The Ontario Teachers’ Pension Plan (OTPP) has reported a remarkable 9.5 per cent return for the first half of 2023, significantly bolstered by its investment in Elon Musk’s SpaceX. By the end of June, the value of this stake had soared to an impressive US$8.7 billion following the company’s public listing. In a statement released on Monday, OTPP announced that it recorded $26.6 billion in net investment income for the six months concluding on June 30, with its portfolio gaining 14.5 per cent over the past year.
Strong Performance Driven by SpaceX
OTPP attributes a large portion of its stellar first-half performance to its early investment in Space Exploration Technologies Corp. The pension plan initially invested approximately $300 million in SpaceX in 2019, leveraging its venture investing division, and has since made additional investments as the company expanded its operations. The increasing value of SpaceX, driven by successful rocket launches, the growth of its Starlink satellite internet service, and its merger with Musk’s AI venture, has resulted in billions of dollars in paper gains for the pension fund.
However, with SpaceX’s market capitalisation now reaching an astounding US$1.7 trillion, OTPP’s CEO Jo Taylor has indicated that the pension plan is closely evaluating its exposure to the aerospace giant. “Over time, we’re going to have to look at that position and say, what is the right size for the portfolio?” Taylor remarked in an interview. He further noted that part of this assessment will involve exploring opportunities to divest.
Navigating Share Lockup and Future Strategy
Recently, the first of several lockup periods, which previously restricted shareholders from selling their SpaceX stock, came to an end, allowing investors to liquidate portions of their holdings. Although Taylor confirmed that OTPP has sold some SpaceX shares, he did not provide specific details on the volume of these transactions.
The pension plan’s venture investment portfolio, which includes stakes in AI firms such as Anthropic and Databricks Inc., now constitutes 9 per cent of its total assets, amounting to $303.2 billion—up from 4 per cent a year prior. OTPP anticipates maintaining around 5 per cent of its assets in higher-risk venture investments in the long term. Gillian Brown, co-chief investment officer, expressed satisfaction with the growth of this portfolio, stating, “We’re comfortable with that,” reflecting the strong performance of these investments.
Governance Concerns and Future Opportunities
Despite the successes, Taylor voiced concerns regarding SpaceX’s governance structure, which grants Musk substantial control through special voting rights associated with dual-class shares. He acknowledged, “It would be false for us to say, either as an investor or from a member perspective, that we think the governance of SpaceX is perfect.” Nevertheless, such governance models have become commonplace among rapidly expanding, founder-led companies.
Despite these concerns, OTPP remains optimistic about certain aspects of SpaceX, particularly the Starlink division, which has emerged as the company’s most profitable segment. Taylor noted, “We like a lot of what that business has been doing. There’s some new elements we need to understand better,” referring to developments like SpaceXAI and the Grok chatbot.
Since its IPO on June 12, SpaceX’s share price has declined, and by the end of June, OTPP’s stake was valued close to US$6.7 billion before any recent sales. Historically, the pension plan has achieved an average annual return of 7.8 per cent over the last decade, buoyed by gains in public equities and inflation-sensitive assets. While OTPP’s private equity segment faces challenges, Brown noted the ongoing difficulties in securing deals, which continue to affect valuations.
Why it Matters
The performance of the Ontario Teachers’ Pension Plan serves as a critical indicator of the shifting landscape in investment strategies, particularly in high-stakes sectors like aerospace and technology. OTPP’s substantial gains from its SpaceX investment not only highlight the potential rewards of venture capital but also underscore the importance of prudent risk management in navigating the volatile markets of today. As pension funds increasingly explore diverse investment avenues, the balance between maximising returns and addressing governance concerns will be pivotal in shaping their long-term success.