ubc faculty pension plan pension forum

UBC FACULTY PENSION PLAN

PENSION FORUM M R . JOOST B LOM , C HA IR , B OA R D OF TR USTEES

M S . OR LA C OUSINEA U, EX EC UTIV E D IR EC TOR , PENSIONS

M R . M IKE LESL IE , EX EC UTIV E D IR EC TOR , INV ESTM ENTS

M A Y 1 0 , 2 0 1 7

2

• Welcome by Chair

• 50 years!

• 2017 Board Initiatives and Projects

• Plan’s Financial and Membership Update

• 2016 Operations Update and 2017 Operations

Objectives

• Investment Review for 2016 and First Quarter

2017

• Board of Trustees

• Questions 2

Agenda

3

• Brief history of FPP prepared for this anniversary

• From 1924 UBC and faculty members paid into

pension funds at TIAA-CREF

• In 1964 the UBC BoG and the Faculty Association

created a joint committee to review pension

arrangements

• Committee’s March 1966 report became basis for

the FPP, which was approved by BoG in November

1966 and formally commenced April 1, 1967

• Debt we members owe to all those who helped build

the FPP over the 50 years

50 Years

4

• Major features of the FPP, then and now

• 5% employee + 10% UBC, minus CPPcontributions (original)

• Defined contribution plan (original, withminimum benefit provision - removed in 1991)

• Board of Trustees as administrator (original)

• Investment options• Balanced Fund (original, though modified)

• Equity, Bond, STIF (all 1993, separate Canadian andForeign Equity 2005), GICs (2012)

• Retirement options• Variable Payment Life Annuity (original)

• RRIF, LIF-type payments (from 2004)

• Using funds to purchase on market (from 1982)

50 Years - Continued

5 5

2017 Board Initiatives and Projects

• Investment Structure Review in 2016 resulted in

changes to foreign equity manager structure which

affected the Balanced Fund and Foreign Equity

Fund options

• Increasing member engagement and awareness

through new Plan website launched last year, new

tools available through Sun Life and webcast of

this event

6 6

2017 Board Initiatives and Projects

• Continued oversight of Plan’s investment

managers including how they consider/implement

ESG factors in their investment process

• Variable payout life annuity (VPLA) implemented a

new mortality table as members are living longer,

reflected in monthly amounts effective April 1, 2017

7

Plan Statistics December 31, 2016

7

Active Deferred Retired Total

Members 3,412 1,527 1,051 5,990

57% 25% 18% 100%

Assets

(millions)

$1,173 $270 $696 $2,139

55% 13% 32% 100%

Total assets of $2.1 billion

8 8

Membership Growth –

to December 31, 2016

1,800 1,922 2,231

3,091 3,412

468

921

1,071

1,272

1,527

120

227

258

461

1,051

1976 1986 1996 2006 2016

Active Deferred Retired

5,990

4,824

3,560

3,070

2,388

9

2016 Operations Update

• Launched new Plan website

• Improved transparency of fees – August 2016

Newsletter

• Changed to bi-weekly remittance of contributions

effective January 1, 2017

• Significant benefit of UBC FPP is low management

fees, and in fact the administration fee was reduced

effective March 1, 2017

10 10

2017 Operations Objectives

• Quarterly Member Statements

– Moving from paper to online, unless you opt for paper

statements

• Work with Sun Life to promote awareness of tools

available

– Asset Allocation Tool

– Retirement Income Estimator

• More information about fees

– April newsletter – How to calculate your Investment Fees

– On quarterly member statements

11 11

2017 Operations Objectives

• Ensure Plan members approaching retirement

contact the Pension Administration Office for

information

• UBC and the FPP do not endorse any financial

planners

– Certain financial planners or advisers target UBC

Faculty and their invitations and communications

are often misleading

12 12

Investment Review of 2016

13 13

Agenda

• Plan – Fund Weightings & Asset Mix

• Fund Returns

• Investment Market Update

• Question Period

14

Plan’s Fund Weightings as of December 31, 2016

Balanced Fund 81.7%

Foreign Equity 5.9%

Canadian Equity 7.5%

Bond Fund 2.6%

STIF 1.5% GIC's 0.8%

*Total Assets $2.1 Billion

15

Canadian Real Return Bonds 8.0%

Fixed Income 32.0%

Canadian Real Estate

10.0%

Canadian Equities 20.0%

Global Equities 30.0%

* Global Equities includes investments in both U.S. Equities and Non-North American Equities

