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TORONTO (Reuters) - The Ontario Teachers' Pension Plan, one of Canada's top investors, said on Tuesday the value of its investments bounced back in 2009 after major losses a year earlier, but not enough to stave off a funding shortfall.
Teachers', which administers the pensions of 289,000 active and retired educators in Ontario, said it had an annual rate of return of 13 percent last year as confidence returned to financial markets, and reported C$10.9 billion ($10.8 billion) in investment earnings.
The fund's net assets were C$96.4 billion as of December 31.
"We spent 2009 taking care of the business of the plan during the tail end of the financial market crash, while taking advantage of the market turmoil to make some investments that are already starting to pay off, and fortifying the plan for the future," said Chief Executive Jim Leech.
But that was not enough to stop the plan from slipping into a funding shortfall of C$17.1 billion, meaning that in the long term it would not be all to pay full benefits to pension plan members unless the deficit is made up.
In 2008, Teachers', Canada's largest single-profession pension plan, suffered an 18 percent investment loss as equity and other holdings were slammed by the global financial crisis.
At yearend 2009, the fund's inflation-sensitive asset class holdings rose to C$45.9 billion from C$44.9 billion at the end of 2008. The equities portfolio climbed to C$41.2 billion from C$34.9 billion a year earlier. Fixed income assets, net of related liabilities, rose to C$6.4 billion at 2009 yearend from C$5.3 billion in 2008.
Leech said the rebound last year came as confidence returned to markets but added that it did not reflect true economic growth.
"We should not expect this kind of market growth going forward," he warned. "In 2008 and continuing into the first quarter of 2009 we saw a crisis of confidence among investors. It caused market mayhem. After the markets bottomed out in March 2009, confidence edged back up and with that came a return to more reasonable valuations. We expect it will still be some time until true economic growth takes hold."
That means it will take time and certain actions for Teachers' to address the funding shortfall and guarantee an asset base that can pay benefits over the next 70 years.
The plan has been hit by historically low real interest rates that continue to prevail, and projected liabilities are greater than projected assets.
"With this shortfall, the plan was 89.2 percent funded at the beginning of 2010," Teachers' said in its 2009 annual report, published on Tuesday.
Low real interest rates, or the rate above inflation, increase pension costs because they affect projections of how much money will be required to fund future needs.
Leech said the Teachers' sponsors are reviewing alternatives to address the funding shortfall, but that the fund does not face any immediate problems paying out benefits.
He said the plan cannot assume it will earn enough on its investments to cover the shortfall and that other alternatives are being reviewed.
A private equity group led by Ontario Teachers' Pension Plan said on Monday it has acquired Exal Group, the world's largest specialty maker of aluminum containers, for an undisclosed amount.
Reporting by Pav Jordan; editing by Peter Galloway