University of Saskatchewan 1999 Academic
Pension Plan
Investment Review
AGM Presentation – November 2014
Prepared by Aon Hewitt
Presentation to University of Saskatchewan 1999 Academic Pension Plan
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
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2
Investment Objectives
Plan Objectives
“The purpose of the Fund is to provide for the accumulation of pension benefits to eligible members
and to 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 Committee.”
Dual Investment Objectives
Benchmark Portfolio
Inflation Targeting
(Performance, net of fees, relative to capital
market indices that reflect target asset mix)
(CPI + 3.85% over 10+ years)
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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
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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 + 3.85%
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
Asset Mix – designed to balance the two competing objectives:
** Safety of capital ** ** Adequate returns **
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Asset Mix
Target Asset Mix
Target Asset Mix: Equities
Balancing Growth with Stability & Income
Diversifying “Narrow” Canadian Market
$174 million as of Sep 30, 2014
Equities,
60%
Int’l
Equities,
20%
Fixed
Income,
40%
Canadian
Equities,
20%
U.S.
Equities,
20%
Bonds help hedge impact of interest rate changes on liabilities.
30-Sep-14
Policy
Short-term
Canadian Bonds
Canadian Equities
U.S. Equities
International Equities
0%
Aon Hewitt
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5%
10%
15%
20%
25%
30%
35%
6
40%
45%
Total Portfolio Performance
Strategy Summary
Performance Commentary

Low cost passive management in bonds and U.S.
equities, where adding value has proven difficult

Long-term return target of CPI + 3.85% (5.7%) has
been exceeded by 1.7% net of fees over 10 years

Active global equity portfolio of about 150 stocks with a
Canadian focus, value-tilt, and moderate active
positioning versus the capital market indices

Performance versus capital market indices has also
been positive (net of fees), but by a smaller margin

Long-term performance has been superior in down
markets, as expected given the manager structure

Majority of value-added performance has come from
International equities

Annual fee is based on assets, currently about 0.30%

Active International equity manager with a fairly
concentrated deep value approach, small cap and
emerging market exposure, and a track record of
superior downside protection
Performance
(gross of fees, periods ending Sep 30)
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
13.4%
18.5%
11.8%
9.8%
7.2%
3.4%
9.8%
8.6%
5.7%
-0.9%
2005
2006
2007
-9.7%
2008
Plan
2009
2010
Blended Benchmark
2011
2012
10-Year CPI + 3.85%
YTD
10-year annualized return is 7.4%
* 1% 91-day FTSE TMX Canada T-Bill, 39% FTSE TMX Canada Universe Bond, 20% S&P/TSX Composite, 20% S&P500 (CAD), 20% MSCI EAFE (net withholding tax ) (CAD)
Aon Hewitt
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2013
7
Total Portfolio – Change in Market Value
$200,000,000
$190,000,000
$180,000,000
173,982,000
169,852,000
$170,000,000
$160,000,000
$150,000,000
$140,000,000
31-Dec-13
Aon Hewitt
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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
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Gov Canada 10+ Yr Avg Yield
9
Market Update
Equity Markets Getting Choppy
MSCI World Index (CAD)
iShares MSCI World Index (XWD.to) daily price change
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Market Update
Economic Headwinds Continue
•
•
•
Russia sanctions affecting trade
China weakening
Europe – another recession?
China GDP Annual Growth Rate
Percent Change in Gross Domestic Production
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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
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Appendix – Asset Class Overview
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Canadian Bond Allocation
Manager Structure
JF (Int'l
Eq), 10%
BlkRck
(Bonds),
40%
TwBr (Int'l
Eq), 10%
JF (U.S.
Eq), 10%
BlackRock Strategy Summary
 Index strategy aims to match the broad Canadian bond market
 BlackRock has achieved this goal on a pre-fee basis
 BlackRock is a large and well resourced manager
 Yield is approximately 2.4%
BlkRck
(US Eq),
10%
 Annual fee is 0.15%
JF (Cdn
Eq), 20%
Performance
(gross of fees)
12%
9%
6%
3%
9.7%
6.5%
4.1%
6.2%
3.6%
5.5%
6.8%
6.0%
3.6%
-1.2%
0%
-3%
2005
2006
2007
2008
BlackRock
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2009
2010
2011
2012
FTSE TMX Canada Universe
2013
YTD
10-year annualized return is 5.3%
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Canadian Equity Allocation
Manager Structure
JF (Int'l
Eq), 10%
TwBr (Int'l
Eq), 10%
BlkRck
(Bonds),
40%
JF (U.S.
Eq), 10%
Jarislowsky Fraser Strategy Summary
 Active mandate part of a global equity portfolio, allowing
tactical geographic shifts between Canada, U.S. and overseas
 Approach is “growth at a reasonable price” and countercyclical (due to cap on resource stocks)
BlkRck
(US Eq),
10%
 Dividend yield is approximately 2.8%
JF (Cdn
Eq), 20%
 Blended fee based on assets is approx. 0.3% per annum
Performance
(gross of fees)
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
23.2%
11.2%
7.9%
29.2%
11.8%
10.4%
27.2%
-5.9%
15.5%
-23.2%
2005
2006
2007
2008
2009
Jarislowsky Fraser
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2010
2011
2012
S&P/TSX
2013
YTD
10-year annualized return is 10.5%
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U.S. Equity Allocation
Manager Structure
BlkRck
(Bonds),
40%
TwBr (Int'l
Eq), 10%
JF (Int'l
Eq), 10%
BlackRock Strategy Summary
JF (U.S.
Eq), 10%

