WHAT IS Ontario Teachers' Pension Plan Board - OTPPB

The Ontario Teachers’ Pension Plan Board oversees the retirement established for the benefit of public school teachers in Ontario.

BREAKING DOWN Ontario Teachers' Pension Plan Board - OTPPB

The Ontario Teachers’ Pension Plan Board (OTPPB) administers the defined benefit plan shared by teachers at public schools in Ontario, the most populous province in Canada. The board was established in 1990, and has since become one of the largest investment funds in Canada. As of the end of 2017, the pension plan held approximately CA$189 billion in investments. These assets serve the needs of 323,000 current retirees and employees.  Prior to the establishment of OTPPB, teachers’ pensions were managed wholly by the provincial government.

Under the government's oversight, the pension fund invested exclusively in low-risk government bonds. A significant part of OTPPB's mandate at its inception was to create a more sophisticated and diversified investment regime. At the same time, the plan’s obligations to current and future retirees require it to maintain a conservative approach to risk. Like any pension fund, OTPPB’s fundamental goal is to manage funding risk, the risk that assets and returns fail to satisfy the plan’s obligations to its participants. OTPPB now manages assets ranging from international equities and fixed-income products to alternative investments such as natural resources and derivatives.

OTPPB and the Canadian Model

OTPPB was an early pioneer in the development of a pension management style known as the Canadian Model. Other pension funds such as the Ontario Municipal Employees Retirement System (OMERS) have followed suit, and Canadian plans have achieved a global reputation as leaders in effective and responsible management. The OTPPB describes the pillars of this system as independence, strong internal governance starting with board members, direct investment and a focus on retaining talent.

In practice, the first step in this innovation was to bring investment management almost entirely in-house. This often means that the board will enter into deals directly rather than use a private equity firm as an intermediary. Managing investments directly allows OTPPB to keep costs low and to keep to a long-term approach that can conflict with the investment strategies of non-pension funds.

OTPPB has also achieved success by maintaining a board which has avoided political concerns that have often struck other public pension institutions. Board members have tended to come from finance backgrounds rather than political or public service. Large funds in the United States, by contrast, tend to have boards drawn from a wider range of backgrounds, often leading to conflicts in oversight.

Finally, OTPPB’s version of the Canadian Model includes executive pay that is out of scale with its counterparts in the United States. OTPPB executive pay is competitive with Bay Street, the investment community in Toronto, and is structured to reward long-term returns. Pension managers in the United States, for comparison, tend to receive compensation far below the norms of Wall Street.