Teachers’ won’t head ‘for the hills’ as Brexit set to begin

The Ontario Teachers’ Pension Plan is continuing to hunt for deals in the United Kingdom, even as concrete steps were taken Wednesday to extricate Britain from the European Union.

“We’re not heading for the hills by any stretch of the imagination,” chief executive Ron Mock said at a media briefing Wednesday, shortly after news broke that Britain sent a letter to the European Union that marks a significant step in its move to exit the economic partnership.

The historic breakup has not led to any bargains so far, according to chief investment officer Bjarne Graven Larsen, who noted that while currency fluctuations can sometimes make assets look cheaper, “the pricing of assets in the U.K. continues to go up.”

Mock said there is likely to be a period of uncertainty, but added that the pension managers are hopeful about the long-term prospects for Britain and the European Union.

Teachers’ posted a 4.2 per cent return in fiscal 2016 after accounting for swings in the British pound and U.S. dollar. Despite the negative impact of currency fluctuations, the plan exceeded its benchmark return of 3.5 per cent and remained fully funded for its fourth consecutive year, Teachers’ said. Net assets rose by $4.2 billion from the previous year to $175.6 billion, beating the benchmark translated to a “value add” of $1.3 billion, the pension manager said in a statement.

“I’m very pleased that Ontario Teachers’ remained fully funded for the fourth year in a row despite major challenges in the global economy,” said Mock, who noted that big swings in global currencies had an impact on the short-term value of the pension plan’s assets.

The fund invests in more than 50 countries with 37 global currencies, and the return on those investments in local currency was 7.2 per cent. Converting those gains back into Canadian dollars has a negative impact of 2.8 per cent. In 2015, currency gains added 8.3 per cent to returns.

Executives said the currency impact in 2016 would have been worse if the fund manager, which invests and administers the pensions of Ontario’s 318,000 active and retired teachers, had not hedged about half its exposure to the British pound before the surprising outcome of the Brexit vote.