The president of Ontario Teachers’ Pension Plan said more pensions around the world are adopting a direct investment approach to asset management, causing deal compression and price increases.
Speaking at the Milken Institute Global Conference in Los Angeles, Ron Mock said pension managers in the US, the UK, Asia and elsewhere are starting to run their strategies “like a business” by investing in private equity, real estate and infrastructure directly or in partnerships.
“What we’re seeing today is that other large pools of capital elsewhere in the world, whether they’re coming out of Asia, Singapore or the Middle East, are moving more in the direction of the same kind of model, and have been doing so very rapidly,” he said. “The unfortunate news to that is it’s bidding up infrastructure prices, private equity prices […] all of a sudden we’re seeing things compress fairly substantially, so where do we continue to hunt as we go forward?”
Mock noted this strategy was being rolled out by Canada’s largest pensions, OTPP among them.
This week, Cubico Sustainable Investments – a platform established by OTPP and Public Sector Pension Investments – purchased an Italian solar portfolio generating 105.6MW. In March, OTPP announced a $2 billion clean energy development partnership with Anbaric to build projects in North America.
The strategy seems to be paying off, with OTPP reporting its real assets group, which comprises infrastructure and real estate, growing by C$1.6 billion ($1.16 billion; €1.07 billion) in 2016 and drawing 7.7 percent returns.
Mock said OTPP cares less about the “nomenclature of alternatives” – how asset classes are defined – than the value proposition of a deal.
“We’re going to [invest] where we can get correlation benefits and great risk-adjusted returns, whether that comes from real estate, infrastructure or private equity,” he explained. “We’re always on the hunt for a way that we can get great diversification and value-add.”
This type of strategy has required OTPP to bolster its staff for specialisations outside of what it usually hires for, Mock explained.
“We have to hire completely different talent than the PhD in risk management that we might have hired 10 years ago to look at some algorithmic training process,” he said.