CANADA - The Ontario Teachers' Pension Plan (OTPP) is facing a C$17.1bn (US$17.04bn) funding shortfall despite outperforming its benchmark and generating a 13% return in 2009.
OTPP made more than C$10.9bn in investments last year, placing the pension fund ahead of its consolidated benchmark by 4.2%, according to its latest annual results report.
But the pension fund blamed its enlarged funding deficit on low interest rates, which are used to calculate its C$158.3bn liabilities.
OTPP's funding shortfall soared by almost seven times between 2008 and 2009.
OTPP president and chief executive Jim Leech said 2009 was "great from an investment and member service perspective", but was "confounding from a funding perspective".
He said: "We spent 2009 taking care of the business of the plan during the tail end of the financial market crash, while taking advantage of the market turmoil to make some investments that are already starting to pay off, and fortifying the plan for the future."
Close to half of OTPP's investments are characterised as "inflation-sensitive", such as real estate, infrastructure and commodities.
This section of the fund increased to C$45.9bn at the end of 2009 from C$44.9bn 12 months previously.
However, it was in this section of the portfolio that OTPP underperformed its benchmark, returning 4% versus 5.4%.
The largest outperformance by the pension fund was made through its fixed income investments, returning 23.6% versus a benchmark of -4.8%, although these investments constitute only 7% of total assets under management.
The biggest gains in 2009 were made through the pension fund's equity investments, which constitute 44% of overall assets, posting returns of 21.4% against a benchmark of 17.2% and generating annual income of C$7.2bn.
Leech warned that the large equity gains seen last year were unlikely to be repeated going forward, attributing it to a return of market confidence rather than underlying economic growth.
He said: "In 2008 and continuing into the first quarter of 2009 we saw a crisis of confidence among investors.
"It caused market mayhem. After the markets bottomed out in March 2009, confidence edged back up and with that came a return to more reasonable valuations.
"We expect it will still be some time until true economic growth takes hold."
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