University of Saskatchewan and Federated
Colleges Non-Academic Pension Plan
Investment Review
AGM Presentation – November 2014
Prepared by Aon Hewitt
Presentation to University of Saskatchewan
Agenda
 Investment Objectives
 Role of Pension Committee
 Role of Asset Mix
 Total Plan Performance
– Year-to-date Change in Market Value
 Market Update
– Current Investment Trends
 Appendix - Asset Class Overview
Aon Hewitt
Proprietary & Confidential | November 2014
2
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)
Inflation Targeting
(Performance, net of fees, relative to capital
market indices that reflect target asset mix)
(CPI + 4.25% over 10+ years)
Aon Hewitt
Proprietary & Confidential | November 2014
3
Role of Pension Committee
Establish and maintain investment policy
•
•
•
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
Aon Hewitt
Proprietary & Confidential | November 2014
4
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 + 4.25%
Components
Bonds – 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 **
Aon Hewitt
Proprietary & Confidential | November 2014
5
Asset Mix
Target Asset Mix
Target Asset Mix: Equities
Balancing Growth with Stability & Income
Diversifying “Narrow” Canadian Market
$298 million as of Sep 30, 2014
Canadian
Equities,
20%
Fixed
Income,
35%
Equities,
60%
Real
Estate, 5%
Global
Equities,
40%
Bonds help hedge impact of interest rate changes on liabilities.
30-Sep-14
Policy
Short-term
Fixed Income
Real Estate
Canadian Equities
Global Equities
0%
Aon Hewitt
Proprietary & Confidential | November 2014
5%
10%
15%
20%
25%
30%
35%
40%
6
45%
Total Portfolio Performance
Strategy Summary
Performance Commentary

Active management across all asset classes


Fixed income and real estate mandates broadly
diversified and with scope to include value-added
strategies when appropriate
Long-term return target of CPI + 4.25% (6.1%) has
been matched on a post-fee basis over 10 years

Performance versus the capital markets has been
matched on a pre-fee basis

Long-term performance has been driven by the
Canadian equity managers

Annual fee is based on assets, currently about 0.50%

Dual manager structures in Canadian and Global
equities provide diversification by firm and investment
approach
Performance
(gross of fees)
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
11.6%
12.7%
15.1%
9.4%
7.8%
0.0%
-15.9%
17.2%
8.6%
6.1%
-1.5%
2005
2006
2007
2008
Plan
2009
2010
Blended Benchmark
2011
2012
10-Year CPI + 4.25%
2013
10-year annualized return is 6.6%
* 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)
Aon Hewitt
Proprietary & Confidential | November 2014
YTD
7
Total Portfolio – Change in Market Value (2014 YTD)
297,638,000
$300,000,000
$295,000,000
$290,000,000
$285,000,000
$280,000,000
275,658,000
$275,000,000
$270,000,000
$265,000,000
$260,000,000
31-Dec-13
Aon Hewitt
Proprietary & Confidential | November 2014
Contributions
Distributions
Fees / Expenses
Income
Gains / Losses
8
30-Sep-14
Market Update
Bond Managers Still In “Party” Mode
Government of Canada Average Bond Yields
60 months to September 2014
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Gov Canada 5-10 Yr Avg Yield
Aon Hewitt
Proprietary & Confidential | November 2014
Gov Canada 10+ Yr Avg Yield
9
Market Update (cont’d)
Equity Markets Getting Choppy
MSCI World Index (CAD)
iShares MSCI World Index (XWD.to) daily price change
Aon Hewitt
Proprietary & Confidential | November 2014
10
Market Update (cont’d)
Economic Headwinds Continue
•
•
•
Russia sanctions affecting trade
China weakening
Europe – another recession?
China GDP Annual Growth Rate
Percent Change in Gross Domestic Production
Aon Hewitt
Proprietary & Confidential | November 2014
11
Current Investment Trends
De-Risking
•
•
•
•
More bonds, longer-term bonds
Most common for ‘closed’ plans
Current low interest rates are a deterrent
Many plans developing strategies to be implemented when:
• Interest rates rise, or
• Funded status improves
Diversification into Alternative Asset Classes
•
•
•
Real Estate, Infrastructure, Private Equity
Potential to enhance returns and reduce risk
May also offer inflation protection
Aon Hewitt
Proprietary & Confidential | November 2014
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Appendix – Asset Class Overview
Aon Hewitt
Proprietary & Confidential | November 2014
13
Canadian Fixed Income Allocation
Manager Structure
Sprucegrove,
20%
PH&N,
35%
Harding
Loevner,
20%
CC&L,
10%
Phillips, Hager & North (PH&N) Strategy Summary
Burgundy
10%
Greystone
5%

