* Net assets rise to record C$129.5 billion
* Pension plan 97 percent funded as shortfall shrinks to C$5.1 billion
TORONTO, April 2 The Ontario Teachers' Pension Plan, one of Canada's top investors, said on Tuesday it had a 13.0 percent rate of return on its investments in 2012, bringing net assets to a record high of C$129.5 billion ($127.4 billion).
The fourth straight year of double-digit returns on the investment portfolio narrowed Teachers' funding shortfall to C$5.1 billion from C$9.6 billion in 2011.
The funding gap measures the difference between Teachers' projected asset growth and the anticipated cost of providing pensions to the 303,000 active and retired educators in the plan.
Teachers and peers like the Canada Pension Plan Investment Board and Caisse de dépôt et placement du Québec have been among the world's most active dealmakers in recent years, with major bets on real estate, natural resources and infrastructure.
Still, demographic trends mean Teachers' must provide benefits to an increasing number of retirees while the number of active educators paying into the plan declines. The average teacher in the plan draws a pension for 31 years after working just 26 years.
The pension plan notched up strong returns in equity and real estate. But lower returns in fixed income and commodities pulled overall returns lower, Teachers' said in a statement accompanying its annual report.
"The investment team successfully navigated significant risks and turmoil in the global economy again in 2012 to earn an excellent rate of return," Teachers' Chief Executive Officer Jim Leech said in a statement. "Our 10-year annualized rate of return is 9.6 percent."
Even with higher contribution rates and lower benefits, persistent low interest rates and longer retirements kept Teachers' from closing its funding shortfall.
It abandoned a passive investment strategy, which focused mainly on Canadian stocks and bonds, in recent years and has put its money to work in global equity, seeking projects and assets that promise long-term income and gains.
EQUITIES, REAL ESTATE DRIVE GAINS
The fund's value has nearly doubled since 2002, with 2012 marking the fourth year of recovery since the 2008 financial crisis lopped 18 percent from its investments.
It said active management had added C$60.5 billion to the plan's asset size since inception.
In 2012, investment earnings were C$14.7 billion, up from C$11.7 billion in 2011.
The combined value of public and private equity assets rose to C$59.5 billion as additional capital was deployed to manage the asset mix, and investments returned 14.2 percent, Teachers' said.
Real assets, which comprise real estate, infrastructure and timber land, rose to C$28.7 billion at the end of 2012 from C$25.8 billion in 2011, and returned 14.7 percent.
The real estate portfolio, managed by Teachers' Cadillac Fairview unit, was C$16.9 billion at year end and returned 19.4 percent. The infrastructure portfolio was C$9.6 billion and returned 8.4 percent. Timber land assets were C$2.2 billion, with a return of 3.4 percent.
Fixed income assets returned 5.1 percent, while investments in commodities brought a loss of 1.9 percent.