Ontario Pension Fund revamps PE business in light of global risk

Ontario Teachers’ Pension Plan is re-examining its private equity unit, aiming to lean more on partnerships rather than owning entire firms as it seeks to mitigate risk.

For decades, the pension fund in Canada’s most populous province has bought companies outright within its private equity business, and also backed firms alongside partners and external managers. 

Now Ontario Teachers’ — which oversees C$266.3 billion ($185.2 billion) — will focus that business “more on a partner basis,” Chief Executive Officer Jo Taylor said in an interview.

With all of the uncertainty in the world, “you dial back the risk by doing it with a partner rather than doing it on your own,” he said.

Canada’s biggest pensions, known as the Maple Eight, oversee roughly C$2.3 trillion ($1.6 trillion) and have a distinctive strategy that focuses on long-term bets — often wholly owning firms they’re backing. But a prolonged deal drought amid elevated interest rates and President Donald Trump’s trade war are prompting pensions to rethink their models.

Ontario Teachers’ has another reason for shifting its approach to its C$60.4 billion private equity portfolio: the complexities that come with operating its companies.

“Assets are taking more time, resources and effort to get to their full potential,” Taylor said. “Having partners who can help with that journey and actually that work is often a way of sharing the load.”

Taylor didn’t rule out buying controlling stakes on its own.

While Ontario Teachers’ is scaling back on buying new firms, it’s expanding existing portfolio firms through acquisitions. Insurance broker BroadStreet Partners, for example, has been growing by gobbling up other firms.

In the 1990s, Ontario Teachers’ pioneered the so-called Canadian Model of managing assets in-house, championing independent governance and employing sophisticated staff who travel around the world in search of lucrative investments. Other major Canadian pensions followed suit and became known as the Maple Eight — and now Ontario Teachers’ peers are also looking to lean more on external managers for private equity deals.

Caisse de Depot et Placement du Quebec said last month that it will scale back its direct investing and team up with third-party managers. And Ontario Municipal Employees Retirement System halted direct private equity investments in Europe last year, shifting its exposure in the region by investing alongside partners and third-party managers.

‘Business as Usual’

Ontario Teachers’ is also reshuffling its management team within its private capital unit.

The pension’s new interim executive managing director for equities, Dale Burgess, now oversees private equity — along with infrastructure and natural resources. 

“He’s going to do that for a period of time, and what we’re trying to do is figure out what do we need from a leadership point of view around private equity,” Taylor said.

The pension fund doesn’t plan to replace former senior managing director Jean-Charles Douin, who left last year and focused on direct investing within private capital out of the London office. Iñaki Echave, previously co-head with Douin for the Europe, Middle East and Africa private capital team, is Teachers’ private capital leader in that region, according to Taylor.

It’s still “business as usual,” said Taylor, who said the fund is also altering its approach to public equities by prioritizing passive investing over stock picking. “I think it’s going to have more of a passive feel to it,” he said.

Putting pensioners’ money in indexes and investing passively “probably overall is a better bet” than trying to outperform the market, which requires more technology and data, Taylor said.

Ontario Teachers’ had C$37.4 billion of public equities as of Dec. 31, according to its annual report.