annual general meeting investments review · 2020. 7. 14. · proprietary & confidential | 1...
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Proprietary & Confidential | 1Aon Hewitt
November 10, 2016
Prepared by Aon Hewitt
Annual General MeetingInvestments ReviewPresentation to the Members of the University of Saskatchewan and Federated Colleges Non-Academic Pension Plan
November 10, 2016
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• Investment Objectives
• Role of Pension Committee
• Role of Investment Consultant
• Role of Asset Mix
• Asset Mix
• Total Portfolio - Performance
• Total Portfolio - Change in Market Value
• Market Update
• Questions?
• Appendix - Asset Class Overview
Agenda
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Investment Objectives
Plan Objectives“The purpose of the Non-Academic Pension Plan is to provide for the accumulation of pension assets on behalf of the Plan’s participants and provide members of the Plan with retirement benefits prescribed under the terms thereof.”
Guiding Risk Philosophy“Plan assets should be prudently managed to assist in managing funding volatility and excessive volatility in annual rates of return. The Plan uses a number of investment strategies to achieve the relative and absolute performance objectives set by the Non Academic Pension and Benefits Committee.”
Dual Investment Objectives
Benchmark Portfolio(s) (Performance, net of fees, relative to capital market indices that reflect target asset mix)
Inflation Targeting(CPI + 3.90% over 10+ years)
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Role of Pension Committee
Establish, maintain and review investment policies and procedures• Investment objectives• Asset mix / manager structure• Permitted investments
Monitor investment performance versus Plan objectives• Overall fund• Individual managers• Compliance with investment policy
Replace investment managers as required
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Role of Investment Consultant
The Investment Consultant’s responsibility is to provide strategic advice regarding the Pension Plan’s investment policies, investment managers and investment performance issues.
Quarterly Committee Meetings Performance Monitoring Compliance Reviews Market & Manager Updates Investment Trends Amongst Pension Plans & Institutional Investors
Annual Investment Policy Statement Reviews Oversight of Regulatory Requirements Working Alongside the Pension Plan’s Actuaries Discussion and Incorporation of Best Practices
Annual General Meeting Updating the Pension Plan members
Other Projects
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Role of Asset Mix
Fund Purpose - Provide Pension Benefits• Ensure safety of capital• Adequate return to support pension promise
• Target long-term return of CPI + 3.90%
ComponentsBonds – provide stable and predictable income
• Low risk vehicle to help fund pension benefit payments• But projected returns are well below the Plan’s long term objective
Equities – provide potential for higher returns, but with greater risk• Diversification by region helps reduce risk
Real Estate – provides diversification benefits and some inflation protection
Asset Mix – designed to balance the two competing objectives:** Safety of capital ** ** Adequate returns **
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Asset Mix
Canadian Equities,
20%
Global Equities,
40%
Target Asset Mix: EquitiesDiversifying “Narrow” Canadian Market
Fixed Income,
35%
Real Estate, 5%
Equities, 60%
Target Asset MixBalancing Growth with Stability & Income
$340 million as of Sep 30, 2016
0% 5% 10% 15% 20% 25% 30% 35% 40%
Global Equities
Canadian Equities
Real Estate
Fixed Income
Short-term
30-Sep-16 Policy
Bonds help hedge impact of interest rate changes on liabilities.
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6.2%
-11.1%
5.2% 5.3%
-0.5%
10.6% 11.9%15.2%
4.4%11.1%
-15%-10%
-5%0%5%
10%15%20%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Performance (net of fees, one year ending September 30)
Plan Blended Benchmark 10-Year CPI + 3.90%
Total Portfolio Performance
Strategy Summary Active management across all asset classes
Fixed income and real estate mandates broadly diversified and with scope to include value-added strategies when appropriate
Dual manager structures in Canadian and Global equities provide diversification by firm and investment approach
Performance Commentary Long-term return target of CPI + 3.90% (5.6%) has
been matched on a net of fee basis over 10 years
Performance versus the capital markets has been exceeded on a gross of fees basis
Long-term performance has been broadly based across all major asset classes
Annual investment management fees are based on assets, currently about 0.52% of the total portfolio.
* 2% 91-day FTSE TMX Canada T-Bill, 33% FTSE TMX Canada Universe Bond, 5% REALpac / IPD Canada Property Index, 20% S&P/TSX Composite, 40% MSCI World (net withholding tax) (CAD)
10-year annualized return is 5.6%
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Total Portfolio – Change in Market Value
339,975,410
308,795,762
$270,000,000
$280,000,000
$290,000,000
$300,000,000
$310,000,000
$320,000,000
$330,000,000
$340,000,000
30-Sep-15 Contributions Distributions Fees / Expenses Income Gains / Losses 30-Sep-16
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Government of Canada Average Bond Yields 60 months to September 2016
Market Update
Lower For Longer? Canadian Bond Yields
Bank of Canada rate cutsSource: Bank of Canada
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Market Update (continued)
Lower For Longer? Global Bond Yields
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Market Update (continued)
Lower For Longer? Chinese Growth
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Market Update (continued)
Lower For Longer? The Price of Oil
Source: NASDAQ as of September 29, 2016 in US dollar terms.