Balanced Fund – Policy Asset Mix

16

2016 Fund Returns / Peer Rankings

Fund Returns (%)

Return Ranking (percentile)*

Risk** Ranking

(percentile)*

1 Yr 5 Yr 10 Yr 1 Year 10 Years 4 Years

Balanced 6.1 9.6 6.1 80th 39th 77th

Bond 1.8 3.1 5.1 80rd 35th 5th

Canadian

Equity 21.3 10.9 6.3 20th 30th 31st

Foreign Equity 3.2 18.0 5.7 65th 48th 30th

Short Term 0.7 1.1 1.5 56th 63th N/A

Gross returns to Dec. 31/16

* 1st percentile – highest ranking best performance, 100th percentile – lowest ranking

** Risk - as measured by annual standard deviation of returns

- a lower ranking number (say 80th percentile) means less risky

16

17

Investment Changes in 2016

1. Canadian Equity

• Terminated PCJ, reallocated to other 3 managers

2. Foreign Equity

• Replaced U.S. Equity only mandate with Global Equity mandate

• Hired new Global Minimum Volatility equity manager (BlackRock)

3. Changed Target Objective in Investment Policy

• Was “achieve a reasonable income replacement ratio (i.e. 60-

70%)”

• Changed to “50% or higher”

• Based on 30 years service, retiring at 65, invested in the

Balanced Fund17

18

• Global Monetary Policy still very

accommodative

• However Fed started to hike rates in US

• Canadian bond yields declined for most of

the year then moved up in Q4

• Energy prices improved

• WTI – January 2016 – $27

• WTI – December 2016 – $53

• Commodity prices improved

• Brexit

• Trump

Key Themes In 2016

19

Review Of 2016

Q1 Q2 Q3 Q4 1 Year

Canadian Equities 4.5% 5.1% 5.5% 4.5% 21.1%

U.S. Equities (C$) -5.0% 2.8% 4.7% 6.3% 8.6%

International Equities (C$) -9.1% -1.2% 7.3% 1.6% -2.0%

Bonds 1.4% 2.6% 1.2% -3.4% 1.7%

20

Commodities Prices

Increased During 2016

50.00

60.00

70.00

80.00

90.00

100.00

110.00

120.00

130.00

140.00

150.00

Dec 2

014

Ja

n 2

015

Fe

b 2

01

5

Mar

2015

Apr

2015

May 2

01

5

Ju

n 2

015

Ju

l 20

15

Aug 2

01

5

Sep 2

01

5

Oct 2015

Nov 2

015

Dec 2

015

Ja

n 2

016

Fe

b 2

01

6

Mar

2016

Apr

2016

May 2

01

6

Ju

n 2

016

Ju

l 20

16

Aug 2

01

6

Sep 2

01

6

Oct 2016

Nov 2

016

Dec 2

016

WTI Oil Natural Gas Copper Gold Silver

Commodities up 26 % on average in

2016, more than offset the losses seen

21

S&P/TSX Capped Composite Index

Sector returns vs. Sector weights

1 year ending 31 December 2016

Past performance is not necessarily indicative of future performance

Sources: FactSet Research Systems Inc., BlackRock

Sector returns

S&P/TSX Capped

Composite

Index returned

21.08%

Sector weights

-100%

-50%

0%

50%

Materials Energy Financials Industrials Utilities Telecom Real Estate ConsumerDiscretionary

ConsumerStaples

InformationTechnology

Health Care

Outperform Underperform

0%

10%

20%

30%

40%

Materials Energy Financials Industrials Utilities Telecom Real Estate ConsumerDiscretionary

ConsumerStaples


Health Care

22

2016 Global Market Performance • After significantly

enhancing foreignequity returns in 2015,currency detractedfrom performance in2016

