Behind Ontario Teachers’ blueprint for trade-war survival

Behind Ontario Teachers’ blueprint for trade-war survival

Behind Ontario Teachers’ blueprint for trade-war survival

From a public-market perspective, investors should be eyeing technology companies with a measure of caution. Between increased government scrutiny of incumbent firms and several disappointing IPOs in the U.S., as well as the sector’s recent stumble in Canada, the case for including tech stocks in portfolios isn’t as strong as it has been in recent years.

But there’s still plenty of opportunity to be tapped when it comes to tech in the private markets. That’s true particularly for institutional investors, including the Ontario Teachers’ Pension Plan (OTPP).

One key component of Teachers’ tech thrust is the launch of a new early-stage tech incubator called Koru. “In private equity, infrastructure and natural resources, we have more than 90 private holdings across three diverse sets of sectors and geographies,” Ziad Hindo, OTPP’s chief investment officer, explained to the Financial Post.

“The idea behind Koru is to help them do venture and to help them think about new businesses and new possibilities that heavily leverage technology to drive exceptional growth in revenue,” he said.

Other Canadian institutional investors like the Canada Pension Plan Investment Board (CPPIB) and Caisse de dépôt et placement du Québec also have plans to review the potential for disruption among their own portfolio companies. But OTPP’s initiative through Koru also benefits from a partnership with Boston Consulting Group (BCG) Digital Ventures.

“BCG Digital Ventures has entrepreneurs, software engineers, startup guys, a lot of data analysts,” Hindo said. “They’ve already stood up 90 startups or ventures by working with companies, and are doing it very successfully.”

Previously, OTPP launched the Teachers’ Innovation Platform (TIP), which focuses more on late-stage venture and growth equity opportunities from external investments. An example of that is SpaceX, for which TIP bought a stake in June.

“When we put both of them together, they really cover the entire venture-risk spectrum,” Hindo told the Post.

Another piece of OTPP’s diversification strategy comes from geographic expansion. India, cited as a vibrant emerging market with huge potential, has been targeted for direct investments in infrastructure and private equity. Teachers’ has similar capabilities in place in Europe, where they have interests in private equity, infrastructure, and high-conviction equities.

Having recently crossed the $200-billion mark in net assets, which Hindo said have been transitioned slowly to achieve a higher fixed-income asset allocation over the past few years.

“When we looked at the portfolio a few years ago, we realized that it doesn’t have enough fixed-income exposure,” he explained, emphasizing the need to “clip coupons on government bonds” as well as fixed income’s ability to do well in recessions or economic downturns.

“We are in the 10th or 11th year of the economic expansion. It is getting a little long in the tooth in that cycle,” Hindo said. “You need it because of a recession. You need it because of the trade war and tensions. By themselves, they’re having pressure on the manufacturing sector of the economy.”

 

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