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Market Update (continued)
Source: Bank of Canada.
CADUSD CADEUR
CADJPY CADGBP
Lower For Longer? Canadian Dollar Weakness
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Market Update (continued)
Is the Rally in Equity Markets Starting to Stall?
Source: Standard & Poor’s.
Feb and Mar 2009-18.2%
May and June 2010-12.9%
May to Sep 2011-16.3%
April to May 2012-6.6%
Aug to Sep 2015-8.4%
Dec 2015 to Feb 2016-8.2%
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Market Update (continued)
“The key to making money is to stay invested.”Suzie Orman
Deposit rates have been below the annual GDP growth rates in Canada since 2010.
As a result, Canadian investors are losing money in real terms by investing in cash.
What is an Investor to do?
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Questions?
Raymond AokiSenior ConsultantAon HewittInvestment [email protected]
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Appendix – Asset Class Overview
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Canadian Fixed Income Allocation
Phillips, Hager & North (PH&N) Strategy Summary An active strategy that aims to exceed a broad measure of the Canadian
bond market
PH&N has achieved this goal on a net of fees basis
PH&N utilizes multiple strategies: security and sector selection, rate anticipation, mortgage investing.
New in 2016: mandate changed to “Core Plus”; additional strategies include corporate high yield bonds and emerging market debt.
Annual fee is based on assets, currently about 0.28%
1.8% 2.3%
14.2%
8.5%6.2% 6.4%
-0.4%
7.1%5.7%
7.4%
-3%
0%
3%
6%
9%
12%
15%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Performance (gross of fees, one year ending September 30)
Phillips, Hager & North FTSE TMX Canada Universe Bond
PH&N, 35%
Grey-stone5%Burgundy
10%CC&L, 10%
Harding Loevner,
20%
Spruce grove, 20%
Manager Structure
10-year annualized return is 5.1%
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20.9%
-14.4%
0.9%8.1%
-5.8%
11.1%
18.8
%
18.2
%
-11.
9%
15.3
%
14.6
% 25.1
%
-3.2
%
14.3
%
-40%-30%-20%-10%
0%10%20%30%40%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Performance (gross of fees, one year ending September 30)
Burgundy CC&L S&P/TSX
Canadian Equity Allocation
Burgundy Strategy Summary An active, high conviction, buy-and-hold strategy that focuses on valuation
and quality factors Hired in 2012; the four-year gross of fees return has beat the benchmark Annual fee is based on assets, currently about 0.57%
Connor, Clark & Lunn (CC&L) Strategy Summary An active, broadly diversified strategy that aims to consistently exceed the
market return in all environments Hired in 2012; the four-year gross of fees return has beat the benchmark Annual fee is based on assets, currently about 0.40%
Aggregate 10-year annualized return is 6.1%
PH&N 35%
Grey-stone5%
Burgundy10%
CC&L 10%
Harding Loevner
20%
Spruce-grove 20%
Manager Structure
Total Canadian Equity performance (in orange) shown prior to 2013.
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Global Equity Allocation
Harding Loevner Strategy Summary An active strategy that invests in growing, high quality companies at
reasonable prices Hired in 2012; the four-year gross of fees return has beat the benchmark Annual fee is based on assets, currently about 0.71%
Sprucegrove Strategy Summary An active, high conviction, buy-and-hold strategy that focuses on
valuation and quality factors
Hired in 2012; the three-year pre-fee return is below the benchmark Annual fee is based on assets, currently about 0.58%
9.8%
19.5
%
22.9
%
15.2
%
14.1
%
-31.5%
-5.0%
0.3%
-7.3%
17.9%
25.3
%
19.3
%
5.7% 13
.2%
-40%
-20%
0%
20%
40%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Performance (gross of fees, one year ending September 30)
Harding Loevner Sprucegrove MSCI World (net) Aggregate 10-year annualized return is 3.9%
PH&N 35%
Grey-stone5%Burgundy
10%CC&L 10%
Harding Loevner
20%
Spruce-grove, 20%
Manager Structure
Total Global Equity performance (in orange) shown prior to 2013.
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12.8%
-0.3%
5.3%
12.0%15.5%
10.6%8.2%
5.7% 6.1%
-5%
0%
5%
10%
15%
20%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Performance (gross of fees, one year ending September 30)
Greystone REALpac / IPD Property Index
Real Estate Allocation
Greystone Strategy Summary An active strategy that aims to exceed a proxy for the Canadian real
estate market
Greystone has not achieved this goal on a pre- or post-fee basis, but the REALpac / IPD Property index is not ideal for pooled fund investors
Greystone primarily invests in income-producing properties, but does have limited exposure to “value-add” and development properties
The portfolio is well diversified by region and property type
Annual fee is based on gross assets. As a percentage of net assets, the investment management fees is approximately 1.15% per annum.
PH&N 35%
Grey-stone
5%
Burgundy 10%
CC&L 10%
Harding Loevner
20%
Spruce-grove 20%
Manager Structure
9-year annualized return is 8.3%
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November 10, 2016
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