This is the Toronto Eaton Centre. By some measures, it is the busiest shopping mall
in North America, with over 230 stores and restaurants, ranging from Kernels Popcorn to
Kernels Popcorn Level 1 North. This is the Sydney Desalination Plant. It’s a critical
piece of water infrastructure for Australia’s most populous city, with the capacity to service
1.5 million residents’ water needs. This is the Brussels Airport. You might recognize
it from Season three of Jet Lag: The Game; it’s where Ben got caught the final time.
What do all three of these things have in common? First, if you tried to eat them, you would die.
Second, they’re all owned, either completely or primarily, by the Ontario Teachers’ Pension Plan.
The Ontario Teachers’ Pension Plan is exactly what it sounds like: a pension plan for teachers in the
Canadian province of Ontario. It’s also nothing like what it sounds like, in that it sounds like
a retirement plan for teachers and not like an organization that is the former owner of the
Toronto Raptors and the current owner of multiple Indian toll roads. Yet somehow, it’s both. All of
which raises the question: wait, what? Let’s start with the basics. A pension,
if you don’t know, is a fund that’s used to provide people money once they retire,
typically on a monthly basis. Pensions are usually funded through a combination of
employee and employer contributions, although—and don’t tell anyone this—employer contributions are
actually just employee contributions because if the employer didn’t pay that money for the
pension they would just give it to the employee so whenever you hear people say “employer
contribution” that’s BS and you should call it out but anyways the point is, while employers
and employees contribute to pensions, most of a pension’s money comes, at least hopefully,
from investments. All the contributed money is pooled and invested and at least theoretically,
the profits from those investments are able to provide beneficiaries of the pension—in this case,
teachers in Ontario—with more money than was contributed in the first place. In
simpler terms, teachers plus stonks equals profit. But none of that answers the fundamental question:
why is the Ontario Teachers’ Pension Plan so massive? And also, why does it own five airports?
Well, let me take you back to a magical time called the 1980s. The Cold War was ending, the Hot
Pocket was beginning, and the pensions for Ontario teachers were run exclusively by the Ontario
government, who only invested in government bonds. Bonds are a really safe investment, because you
only lose your money if your government pretty much collapses, and that would never happen,
especially not in the next few years. But because of that safety, governments only need to offer
bonds with quite low returns: in the long run, Canadian bonds have about a 1% net return. But one
day, the Ontario government and Ontario’s teachers decided that instead of having less money,
they’d prefer to have more money, and so they established a new pension for its teachers that
would be run independently, and could invest in whatever it wanted. And what it wanted
was to establish a whole new model of pension investing, which is now called the Canadian Model.
See, typically, pension plans would entrust their money to various “managers”—private
investors whose job it is to take money from pensions, endowments, and various rich people,
and then invest it in exchange for often-pricey fees. The only real job of a pension is often
choosing which managers to give their money to. The Ontario Teachers’ Pension, though,
decided to do not that, instead mostly building out its own investing team, thus avoiding those
fees. Basically, instead of investing their money in a bunch of hedge funds and private equity
groups and whatever, like many pensions, Ontario Teachers’ Pension essentially became its own
hedge-fund-slash-private-equity-group-slash-whatever. That, by the way, is the answer to the question
in the title that I so cleverly enticed you into watching this video with:
Ontario Teachers’ has an office in Singapore because instead of hiring some Singaporian
manager to invest their money in Southeast Asia and Oceania, they’d much rather have their own
office there and invest it themselves. Plus they can go bungee jumping whenever they want.
That’s the first key part of the Canadian model: direct investing. The second part
is what they invest in. While most pensions are typically invested in mostly stocks and bonds,
Ontario Teachers is much more interested in completely buying out companies, or just buying
actual physical stuff—particularly infrastructure, in part because the long-term returns needed for
a pension fit well with the long-term nature of infrastructure. That’s why if you take a flight
in Europe or drink water in Sydney or drive in Karnataka, there’s a good chance you’re helping a
former Kindergarten teacher remodel her kitchen. The third part of the Canadian Model is who and
how they hire. Turns out, if you want to act like a hedge fund or private equity group, you kind of
have to pay like one. That’s why Ontario Teachers’ spends way more than most pensions on talent:
in 2018, the head of Ontario Teachers, Ron Mock, made $5.6 million. For comparison, in 2019,
the head of the US’ largest teacher pension, the California State Teachers Retirement System,
made $282,000. I’m certainly not here to argue that it’s good to pay guys with names like Ron
Mock the cost of 3.7 Moonlights, but on the other hand, California’s plan is only hitting
66% of its funding obligations, while Ontario Teachers is fully funded and also owns North
America’s leading mussel producer, which is sick. And ultimately, those mussel farms, tolls roads,
and Chris Boshes have added up: Ontario Teachers has not only turned itself into
one of the largest institutional investors in the world—so big that it’s a partner organization of
the World Economic Forum—it’s also set a model for the rest of Canada, whose public pensions
have consistently outperformed peers for the last two decades by following this Canadian
Model. I should say here at the end that normally I would feel kind of bad that I’ve
spent this whole video basically shilling for a giant financial institution, but hey:
ultimately that institution’s whole thing is to give teachers more money, which I think is great,
especially because maybe if they have more money, they won’t keep making me do their job for them.
As is often the case, I’m outside the US as I write and record this ad-read: I travel quite a
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