Achieving Investment Excellence

Case Study—OTPP

ONTARIO TEACHERS' IS THE FUND WITH WHICH THE “CANADIAN MODEL” FOR PENSION FUNDS STARTED. THIS HAS INSPIRED PENSION FUNDS IN CANADA AND GLOBALLY. AT ITS CORE LIES A STRONG GOVERNANCE MODEL AND THE CLEAR CONVICTION THAT A PENSION PLAN SHOULD BE RUN LIKE A BUSINESS

Background

Ontario Teachers' Pension Plan (OTPP) is the pension plan for the teachers in the Ontario province of Canada. It was founded in 1990. Its assets under management amount to CAD$190 billion (equivalent of US$147 billion) in December 2017.¹ It is built on four pillars: a clear mission, a strong and independent governance, the vision to manage the fund like a company and the policy to hire and retain top talent.

In practice, there are a number of key characteristics that to a large extent describe both Ontario Teachers' and more generically a number of other large Canadian pension plans:

• A return orientation, with emphasis on generating high and sustainable returns;
• Active investing with an entrepreneurial mind-set;
• A tendency to internalize the investments;
• A large of allocation to private assets (more than 40%).

Ontario Teachers' is a defined benefit plan. It aims to index its pensions. In recent years, flexibility in the indexation, conditional indexation, has been introduced as a way to cope with the reduced flexibility of the fund because of its increasing maturity. A sign of this increasing maturity is that net pension payments of the fund already exceed the premiums with almost a factor ...