Teachers' 2006 investment income totals $12.3 billion



    13.2% return sees assets increase to $106 billion

    Return reflects lower risk tolerance

    TORONTO, March 26 /CNW/ - The Ontario Teachers' Pension Plan today
announced that the fund's net assets increased to $106.0 billion in 2006,
compared to $96.1 billion in 2005.
    The pension plan's one-year rate of return was 13.2 percent, compared to
its 9.4 percent composite benchmark. The difference between the actual return
and the benchmark represents $3.4 billion in extra value created by the
investment team. The fund's four-year rate of return is 15.7 percent, while
the benchmark is 11.6 percent, for a four-year value added total of
$12.6 billion.
    The Ontario Teachers' Pension Plan asset mix was 46 percent equities, 34
percent inflation-sensitive (including commodities, real estate, real-return
bonds and infrastructure and timber) and 20 percent fixed income investments
as of year end.
    Equities had a 20.3 percent rate of return in 2006, compared to a 20.0
percent benchmark, ending 2006 with $48.8 billion in assets compared to
$45.1 billion at the end of 2005. The 2005 rate of return on equities was 17.9
percent. Private equity investments, which are included in this asset class,
had a 26.9 percent one-year rate of return.
    Inflation-sensitive investments earned a 7.4 percent rate of return in
2006, compared to a 1.6 percent benchmark, ending the year with $35.4 billion
in assets. This compares to a 17.5 percent rate of return and $30.4 billion in
total assets in 2005.
    Fixed income investments and absolute return strategies earned a 6.1
percent rate of return, compared to a 1.4 percent benchmark in 2006. This
asset class totalled $21.5 billion at the end of 2006, compared to
$19.3 billion in 2005, when the rate of return was 15.3 percent.
    The fund's composite benchmark tracks standard indices for Canadian and
foreign markets and real rate returns for inflation-sensitive assets, each in
proportion to the fund's asset-mix policy.
    "This is the seventh consecutive year in which our managers have beaten
the fund's composite benchmark," said Bob Bertram, Executive Vice-President,
Investments. "Our $3.4 billion in value-added brings the five-year value-added
total to $14.6 billion. The investment team has achieved these results by
managing risk, diversifying the portfolio and by nurturing the skills we need
inhouse to take advantage of opportunities to add value when they arise."
    President and Chief Executive Officer Claude Lamoureux explained that
2006's results remain ahead of benchmarks, while reflecting low interest rate
levels and the reduced risk the plan can afford to take. "With a rising
proportion of retired to active teachers, and contributions being outpaced by
benefit payments, it is simply not prudent to increase the fund's exposure to
the volatility of equity markets," said Mr. Lamoureux. "As such, we have been
removing risk from the plan for the past 10 years. Our asset-mix strategy
reflects the plan's risk tolerance." He added that the investment team
continually seeks innovative, but low risk, ways to create value.
    Teachers' has one of the largest payrolls in Canada, paying out a total
of $3.8 billion in benefits in 2006. Member and government contributions
totaled $1.6 billion in 2006.
    On a funding basis, i.e. the basis that determines contribution and
benefit levels, the plan reported a preliminary estimated shortfall of
$17.4 billion as of January 1, 2007, compared to a surplus of $0.1 billion in
the January 1, 2005 valuation, which was filed with regulators in June 2006.
The current preliminary estimated shortfall reflects an actuarial smoothing
adjustment, which holds back $11.1 billion in investment gains that will be
recognized over the next four years. It also reflects the decrease in interest
rate assumptions to 2.8 percent from 3.725 percent at January 1, 2005. At
3.725 percent, the June 2006 filing assumed a higher risk premium than that of
recent years. Using that assumption would reduce this year's preliminary
shortfall to $3.6 billion.
    Mr. Lamoureux noted that this difference underscores the fact that even a
small change in real interest rates has a major positive impact on
liabilities. For example, a 0.1 percent increase in the real interest rate
decreases liabilities by $2.2 billion. Of course the opposite also is true -
if rates decrease, costs increase, he noted, adding that it is impossible to
predict exactly what rates will be at the beginning of next year.
    The next funding valuation, as of January 1, 2008, must be filed by
September 30, 2008.
    The Ontario Teachers' Pension Plan is an independent corporation
responsible for investing the $106 billion fund and administering the pensions
of Ontario's 167,000 elementary and secondary school teachers and 104,000
retired teachers. Responsibility for ensuring the pension plan is fully funded
lies with the Ontario government and the Ontario Teachers' Federation, the
plan's co-sponsors, who set benefit and contribution levels.

    Note to editors: The plan's annual report will be available online in
early April on our website and all figures will be updated at that time. 
www.otpp.com.

    
    PERFORMANCE SUMMARY
    (percent)
                             1-yr       Value              4-yr      Value
                     1-yr   bench-      added      4-yr   bench-     added
                    return  mark(1) ($ billions)  return   mark  ($ billions)
    -------------------------------------------------------------------------
    Equities         20.3    20.0       $0.1       18.1    15.8      $3.1
    -------------------------------------------------------------------------
    Inflation-
     sensitive
     investments      7.4     1.6        1.9       12.6     7.0       5.8
    -------------------------------------------------------------------------
    Fixed income
     and Absolute
     return
     strategies       6.1     1.4        1.0       13.3     8.1       3.7
    -------------------------------------------------------------------------
    Total fund(2)    13.2     9.4       $3.4       15.7    11.6     $12.6
    -------------------------------------------------------------------------
    (1) Composite benchmark is weighted according to the asset-mix policy.
    (2) Total fund value added  includes Investment Planning Committee
    returns, which are not attributable to a department.


    NET INVESTMENTS BY ASSET CLASS
    (for the year ended December 31) ($ billions)
    -------------------------------------------------------------------------
                                                          2006          2005
    -------------------------------------------------------------------------
    Equities(2)                                           $48.8        $45.1
    -------------------------------------------------------------------------
    Canadian                                               16.4         19.3
    Non-Canadian                                           32.4         25.8
    -------------------------------------------------------------------------
    Inflation-sensitive investments                        35.4         30.4
    -------------------------------------------------------------------------
    Real estate                                            14.5         12.5
    Real-return bonds                                      11.8         10.5
    Infrastructure and timber                               6.8          4.8
    Commodities                                             2.3          2.6
    -------------------------------------------------------------------------
    Fixed income and Absolute return strategies            21.5         19.3
    -------------------------------------------------------------------------
    Absolute return strategies and hedge funds             15.3          9.5
    Bonds and money market(2)                               6.2          9.8
    -------------------------------------------------------------------------
    Net investments(1)                                   $105.7        $94.8
    -------------------------------------------------------------------------
    (1) Net investments plus contributions and other net assets (liabilities)
    equal net assets of $106.0 billion.
    (2) Certain comparative figures have been reclassified to conform with
    the current year's presentation, including mezzanine debt, which was
    classified as equities in 2005 and reclassified to bonds in 2006, to be
    consistent with its benchmark change.
    




For further information:

For further information: Deborah Allan, Director, Communications, (416)
730-5347, deborah_allan@otpp.com

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Ontario Teachers' Pension Plan

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