Latin Finance - September/October 2009 - 25

otpp investment strategy The fund has been very up front about overall performance, even in the wake of last year’s hefty C$19.5 billion loss. This was equivalent to an 18% decline in assets under management versus the previous year, compared to its composite benchmark drop 9.6%. An RBC Dexia study shows the 18% decline is in line with other funds over $1 billion, OTPP notes. “It is small consolation to us that our results are consistent with the average of other large Canadian pension plans,” Jim Leech, OTPP president and CEO said at the time. It marked only the third time in the fund’s 18-year history that it had registered a loss, and the first time in nine years that it has underperformed the benchmark. Active Management OTPP targets annual returns of 5% and has been achieving around 10% a year in the past four years, says Dowd. During that time, its equity portfolio has returned an average of 4% a year, including a 23% drop in 2008. That is better than the 2% annual gain and 26% loss in 2008 returned by OTPP’s benchmarks for equity, in the corresponding period. The benchmarks are calculated by taking a weighted average of eight equity indices – including the S&P 500, S&P TSX and MSCI Emerging Markets indices – and calculating them in a way that correlates to the fund’s asset mix. A distinguishing feature of OTPP is the fact it has long been run as an independent investment fund, rather than an overregulated government department. It has a lengthy track record of participating in LBOs in both Canada and the US, as well as large real estate holdings. The plan rarely outsources allocation decisions. Leech, its CEO, is a pure-bred investment manager formerly in charge of the plan’s private equity arm. Asked if the OTPP will be investing in Batista’s new $10 billion infrastructure private equity fund, currently being marketed to potential participants, Kozun says he does not think so. “We like to invest directly rather than through funds,” he says, expressing OTPP’s desire not to delegate management for a fee. “We think [doing it directly] is more cost effective and allows us to get a better return on our risk,” adds the investor. The Canadian investor sets an important example for large institutional money eyeing LatAm. As some of the region’s larger economies mature, with Chile, Brazil, Mexico and Colombia leading the pack, more like OTPP will turn to LatAm seeking to deploy long term capital. These long-dated funds help stabilize flows that historically in LatAm have tended to be fickle by nature. Others, like the C$120 billion Canada Pension Plan Investment Board – which in August made its first direct LatAm investment, a joint venture with Brazilian real estate developer Cyrela – will take its cue from OTPP as it hunts returns in the region. LatAm governments and private sector executives should also become familiar with OTPP to better understand the requirements of larger, more conservative investors. However, replication may be slow in coming. “I don’t think they will have many followers,” says Hess. He adds that few funds are large enough, or appropriately staffed, to manage such investments directly. LF September/October 2009 LatinFinance 25
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Latin Finance - September/October 2009

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