RE leads the way for Ontario Teachers’ 2007 returns

The Ontario Teachers’ Pension Plan reported a 14.7 percent return on its real estate investments despite the scheme recording its lowest overall annual return in five years.

The C$108.5 billion ($106.9 billion; €68.1 billion) public pension saw its cumulative portfolio return just 4.5 percent, its lowest for five years although still above its benchmark. The pension attributed the rising Canadian dollar’s adverse impact on foreign investments as well as credit market dislocation to the lower-than-usual returns.

Real estate however proved to be the highest performing asset class, returning 14.7 percent compared to a benchmark of 7.4 percent. Managed by wholly-owned subsidiary Cadillac Fairview, Teachers’ real estate investments increased to C$16.4 billion from C$14.5 billion in 2006. Its real estate portfolio was highly concentrated in Canadian retail, which comprised 58 percent of its holdings, according to the annual report.

Among the pension’s investments are Calgary’s Chinook Center, the redevelopment of Vancouver’s Pacific Center and the development of the RBC Center office tower and the 53-story Ritz-Carlton condominium and hotel complex. 

Last month, Teacher's told PERE it was in talks to acquire a 50 percent stake in Prague Airport in partnership with France’s state-owned operator Aeroports de Paris as part of its infrastructure investment strategy.

According to the annual report, private equity investments also reaped a 9.8 percent return during 2007 – down from a 26.9 percent return in 2006. The pension’s private equity arm, Teachers’ Private Capital (TPC), added roughly C$840 million in value to the pension’s assets, up from the C$350 million it added in 2006. TPC, which invests roughly eight percent of Teachers’ total portfolio both directly and via fund commitments and co-investments, invested a total of C$9 billion last year, representing a C$1.7 billion increase from 2006. Its 9.8 percent annual return beat its -0.9 percent benchmark.

Major private equity transactions last year in which TPC was involved included a $1.7 billion exit from luggage manufacturer Samsonite, representing a five-fold return; the pending $52 billion buyout of Canadian telecom BCE; the $1.7 billion acquisition of global retail chain General Nutrition Centers; and the NZ$2.2 billion ($1.7 billion, €1 billion) purchase of New Zealand Yellow Pages. The annual report also revealed that TPC was deploying less capital domestically; last year, 22 percent of its private equity investments were in Canadian companies, compared to 32 percent in 2006.

Erol Uzumeri, the head of TPC, recently told PERE’s sister publication Private Equity International that because private equity had been Teachers’ highest returning asset class, “we’ve been encouraged by the board to really invest [in] as many deals as we can find that we think are good and meet our expectations”.

Jim Leech, Teachers’ chief executive, said of the 2007 results: “Diversification has always been a hallmark of our investment program, and our real estate, private equity and infrastructure assets led the way with our tactical asset allocation and absolute return strategies in producing a 4.5 percent total fund return, decisively outperforming the 2.3 percent composite benchmark.”

Teachers’ investments in infrastructure and timberland grew to C$8.8 billion in 2007 from C$6.8 billion in 2006, with an annual return last year of 0.8 percent.