Teachers’ pension plan earns 9.5% in first half with boost from SpaceX shares

Ontario Teachers’ Pension Plan reported a 9.5-per-cent return in the first half, boosted by a stake in Elon Musk’s SpaceX SPCX-Q that soared in value to US$8.7-billion at the end of June after the company went public.

Teachers said Monday that it booked $26.6-billion of net investment income in the six months that ended June 30, and its investments gained 14.5 per cent over a 12-month span.

An early investment in Space Exploration Technologies Corp. “was a significant contributor” to the strong first-half gains for Teachers, the pension plan said in a news release.

The Globe previously reported that Teachers invested about $300-million in SpaceX in 2019 through its venture investing arm, then made follow-on investments. The company’s value has skyrocketed as it successfully launched rockets into space, expanded its Starlink satellite internet business and merged with Mr. Musk’s artificial-intelligence startup.

That gave Teachers billions of dollars of gains on paper. But now, with the market capitalization of SpaceX ballooning to US$1.7-trillion, chief executive officer Jo Taylor said in an interview that the pension plan is assessing how to avoid being overexposed to Mr. Musk’s company.

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“Over time we’re going to have to look at that position and say, what is the right size for the portfolio? And part of that’s going to be looking at opportunities where we’re free to sell,” he said.

The first of a series of lockup periods that restrict shareholders from selling SpaceX stock expired last week, giving many investors their first chance to cash in on a part of their investments in the company.

Teachers sold some SpaceX shares recently, Mr. Taylor said, but he declined to disclose how many.

The Teachers portfolio of a few dozen venture investments, including stakes in AI-focused companies Anthropic and Databricks Inc., makes up 9 per cent of the plan’s $303.2-billion of assets, compared with 4 per cent a year earlier.

Teachers expects to have about 5 per cent of its assets in higher-risk venture investments over the long run. In this instance, however, co-chief investment officer Gillian Brown said the venture portfolio has grown into a larger allocation by performing well, “and so we’re comfortable with that.”

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Mr. Taylor said Teachers shares concerns about SpaceX’s governance structure as a public company, which gives Mr. Musk near-total control through shares that give him special voting rights.

“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. It’s not, and we bear that in mind in all of the investments we make,” Mr. Taylor said.

But outsized voting control through dual-class shares has become a relatively common feature of fast-growing, founder-led companies. And Teachers has been particularly impressed with parts of SpaceX such as Starlink, which is its most profitable division.

“We like a lot of what that business has been doing. There’s some new elements we need to understand better,” such as SpaceXAI, which includes the Grok chatbot and the X social network, Mr. Taylor said. “We still see future opportunity.”

SpaceX listed its shares publicly through an initial public offering on June 12, and by June 30, Teachers held a stake worth nearly US$8.7-billion, according to a regulatory filing released last week.

The SpaceX share price has dropped since then, and at Monday’s closing price, the Teachers’ stake would be worth about US$7-billion, before its recent share sales.

Over 10 years, Teachers has earned an average annual return of 7.8 per cent.

Teachers does not disclose detailed returns for each asset class at the mid-year mark, but had strong gains from public equities and inflation-sensitive assets.

Ms. Brown said the plan’s private equity portfolio “is still a strategy that has its challenges,” as a dearth of deals for all but the best companies continues to put pressure on valuations.

The plan was fully funded as of Jan. 1 with a $31.2-billion preliminary funding surplus.