Index strategy aims to match the large cap S&P500 index

BlackRock has achieved this goal on a pre-fee basis

Annual fee is 0.15%
Jarislowsky Fraser (JF) Strategy Summary

Approach is “growth at a reasonable price”

Blended annual fee based on assets is approximately 0.3%
2005
2006
2007
2008
BlackRock
Aon Hewitt
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14.6%
13.4%
3.9%
4.7%
6.5%
9.1%
7.4%
7.4%
-17.0%
-21.1%
-11.1%
-10.5%
16.5%
15.4%
1.0%
2.1%
(gross of fees)
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
12.6%
41.3%
Performance
13.9%
JF (Cdn
Eq), 20%
Active mandate part of a global equity portfolio, allowing tactical
geographic shifts between Canada, U.S. and overseas
42.9%
BlkRck
(US Eq),
10%

2009
2010
Jarislowsky Fraser
2011
S&P500
2012
2013
YTD
Combined 10-year annualized return is 6.8%
16
International Equity Allocation
Manager Structure
BlkRck
(Bonds),
40%
JF (U.S.
Eq), 10%

Active mandate part of a global equity portfolio, allowing tactical
geographic shifts between Canada, U.S. and overseas

Approach is “growth at a reasonable price”

Similar return to MSCI EAFE over 10 years but with lower volatility

Blended annual fee based on assets is approximately 0.3%
Tweedy Browne (TB) Strategy Summary

Active mandate with a “deep value” focus; small cap and emerging
markets capabilities provide diversification and value-add opportunity

Annual fee of 1.5%
2005
2007
2008
Tweedy Browne
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2009
2010
Jarislowsky Fraser
2011
MSCI EAFE (net)
2012
2013
3.1%
20.5%
18.2%
-1.0%
-1.7%
1.9%
6.1%
14.8%
-26.1%
-22.2%
-8.9%
-2.0%
2006
17.9%
(gross of fees)
23.5%
26.3%
5.5%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
4.0%
Performance
7.0%
JF (Cdn
Eq), 20%
28.5%
BlkRck
(US Eq),
10%
30.3%
JF (Int'l
Eq), 10%
TwBr (Int
Eq), 10%
Jarislowsky Fraser (JF) Strategy Summary
YTD
Combined 10-year annualized return is 7.7%
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