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Infra outperforms despite currency for fully funded OTPP

The $119bn pension said new investments and higher valuations were ‘partly offset’ by a strong Canadian dollar in 2016.

The infrastructure portfolio of Ontario Teachers’ Pension Plan grew by over C$2 billion ($1.49 billion; €1.39 billion) in 2016 as returns outperformed despite a strong Canadian dollar.

Infrastructure investments for Canada’s largest single-profession pension manager totalled C$17.5 billion at the end of 2016, up from C$15.7 billion a year earlier. The asset class delivered 1.4 percent one-year returns, outperforming a -2.3 percent benchmark.

Andrew Claerhout, who leads the Toronto-based pension’s infrastructure and natural resources group, told Infrastructure Investor that OTPP’s portfolio at large – and infrastructure in particular – had been impacted by the mightier Canadian dollar.

He said the currency had appreciated notably against the British pound, which dropped off “precipitously” after the Brexit vote.

“In infrastructure, it was even more profound. And that shouldn’t come as a surprise because we’re much more international in infrastructure,” Claerhout explained. “The UK, in fact, is the single largest concentration in our infrastructure book.”

Infrastructure returned 9.6 percent in local currency, Claerhout said.

The pension’s real estate assets, grouped together with infrastructure under the real assets umbrella, grew at a similar rate, from C$24.9 billion in 2015 to C$26.5 billion at the end of 2016. Returns reached 7.7 percent, exceeding a 7.4 percent benchmark.

Overall, OTPP’s net assets rose by C$4.2 billion in 2016, lifting the pension’s total portfolio to C$175.6 billion. The total-fund rate of return was 4.2 percent, exceeding the benchmark of 3.5 percent and resulting in C$1.3 billion in “value-add”, OTPP said.

For the fourth consecutive year, OTPP was fully funded, which reduces the amount of risk the pension manager is willing to take on, Claerhout said.

“If you’re in a surplus, you de-risk. If you’re not in a surplus, you need to be taking some more risks to close that gap,” he explained. “I think the types of assets we’re going to want more of are the ones that are lower-risk, more predictable, stable, cash-flowing, which are the hallmarks of infrastructure.”