Ontario Teachers’ Pension Hunts for Real Energy Assets, Looks to Pare Oil and Gas Derivatives

The chief investment officer of the Ontario Teachers’ Pension Plan (OTPP) indicated this week that the pension fund is searching for physical energy assets – and, at the same time, looking to draw down its exposure to energy-related derivatives.

From Reuters:

“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 [this week].

“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.”

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.

[…]

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.

OTPP posted an 11.8 percent return on investment in 2014. The fund manages $121.5 billion in pension assets.

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