• The British Pound fellsignificantly post-Brexit

• Japan and Europeunderperformed duringthe year

• Emerging marketssubstantiallyoutperformeddeveloped markets

Stock Market Local

Currency

Canadian

Dollars

Canada 20.3% 20.3%

United States 10.9% 7.6%

Pacific (Ex. Japan) 8.3% 4.6%

Japan -0.7% -0.7%

United Kingdom 19.2% -3.1%

Europe (Ex. U.K.) 2.3% -3.5%

MSCI World 9.0% 4.3%

Emerging Markets 9.7% 7.9%

* Source: MSCI Developed & Emerging Market Indices

23

MSCI World Index Country returns vs. country weights


Past performance is not necessarily indicative of future performance.


Country returns

MSCI World

Index returned

CAD 3.79%

0%

10%

20%

30%

40%

50%

60%

70%

Can

ada

New

Zea

land

Norw

ay

Austr

alia

Austr

ia

United S

tate

s

Neth

erland

s

Fra

nce

Port

ugal

Germ

any

Japan

Hon

g K

ong

Sin

gapore

Sw

ed

en

United

Kin

gdom

Spain

Fin

land

Sw

itzerland

Irela

nd

Belg

ium

Italy

Den

mark

Isra

el


-30%

-20%

-10%

0%

10%

20%

30%

Can

ada

New

Zea

land

Norw

ay

Austr

alia

Austr

ia

United S

tate

s

Neth

erland

s

Fra

nce

Port

ugal

Germ

any

Japan

Hon

g K

ong

Sin

gapore

Sw

ed

en

United K

ingd

om

Spain

Fin

land

Sw

itzerland

Irela

nd

Belg

ium

Italy

Den

mark

Isra

el

Country weights

24

Global Bond Yields Have Moved Higher

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2012 2013 2014 2015 2016 2017

Yie

lds

%

Global 10 Year Yields Source: Bloomberg, Leith Wheeler Investment Counsel

US Generic Govt 10 Year Yield Canadian Govt Bonds 10 Year No Japan Generic Govt 10Y Yield Germany Generic Govt 10Y Yield

• Global bond yields have started to rise, led by the United States.

• Canada has followed, although yields in Europe and Japan remain extremely low.

25

Canadian bond market Sector returns vs. sector weights



Sources: BlackRock; FTSE TMX Global Debt Capital Markets Inc .

Sector & term returns

FTSE TMX Canada

Universe Bond

Index returned

1.66%

Sector & term weights

0%

1%

2%

3%

4%

Corporates Municipals Provincials Federal Short Mid Long

0%

10%

20%

30%

40%

50%

Corporates Municipals Provincials Federal Short Mid Long

Sector Term

26

History Of Interest Rate Settings

0

2

4

6

8

10

12

14

16

18

16

94

17

04

17

14

17

23

17

33

17

43

17

52

17

62

17

72

17

81

17

91

18

01

18

10

18

20

18

30

18

39

18

49

18

59

18

68

18

78

18

88

18

97

19

07

19

17

19

26

19

36

19

46

19

55

19

65

19

75

19

84

19

94

20

04

Ban

k O

f En

glan

d In

tere

st R

ate

Long-Term Central Bank Interest Rate Source: Bank of England, The Guardian

Interest rate

27

Stocks VS Bond Returns

28

(Note: Approximately 10% of Balanced Fund)

Real Estate

Returns to December 31, 2016

1 Year 5 Year 10 Year

Gross 5.7% 7.7% 7.8%

Net 4.9% 6.9% 7.0%

Property Type (Overall) as at

March 31, 2016

Office 38.0%

Retail 24.5%

Industrial 18.4%

Residential 14.5%

Other 4.6%

By Region

BC 24%

Prairies 27%

Ontario 43%

Quebec/Man 6%

29

FPP Fund Option Fees (as of April 2017)

Administration Investment

Manager

Operating

Expenses of

I. M.

Total Fee

Balanced 14 19 14 0.47%

Bond 14 16 5 0.35%

Canadian

Equity

14 24 6 0.44%

Foreign

Equity

14 23 11 0.48%

STIF 14 2.5 0.5 0.17%

Note: The Administration Fees were reduced from 16 bps to 14 bps as of March 1, 2017.

