The new chief executive of the $207-billion Ontario Teachers’ Pension Plan said Tuesday that it’s too early to fully grasp the impact that the still-unfolding coronavirus pandemic is having on asset values.
Jo Taylor, who took the helm of Teachers’ at the beginning of the year, just weeks before the coronavirus crisis exploded, told a conference call with media to discuss last year’s returns that “this pandemic is different from other things we’ve experienced.”
“I think the challenge at the moment is — I think this would be true for all pension plans — I’m not sure if the full extent of the positive and the potentially lagging negatives of COVID-19 are fully understood,” he said.
In addition to volatile stock markets around the world, significant upheavals tend to make it very difficult to value private assets such as real estate, while credit issues caused by economic disruptions affect private lenders.
“Private assets tend to lag versus public markets in pricing the economic slowdown. Certainly, the dislocations we’re seeing now appear to be more pronounced than in private markets,” Taylor said.
“For our private portfolio we have a good understanding on the issues from a liquidity perspective, but the impact on revenues, profitability and employment will take longer to appraise.”
He said rules around “selective disclosure” prohibit him from discussing whether the pension remains in a surplus position — the surplus was $6.1 billion at the end of 2019.
“We are slightly restricted in giving an update to the current state of the portfolio,” Taylor said. “I would say that we’ve navigated things, I think, pretty well.”
Jim Keohane, who is retiring Wednesday as head of the Healthcare of Ontario Pension Plan (HOOPP), was more forthcoming in March about the impact of the pandemic on the 2019 surplus built up by the healthcare workers’ pension. HOOPP’s funded status at the end of December was 119 per cent.
In an interview with the Financial Post a little over a week ago, Keohane said the pension remained in a surplus position, albeit a very small one. HOOPP posted a return of 17.4 per cent for 2019, with assets reaching nearly $95 billion.
Teachers’ chalked up double-digit returns in 2019, with the 10.4 per cent gain boosting the pension’s assets to $207.4 billion.
Taylor and Teachers’ chief investment officer Ziad Hindo said some of last year’s decisions, such as hedging against soaring equities markets through stepped-up purchases of bonds and gold, should help dull the eventual impact of the pandemic.
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While we could have never anticipated the full impact of COVID-19, we planned for this
The executives said the pension manager also took advantage of lofty valuations in private markets to sell some assets, and noted the intention is always to build a diversified portfolio that can withstand external shocks.
“While we could have never anticipated the full impact of COVID-19, we planned for this,” Hindo said.
He said the pension manager continues to focus globally and plans to move ahead with a plan to open an office in Singapore this year.
“As part of our investment plan, we intentionally set aside liquidity for opportunistic investment opportunities,” Hindo said.
“There continue to be opportunities for talent, partnerships and investments.”
Teachers’ annualized return since its inception 30 years ago is 9.7 per cent. The pension plan earned $20.2 billion in investment income in 2019, the most in its history.