Canadian Equity Fund – New Investment Manager To:

December 4, 2008
Members of the Research Pension Plan
Research Pension Plan Committee
Canadian Equity Fund – New Investment Manager
At the 9th of October meeting of the Board of Governors, the Board accepted the
recommendation that Scheer Rowlett & Associates replace McLean Budden as the other active
investment manager of the Canadian Equity Fund, effective November 3, 2008. This newsletter
provides Plan participants with background information about this recommendation.
In March of 2007 McLean Budden was placed on a quarter-to-quarter watch list as a result of
the firm’s failure to meet its benchmark performance standards over the previous four years. In
February of 2008 Hewitt Associates (an investment consulting firm) was authorized to prepare a
report of Canadian equity managers that were open to new business. This report was
considered in June and, on the basis of this report, it was decided to conduct a manager search
and a short list of three candidates was created.
On September 5, 2008, interviews were conducted with principals from the three firms. On the
basis of the interviews and another report prepared by Hewitt Associates it was concluded that,
although all three firms are strong candidates, the preferred choice is Scheer Rowlett &
Associates (SRA). The basis for this recommendation is threefold. First, SRA has
demonstrated consistently superior returns over at least two market cycles. For example on the
basis of rolling four-year averages since 2002, SRA’s performance has been in the first quartile
of all Canadian equity investment managers in all seven years measured on a June-to-June
basis. This is a remarkable record of consistency. In addition, over the past ten years SRA has
outperformed the benchmark by an average of 4.9 percent each year, the best absolute
performance of the three managers interviewed.
Second, the style of SRA (relative value) complements that of Jarislowsky Fraser (JF) - (GARP),
the other Canadian equity manager, as its portfolio captures more of the gains in advancing
markets than does the portfolio of JF. This means that a blended portfolio of SRA and JF will
generate a more stable return on an annual basis than either of the two individual portfolios
without sacrificing the average level of return.
Third, on the basis of the interview there was confidence that SRA could replicate its historical
performance into the future, as the methods it uses to pick stocks are quite transparent.
Other criteria used to rank the candidate firms, such as the level of fees and overall
organizational strength and stability simply reinforced the view that SRA was the best choice for
replacing McLean Budden.
If you have any questions about the replacement of managers, please contact the Director of
Pensions, Garry Schlichemeyer at 966-6633 or contact any of the Research Pension Committee
members. The Research Pension Committee members are:
D. Hassard (Plant Sciences)
B. Elliott (Financial Services)
N. Johnson (CLS)
L. Kennedy (Financial Services)
C. Martel (VIDO)
G. Schlichemeyer (Financial Services)
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