(basis points) 1bp = 0.01%

30 30

Results to March 31, 2017

31

Equity Markets – Good Quarter, Great Year

47.2

22.1

23.4

20.9

19.4

13.2

20.4

18.6

18.3

9.8

16.5

12.3

10.8

6.3

6.9

5.5

2.4

5.8

Brazil

India

China

Emerging Markets

Asia

Europe

US

Canada

Developed…

Quarter 1 YearPercent

*Note: Preliminary un-reconciled returns, subject to change. All returns in Canadian dollars. All returns are MSCI Index returns,

except Canada, which is S&P/TSX Equity Index.

32

S&P®/TSX® Capped Composite Index Sector Returns Vs. Sector Weights

1 year ending 31 March 2017



Sector returns

S&P/TSX Capped

Composite

Index returned

18.62%

Sector weights

-60%

-40%

-20%

0%

20%

40%

Materials Industrials Financials Energy Utilities ConsumerDiscretionary


Real Estate Telecom ConsumerStaples

Health Care


0%

10%

20%

30%

40%

Materials Industrials Financials Energy Utilities ConsumerDiscretionary


Real Estate Telecom ConsumerStaples

Health Care

33

MSCI World Index Country returns vs. Country weights

1 year ending 31 March 2017

Past performance is not necessarily indicative of future performance.


Country returns

MSCI World

Index returned

CAD 18.33%

0%

10%

20%

30%

40%

50%

60%

70%

Austr

ia

Austr

alia

Spain

United S

tate

s

Hon

g K

ong

Can

ada

Germ

any

Japan

Norw

ay

Neth

erland

s

Fra

nce

Sw

ed

en

Port

ugal

Sw

itzerland

Sin

gapore

Fin

land

Italy

New

Zea

land

United

Kin

gdom

Irela

nd

Belg

ium

Den

mark

Isra

el


-15%-10%-5%0%5%

10%15%20%25%30%

Austr

ia

Austr

alia

Spain

United S

tate

s

Hon

g K

ong

Can

ada

Germ

any

Japan

Norw

ay

Neth

erland

s

Fra

nce

Sw

ed

en

Port

ugal

Sw

itzerland

Sin

gapore

Fin

land

Italy

New

Zea

land

United K

ingd

om

Irela

nd

Belg

ium

Den

mark

Isra

el

Country weights

34 34

Fund Rates of Return* to March 31, 2017

* Before investment manager and administration fees

Fund Q1/2017 1 Yr. 5 Yrs. 10 Yrs.

Balanced Fund 3.1% 10.4% 9.4% 6.3%

Bond Fund 0.9% 1.9% 3.4% 5.2%

Canadian Equity Fund 2.9% 19.7% 10.5% 6.2%

Foreign Equity Fund 6.0% 16.6% 16.9% 6.2%

Short Term Investment Fund 0.2% 0.7% 1.1% 1.4%

35

Asset Class Winners And Losers

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Highest 14.2 33.9 28.3 39.2 37.7 31.7 13.7 8.8 11.3 26.7 14.5 24.1 26.3 9.8 6.2 35.1 20.6 18.8 14.8 48.4 24.0 21.0 21.1

7.4 26.3 23.4 27.7 28.5 19.7 7.4 5.7 2.5 20.5 12.0 14.0 18.3 4.4 3.3 14.4 17.6 4.4 13.8 41.5 17.9 18.3 17.7

5.4 25.0 17.5 18.6 15.0 14.3 5.5 4.7 -7.1 13.4 10.2 10.4 17.3 4.4 -15.6 12.6 12.1 1.0 13.5 31.3 14.4 14.0 8.6

4.0 19.9 16.9 16.2 13.4 14.1 3.4 -3.7 -12.4 12.4 10.2 10.0 15.7 0.9 -17.9 8.7 9.5 1.0 8.3 14.8 11.4 6.0 7.2

