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otpp investment strategy March of the Pensions by Dan Shirai t C$87 billion, Ontario Teachers’ Pension Plan (OTPP) is among the largest multi-asset class investors in LatAm. Canada’s biggest single-profession plan is a pioneer in its class of institutional pension managers, most of which are only starting to look at the region. OTPP has over the past three years deployed upwards of $3.5 billion in infrastructure, corporate debt, real estate, and private and public equity in the largest economies in Mexico, Chile and Brazil. And it hopes to do more. The pension manager’s investments range from pre-IPO investments in oil & gas startup OGX to majority stakes in Chilean water utilities. Unlike a typical fund that invests indirectly, OTPP gets its principals intimately involved in all large allocations, and familiar with the locals running them. “OTPP is clearly a leader,” says Carl Hess, global head of investment consulting at Watson Wyatt, referring to the Canadian investor’s strategy of direct investment, as opposed to buying into funds, as well as its speed to grasp LatAm as an opportunity. OTPP’s scale and independent governance structure allow it to chase returns with greater flexibility, adds Hess, whose firm advises institutional investors on asset allocation and manager selections. Aside from direct investment, OTPP is also ahead of the curve in the range of asset classes targeted in LatAm. For four years the pension fund has been playing the region in ways that most large, conservative, long-only institutions, are only beginning to think of, says Manuel Carvallo, senior consultant at Watson Wyatt who covers US pension funds and runs the LatAm business. “There are many people exploring the possibility of doing this, but they haven’t pulled the trigger yet,” Carvallo says, referring to large direct or indirect A OTPP is blazing a trail for pension funds targeting stable returns in LatAm. Its strategy based on partnerships and strict due diligence has yielded good results, say its principals. active and retired teachers in Ontario. It manages one of the largest payrolls in Canada, with $4.2 billion in annual pension payments. “When we invest in markets that are a little bit farther afield for us we try to make sure we have a local partner,” says Wayne Kozun, senior vice president in charge of public equities at OTPP. “In Brazil, we’ve partnered with Eike Batista,” he adds, referring to the natural resources maven who owns four large publicly traded infrastructure and energy companies. Kozun speaks of Batista – Brazil’s wealthiest corporate sector entrepreneur – as if he were an old business acquaintance. The pension plan started in 2006 investing alongside Batista, whose track record of investing in Canadian resources, including his Toronto-listed TVX Gold, dates back to the 1990s. In 2007, OTPP contributed an undisclosed sum to OGX, a startup oil and gas company of Batista’s, giving it a 20% stake in the private enterprise. In June 2008, OGX went public on the Bovespa, which gave it a market cap of 34 billion reais. In late July, OTPP’s 12% stake was worth 4.0 billion reais. This is around the same as the IPO valuation, say OTPP executives, who add that this is more than what they originally paid. OTPP notes in its 2008 annual report that OGX was the second largest single equity holding in its C$25 billion public equity portfolio. “That’s been a very fruitful relationship for us,” says Kozun, Teaming up with Eike: Kozun investment beyond sovereign bonds and liquid equities. “They’re starting to realize that emerging markets are not so emerging anymore.” Carvallo says he does not know of any other funds that invest directly in LatAm corporate debt markets, infrastructure or illiquid equity. Teaming up Locally Although LatAm is not among OTPP’s biggest investments – the portfolio is dominated by Canadian government bonds and notes, as well as domestic real estate – it is an important part of the fund’s diversification strategy. Its EM push has focused on Brazil, where it claims to have made “sizeable investments” after conducting extensive due diligence. OTPP invests the pension fund’s assets and administers the pensions of 284,000 September/October 2009 LatinFinance 23
Latin Finance - September/October 2009

Table of Contents for the Digital Edition of Latin Finance - September/October 2009