An active strategy that aims to exceed a broad measure of the Canadian
bond market

PH&N has achieved this goal on a post-fee basis

PH&N utilizes multiple strategies: security and sector selection, rate
anticipation, mortgage investing

PH&N is a large and well resourced manager

Annual fee is based on assets, currently about 0.24%
Performance
(gross of fees)
15%
10.7%
12%
9%
6%
3%
7.7%
7.3%
4.5%
0%
3.0%
3.9%
2007
2008
8.8%
6.9%
4.8%
-0.3%
2012
2013
-3%
2005
2006
PH&N
Aon Hewitt
Proprietary & Confidential | November 2014
2009
2010
2011
FTSE TMX Canada Universe
YTD
10-year annualized return is 6.0%
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Real Estate Allocation
Manager Structure
Sprucegrove
20%
Greystone Strategy Summary
PH&N
35%
Harding
Loevner
20%
CC&L
10%
Burgundy
10%
Greystone
5%

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 assets, currently about 0.90%
Performance
(gross of fees)
20%
15%
9.7%
10%
13.7%
5%
8.5%
12.5%
11.7%
4.3%
0%
-1.6%
-5%
2005
2006
2007
2008
Greystone
Aon Hewitt
Proprietary & Confidential | November 2014
2009
2010
2011
2012
REALpac / IDP Property Index
2013
YTD
5-year annualized return is 10.3%
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Canadian Equity Allocation
Manager Structure
Burgundy Strategy Summary
PH&N
35%
Sprucegrove
20%

An active, high conviction, buy-and-hold strategy that focuses on
valuation and quality factors

Hired in 2012; the two-year post-fee return has exceeded the benchmark

Annual fee is based on assets, currently about 0.60%
Connor, Clark & Lunn (CC&L) Strategy Summary
Harding
Loevner
20%

An active, broadly diversified strategy that aims to consistently exceed
the market return in all environments
Burgundy

Hired in 2012; the two-year post-fee return has exceeded the benchmark
10%

Annual fee is based on assets, currently about 0.40%
Greystone
5%
CC&L
10%
32.2%
6.8%
9.0%
13.9%
16.1%
9.9%
24.4%
23.1%
(gross of fees)
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
22.5%
Performance
12.9%
-8.6%
-30.8%
2005
2006
2007
2008
Burgundy
2009
2010
CC&L
S&P/TSX
2011
2012
YTD
Aggregate 10-year annualized return is 9.1%
Total Canadian Equity performance (in oragne) shown prior to 2013.
Aon Hewitt
Proprietary & Confidential | November 2014
2013
16
Global Equity Allocation
Manager Structure
Sprucegrove,
20%
Harding Loevner (HL) Strategy Summary
PH&N
35%

An active strategy that invests in growing, high quality companies at
reasonable prices

Hired in 2012; the two-year pre-fee return is below the benchmark

Annual fee is based on assets, currently about 0.70%
Sprucegrove (SG) Strategy Summary

Hired in 2012; the two-year pre-fee return is below the benchmark

Annual fee is based on assets, currently about 0.60%
29.5%
Performance
(gross of fees)
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
15.8%
21.6%
14.0%
3.0%
-7.7%
2005
2006
2007
-39.9%
2008
15.3%
-7.6%
2009
HL
SG
2010
MSCI World (net)
2011
2012
2013
YTD
Aggregate 10-year annualized return is 4.0%
Total Global Equity performance (in orange) shown prior to 2013.
Aon Hewitt
Proprietary & Confidential | November 2014
8.3%
Burgundy
10%
10.6%
CC&L
10%
Greystone
5%
An active, high conviction, buy-and-hold strategy that focuses on
valuation and quality factors
32.6%
Harding
Loevner
20%

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