Major Canadian pension funds plan a C $ 70 billion boost in private markets

The Ontario Teachers ’Pension Plan is preparing for a fresh boost of C $ 70 billion in private markets, extending from infrastructure to real estate, as one of the largest plans world pensioners are trying to escape the punitive effect of low interest rates.

The $ 221 billion plan, which is tasked with managing the pension savings of more than 300,000 Canadians, is intended to invest the sum in private markets for the next five years, marking a break from public markets from him and other pension funds largely based on his returns.

“We will invest a lot more in private activities and we will do so for the next five years – then the better part of C $ 70 billion will go into private activities worldwide,” said Jo Taylor, the president and CEO of the OTPP.

“For now, with very low yields available (from fixed income) we are looking to ensure better, more balanced returns in other asset categories,” he added.

The ambition is a significant step up from the C $ 45 billion that the OTPTP has in real estate. His plans could show that the share of real estate grows around a third of the portfolio, from a fifth to the end of last year.

Private markets embrace both real estate, such as real estate and infrastructure, as well as the debt and equity of private companies.

Established in 1990, the OTPP is already a high-profile investor. Some of his biggest investments include White City Place, a “creative campus” in West London and The Ritz-Carlton in Toronto Complex. He bought it recently Caruna in Finland, a utility company, is Evoltz in Brazil, an electricity transmission company.

However, Taylor said his deeper engagement in private markets will raise the fund’s share in regions beyond North America by its current 30 percent, along with Europe and Asia a particular focus. Under the plan, 50 percent of future private investment will be made outside of North America.

Jo Taylor earlier this year revealed plans to be “bolder and bigger” with investments in an effort to meet its goal of growing its assets to C $ 300 billion by 2030

“This is a major departure from our current portfolio – where about 70 per cent of our assets are based in Canada and the US,” Taylor said. “We want to be an international investor.”

Institutional investors, including pension funds, typically use bonds and stocks as the two blocks of their portfolios, with an investment horizon linked to the often long-term nature of their liabilities.

However, analysts say a combination of low bond yields and lower earnings expected from equity markets will force more pension funds to shift allocations to private markets, including credit and private equity, where yields may be higher. high but the axes are typically less liquid.

“We expect property owners, including pension funds, to continue to increase allocations to private markets,” said Michael Cyprys, an analyst who covers brokers, property managers and exchanges at Morgan Stanley.

Taylor, who took over as head of OTPP in 2020, earlier this year unveiled plans to be “bolder and bigger” with investments in an effort to meet its target by growing its assets to $ 300 billion. of C $ in 2030 – an amount that is calculated is necessary to remain fully funded.

Headquartered in Toronto, OTPP also operates out of London, Singapore, Toronto, Hong Kong alongside smaller operations in New York and San Francisco. Given the planned allocation to private markets, the fund is expanding its home investment team.

“We need the skills at home to ensure that we continue to do a really high level, to ensure that we get the return to reach the $ 300 billion target, taking the right amount of risk,” Taylor said.

Addressing Asia, Taylor said “we see strong growth” here “and would probably increase our exposure here over time”.

“But that’s not to say we don’t even see big returns and growth in North America. The US market has been very successful for us for quite a while. You can see with a little bit of stimulus there’s probably good growth that comes too ”.

Despite criticism from China’s human rights records, the Canadian fund has increased its investments here, including in the country’s education and technology sectors.

“There are problems in the world in terms of the political agenda of governments,” Taylor said.

“When it comes to the companies we invest in, we try to be careful. But our need is to look around the world and say how we can achieve a balanced international portfolio of C $ 200-C $ 300. billion dollars and it’s probably quite challenging to do that if countries like China are completely excluded. ”

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