* Net assets rise to record C$129.5 billion
* Pension plan 97 pct funded; shortfall falls to C$5.1 bln
By Andrea Hopkins
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 C$129.5 billion ($127.4 billion).
With a fourth straight year of double-digit returns, the
global dealmaker, which administers the pension plan for
public-system teachers in Canada's most populous province, said
it would expand its thrust into emerging markets as it seeks
acquisitions across asset classes that will add long-term value
and income to the underfunded pension plan.
Chief Executive Jim Leech and Chief Investment Officer Neil
Petroff said Teachers' would boost its exposure in emerging
markets from the current 15 percent to closer to 20 percent
"over time" as the fund searches for alternatives to slow-growth
Europe and North America.
"You look at Europe and if we get zero (percent growth) for
the next five to 10 years we'll be lucky, and North America 1 to
3 (percent). So the emerging market, with China having a bad
year at 7, doesn't look so bad," Leech told reporters at a news
At 15 percent, Teachers' emerging markets exposure is
already high relative to other global pension funds, which also
lag Teachers' 13 percent rate of return for 2012.
Teachers' biggest emerging markets exposure is in Brazil,
but Leech said the plan would open an office in Hong Kong this
year to take advantage of acquisition opportunities in Asia.
Petroff said Teachers' has several deals that are undergoing
due diligence, and acquisitions would likely continue at the
steady pace seen in recent years. He also did not rule out deals
in Europe, where the debt crisis has caused some assets to be
"There are opportunities in Europe, but we believe as long
as we are compensated for the risk we're taking, these are some
real gems of investments," Petroff said.
Teachers' already owns two airports in the United Kingdom,
one in Copenhagen, the U.K. national lottery and the U.K.'s
largest gas distribution company, among other investments.
Leech, who turns 66 in June, said planning is underway to
replace him, with the board looking at both internal and
external candidates. Leech, who joined Teachers' in 2001 and
became CEO in 2007, has said he will leave by the end of the
INVESTMENTS STRONG, STILL UNDERFUNDED
The fourth straight year of double-digit returns on the
investment portfolio narrowed Teachers' pension plan 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
Teachers' and peers such as 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
Still, demographic trends mean Teachers' must provide
benefits to a rising number of retirees while active educators
paying into the plan decline in number. The average teacher in
the plan draws a pension for 31 years after working 26.
The pension plan notched 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.
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 globally, seeking projects and assets that
promise long-term income and 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'
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 yearend 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.