OTPP posts lowest private equity return since 2009

The Canadian pension plan’s private equity portfolio generated single-digit returns in 2016, mainly due to currency movements.

Ontario Teachers' Pension Plan private equity portfolio generated a 4.3 percent return in 2016, down from 32.3 percent for the previous year.

The return figures come in below the pension's benchmark, which returned 5.4 percent in 2016, and mark the first time since 2009 that the portfolio generated returns in the single digits. OTPP's private equity return in 2009 was -2.8 percent, but bounced back to 13 percent the following year.

OTPP chief investment officer Bjorne Graven Larsen told Private Equity International that private equity returns in 2016 were impacted by a strengthening Canadian dollar, particularly against the British pound, while the pension's private equity portfolio benefited from foreign exchange movements during the prior year.

He also noted that in local currencies, the return for 2016 is closer to 10 percent, and that the four-year annualised return for private equity is 20.8 percent, exceeding the benchmark return of 17.5 percent.

“It's much less dramatic if you don't take into consideration the strength of the Canadian dollar,” he said, adding that “there's nothing in the portfolio that worries me”.

OTPP's private equity portfolio size dropped to C$26.6 billion ($20 billion; $18.5 billion) as of 31 December after several exits and as the result of a strengthening Canadian dollar. This compares with a total private equity portfolio of C$28.4 billion as of 31 December 2015.

“Assets under management decreased during the year as a result of sizeable divestitures through public markets and private sales as well as negative foreign exchange movements caused by a strengthening Canadian dollar,” OTPP wrote in its annual report released on Wednesday.

Some of the largest divestitures from the private capital portfolio in 2016 included Dematic SA, Acorn Care and Education, and Q9 Networks.

“This was partially offset by modest growth in the portfolio and the addition of six new investments” the pension added.

Some of the new acquisitions included Canada's Constellation Brands Canada for C$1.03 billion. Constellation owns Canadian wine brands such as Jackson Triggs, Inniskillin and Sumac Ridge and international wine labels including Robert Mondavi.

Toronto-based OTPP, which has C$175.6 billion in net assets as of 31 December, invests in private equity funds and also focuses on direct private equity investments.