Ontario Teachers’ Pension Plan head sees a volatile outlook for the rest of the year

The president and chief executive officer of the Ontario Teachers’ Pension Plan is forecasting choppy investing conditions for the rest of this year, but says his fund is in a solid position to weather any storms.

Ron Mock predicted Tuesday that volatility would persist for the remainder of 2018 after a “bit of a bouncy start” to the year.

“I think volatility stays high,” Mock said on a conference call with reporters. “And I think some of our asset classes will be performing well and others will be not performing so well.”

Despite this, Mock said Teachers’ is “very comfortable” with its core portfolio. 

“The plan’s in a strong position, and I think we can weather our way through any ups and downs,” he said.

Mock’s comments came after the release of the annual report for Teachers’, Canada’s third-largest public pension plan. For 2017, the plan recorded a total return of 9.7 per cent, up from 4 per cent for 2016.

Net assets rose about 8 per cent, to $189.5 billion. Teachers’ also said the plan was 105-per-cent funded as of Jan. 1, making it the fifth year in a row for full funding.

The fund’s performance in 2017 was bolstered by “strong” returns from both public and private equities, the annual report stated, as well as infrastructure investments. Teachers’ said the investment return on its equity portfolio was 17.6 per cent last year, which also saw the fund agree to sell its stake in Britain’s High Speed 1 rail line.

The deals have kept coming this year, with the announcement in March that Teachers’ had committed to paying about $400 million for a 3.4 per cent stake in French video game giant Ubisoft Entertainment SA. 

But markets have recently been roiled by uncertainty around trade, including the recent tariff battle between China and the United States. There have been pressures on the retail industry and real estate markets as well, two areas to which Teachers’ has exposure.

The pension also noted that the plan sponsors, the Ontario Teachers’ Federation and the Ontario government, had opted to sock the fund’s $10.3-billion surplus into a contingency reserve.  

“This decision essentially recognizes that there can be no assurance of high returns in this complex, rapidly changing and competitive business environment,” according to the the annual report.

Although there may be “some near-term headlines” that have an impact, Mock said he was “not very negative” on how it could affect Teachers’ portfolio and its longer-term focus.

If tariff-related spats start to weigh on growth, Mock said he expects central banks would step in with a response. 

“I firmly believe that, at some point, as taxes rise in the form of tariffs across many countries and between countries, that at some point cooler heads ultimately will prevail,” Mock told reporters.

Teachers’, meanwhile, intends to focus on areas such as managing talent and the risks of disruptive technology. The plan is undergoing some change at the top, as chief investment officer Bjarne Graven Larsen resigned effective Monday. He plans to move back to Denmark with his family.

Mock will fill in as the interim CIO, and told media that he was not expecting any significant change in direction to the investing strategy the plan launched back in 2015, which had been “in flight” under Graven Larsen.

That strategy saw Teachers’ reduce its overall exposure to equities, where it had been more overweight, and position the portfolio in a more “risk-balanced” way, Mock added. The plan has historically made adjustments where it thinks there are “outrageous valuations” attached to certain asset classes, he noted.

“At the margin there may be the odd little opportunity that we might step into, but we tend to make asset mix shifts at extreme levels,” Mock said. “We’re not at extreme levels in here.”

Financial Post

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