(Reuters) – The Ontario Teachers’ Pension Plan, one of Canada’s biggest investors, said on Tuesday it is actively scouting for energy assets as it looks to trim positions in oil and gas derivatives and invest instead directly in producing assets.
“We do have our natural resource group out there looking for real assets,” said Neil Petroff OTPP’s chief investment officer, in a media briefing after the fund manager posted a 11.8 percent rate of return on its investments in 2014, taking net assets to a record C$154.5 billion ($121.5 billion).
Petroff, who is set to retire as of June 1, said historically the fund has used derivatives in order to gain exposure to oil and gas. But given the cost to be in derivatives and given that these instruments create liquidity and mark-to-market requirements, its natural resource group was created back in 2013 to buy into real assets.
Earlier this month the pension fund manager, commonly known as Teachers, said that its natural resources group had bought a working interest in the Weyburn Unit, a Saskatchewan-based oil asset, for C$153.4 million, marking its first energy asset deal.
“The current price of oil, I think gives us an opportunity to look for platform companies, where we can grow,” he said. “We looked at $100 oil and we have looked at it at $50 oil, and we’ve got that allocation in derivatives that could well move to real assets in the next three to five years.”
The new investment focus on physical energy assets comes at a time when pension funds like Teachers are more often running into bidding wars and heightened competition for infrastructure and real estate assets, as sovereign wealth funds and long-life private equity funds now vie for these assets long coveted by pension funds, due to their steady cash flows.
“We have relationships globally, because often times these relationships will reveal unique deals and opportunities that are not put out to auction and we find that is a very important source of good risk adjusted returns,” Ron Mock, Teachers’ chief executive, said during the media briefing.
The pension plan, which administers pensions for public-system teachers in Canada’s most populous province, said strong returns from stocks, bonds and real estate in 2014, offset the dismal performance from its natural resources portfolio, which suffered as oil prices plummeted. ($1 = 1.2719 Canadian dollars)