How transit commission pension plan prospered as a stand-alone entity

It's been only three years since plan stepped away from sponsor

How transit commission pension plan prospered as a stand-alone entity

Canada’s Toronto Transit Commission Pension Plan (TTCPP) only became a stand-alone entity three years ago, a report by said.

As a defined benefit pension plan with a $7.8 billion defined benefit fund for the employees of Toronto’s public transport network, the pension plan’s journey to being an independent organization involved several pivotal decisions.

Hiring its first independent CEO in 2016, TTCPP’s leadership team worked with Toronto Transport Commission and the Amalgamated Transit Union (ATU) to solidify its structure and transition as a spin-off entity. The new fund at the time launched in January 2019.

In the beginning, TTCPP’s team mostly handled the fund of fund investments with the support of their consultants. Andrew Greene, the current chief investment officer, became the fund’s first dedicated investment person.

TTCPP’s move to lean into hedge funds

Hedge funds are part of the 8% allocation of TTCPP’s portfolio. Greene was inclined to change TTCPP’s strategy involving having two fund of funds as one fund merged with another, and one went out of business.

Under Greene’s leadership, TTCPP invested small parcels amounting to $5 million in 20-odd funds which is meant to be a strategy designed to open the door with managers. This provided the opportunity to top up when the time comes for a space to appear with funds that TTCPP wanted to partner with.

After several years, the fund now has a full position with several top-tier funds.

“Names that we had trouble getting in with before are now more open to discussions. It is a good opportunity, and we are buying at better prices. Prices in private markets are still going down and we have better access to GPs and terms than we would normally have.” said Greene.

Strategies in line with leverage and higher yields

As leverage is used to invest in market-neutral and low-beta strategies for hedge fund, Greene noted that he doesn’t directly map where the leverage is applied.

“Leverage is costing me 5 per cent instead of 1 per cent and given our funded status is better because yields have gone up significantly, there is less need to take the incremental risk.” he said.

With funded ratio and higher yields driving strategies, Greene’s strategy revolves around timing the growth of allocations with opportunities that arrive. If the public equity allocation is trimmed to 20% of AUM, the allocation to private equity will be increased and more assets to work will be put into public credit.

“We are moving into credit, but credit spreads remain tight. When the spreads start to widen, we will increase the high yield allocation, but we will pull it back as the spreads come back in.” said Greene.

In real estate allocation, TTCPP invested around 80% of the portfolio directly in Canadian assets. Greene said he was planning to transform the allocation into fund of funds or SMA structures. From here, co-investments with GPs will be selected in an 80:20 split.

Greene has no intention to chase new asset classes and strategy as he leans towards a much more pragmatic strategy with the current environment where office is struggling.

“We are very hesitant to sell office assets right now. Nobody will buy them unless we sell for a deep discount which we do not think is prudent.” he said.

“We are just focused on getting our own ship in order.” he added.