The fund's overall return was 6.7% last year, with its private equity loss and real estate loss contributing to a return that fell short of the benchmark by five percentage points.
Ontario Teachers' Pension Plan suffered an unusually large loss in its private equity portfolio last year, forcing the $200 billion asset manager to overhaul its approach to the business.
The Canadian firm said the value of its private equity holdings dropped by about C$10 billion ($7.4 billion), and going forward it will focus on just three sectors -- financial services, technology and services. Its 5.3% private equity loss compared with an 18% gain for its benchmark.
The change means the pension plan no longer has specific teams focusing on health-care investments and the sustainable energy transition within that unit, according to its website.
While the overall fund earned 6.7% last year -- thanks to the rising value of stocks, gold and SpaceX -- the troubles in its private equity business are the latest reminder of the broad challenges facing the industry, which is sitting on $3.8 trillion of unsold assets and is struggling to raise money for new funds.
"Our private equity and real estate teams had a more challenging year given broad sector headwinds," Chief Executive Officer Jo Taylor said in a statement. "We responded with disciplined year-end valuation adjustments to reflect current market conditions, which weighed on performance."
The value of Ontario Teachers' private equity holdings dropped to C$50.8 billion by the end of last year. The fund cited valuation pressures and "industrywide challenges for private equity investments."
The pension plan will continue using external fund managers within private equity, with Jeff Markusson helming the effort as senior managing director of global funds. Fund investments represent 28% of private equity investments, with direct investments constituting most of the rest.
The private equity team has undergone other changes over the past year, including naming Dale Burgess the new head of equities and creating a department to focus on value creation. At least five senior managers have departed the unit over the past several months.
Venture Growth
Teachers' venture growth portfolio surged 30%, largely because of its stakes in Elon Musk's Space Exploration Technologies Corp., which has become one of the world's most valuable companies, and software company Databricks Inc.
The fund's overall return, which fell short of the benchmark by five percentage points, pushed the Canadian fund's net assets to C$279.4 billion as of December.
Teachers' real estate group, which is long on Canadian shopping malls, had another tough year, losing 3.1% -- partly because of the bankruptcy of department store chain Hudson's Bay Co.
The fund posted a C$1.2 billion loss from foreign currency exposure, mostly due to the US dollar's slump. The pension plan reduced its exposure to the dollar and Treasuries early last year, Taylor said in a previous interview.