fund's asset mix was modified in 2010, reclassifying some assets and adjusting certain target allocations. Full details of the fund's actual asset mix and the asset mix policy are available in the fund's annual report.
The fund's equities portfolio holdings totaled $47.5 billion, compared to $41.2 billion a year earlier. Fixed Income assets totaled $45.9 billion at 2010 year-end, compared to $35.3 billion in 2009. The fund's allocation to commodities increased to 5% in 2010 from 2% in 2009 and was valued at $5.2 billion at year-end compared to $1.9 billion in 2009.
A new asset classification, Real Assets, comprises real estate, infrastructure, and timberland investments. The net value of the real estate portfolio totaled $16.9 billion at year-end, compared to $14.2 billion in 2009. The infrastructure portfolio grew to $7.1 billion in 2010 compared to $5.6 billion at 2009 year-end, while the timberland portfolio declined to $2.2 billion in 2010 from $2.3 billion at 2009 year-end.
The plan's sponsors, the Ontario Teachers' Federation and the Ontario government, must eliminate the preliminary shortfall and file a balanced valuation in 2012 at the latest; they currently are studying the merits of filing in 2011.
With $107.5 billion in assets as of December 31, 2010, the Ontario Teachers' Pension Plan is the largest single-profession pension plan in Canada. An independent organization, it invests the pension fund's assets and administers the pensions of 295,000 active and retired teachers in Ontario. For more information visit www.otpp.com.
Preliminary funding valuation comparison*
(as at January 1) ($ billions)
| 2011 | 2010 | |
|---|---|---|
| Deficit | $(17.2) | $(17.1) |
| Net assets | $107.5 | $96.4 |
| Smoothing adjustment* | 3.3 | 12.7 |
| Future basic contributions | 28.0 | 26.7 |
| Future special contributions | 5.3 | 5.4 |
| Actuarial assets | 144.1 | 141.2 |
| Cost of future pensions | (161.3) | (158.3) |
* Revised smoothing method used for 2011 funding valuation
Rates of return compared to benchmarks
(percent)
| 1-Year Return | 1-Year Benchmark | 4-Year Return | 4-Year Benchmark | |
|---|---|---|---|---|
| Total plan** | 14.3% | 9.8% | 2.6% | 2.5% |
| Equities | 10.4% | 7.5% | (0.3)% | (2.6)% |
| Canadian equities | 14.6 | 13.8 | 2.2 | 3.2 |
| Non-Canadian equities | 9.4 | 5.9 | (1.3) | (4.4) |
| Fixed income | 9.9 | 9.5 | 7.3 | 6.3 |
| Real-return bonds | 8.7 | 8.7 | 4.7 | 3.7 |
| Bonds | 11.3 | 10.7 | 9.1 | 7.6 |
| Commodities | 3.2 | 3.3 | (7.0) | (7.0) |
| Real Assets | 13.9 | 5.5 | 6.3 | 5.3 |
| Real estate | 16.9 | 7.7 | 8.2 | 7.0 |
| Infrastructure | 13.0 | 4.0 | 2.8 | 2.8 |
| Timberland | (3.1) | (0.2) | 2.1 | 2.0 |
** Returns generated by absolute return strategies ($0.8 billion) and money market, previously included in fixed income, are included in the total plan return and not attributed to an asset class.
Jim Leech, CEO, on 2010 performance and plan funding
Contact :
Deborah Allan
Director, Communications and Media Relations
Ontario Teachers' Pension Plan
(416) 730-5347
deborah_allan@otpp.com