1.8 14.5 14.1 15.0 4.7 12.8 0.8 -6.5 -16.6 8.0 9.0 2.6 13.0 -5.7 -21.9 8.1 9.3 -2.0 7.2 13.0 10.6 4.5 1.3

-0.2 8.2 6.4 6.2 4.4 4.7 -5.5 -12.6 -21.1 5.3 3.3 1.6 4.0 -10.5 -29.8 1.2 2.4 -8.7 4.0 1.0 3.7 0.6 0.5

Lowest -7.8 7.4 5.0 3.2 -1.6 -6.2 -10.8 -16.6 -22.7 2.9 2.3 1.3 3.9 -16.5 -33.0 0.6 0.5 -10.2 1.0 -7.0 0.9 -8.3 -2.0

Small Cap: Russell 2000 (C$)

Large Cap: S&P 500 (C$)

Large Cap: TSX Composite

International: MSCI EAFE - Net (C$)

Long Term Gov't Bonds: FTSE TMX Canada Long

Gov't

Treasury: 91 Day T-Bills

Diversified

* Diversified: 25% TSX Composite, 20% S&P 500 (C$), 15% MSCI EAFE – Net (C$), 40% FTSE TMX Canada Universe Bond Index

36

• Political uncertainty and policy risks still abound

• Our large plan size ($2.2 billion) allows for low fees and broad diversification by asset classes and managers

• Returns have been reasonably good over the last 5-10 years

• Changes in interest rate policies may affect bond returns going forward

Conclusions

36

37 37

Mr. Joost Blom, Chair

Professor, Faculty of Law

Dr. Ken Carty

Professor Emeritus, Department

of Political Science

Dr. Robert Heinkel, Vice-

Chair

Professor, Sauder School of

Business

Dr. Joanne Emerman

Professor Emerita, Department of

Cellular and Physiological

Sciences

Dr. Joy Begley

Associate Professor, Sauder

School of Business

Dr. Lorenzo Garlappi

Associate Professor, Sauder

School of Business

Dr. Joyce Boon

Associate Professor Emerita,

Barber Arts & Sciences, UBCO

Mr. Vijay Verma

Researcher Emeritus, TRIUMF

Board of Trustees

38 38

Thank You!

Questions?

39 39

Appendix

40

Long Term Asset Class Returns

$90

$900

$9,000

$90,000

1949 1955 1961 1967 1973 1979 1985 1991 1997 2003 2009 2015

Investment Results (Growth of $100 from December 1949 to December 2016)

Value of $100

(Annualized

Rate of Return)

Canada

Equities:

$52,300 (9.8%)

US Equities in $C:

$147,354 (11.5%)

Bonds:

$12,050 (7.4%)

T-Bills:

$3,197 (5.3%)

Inflation

$1,054 (3.6%)

41

Time, Diversification and the Volatility of Returns

-39%

-8%

-15%

-3% -2%

1%

-1% 1% 2%

7%

1%

5%

47%

43%

33%

28%

23% 21%19%

16% 16% 17%

12%14%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1-yr. 5-yr.rolling

10-yr.rolling

20-yr.rolling

Source: Barclays, FactSet, Federal Reserve, Robert Shiller, Strategas/Ibbotson, J.P. Morgan Asset Management.Returns shown are based on calendar year returns from 1950 to 2016. Stocks represent the S&P 500 Shiller Composite and Bonds represent Strategas/Ibbotson for periods from 1950 to 2010 and Barclays Aggregate thereafter. Growth of $100,000 is based on annual average total returns from 1950 to 2016.Guide to the Markets – U.S. Data are as of December 31, 2016.

Range of stock, bond and blended total returnsAnnual total returns, 1950-2016

50/50 portfolio 8.9% $553,221

Bonds 6.0% $318,764

Stocks 11.1% $823,015

Annual avg.

total return

Growth of $100,000

over 20 years

Inve

stin

g

prin

cip

les

42 42 42

Administrative Staff

Orla Cousineau

Mike Leslie

Debbie Wilson

GV Fragante

Helena Huynh

Diana Iampietro

Lorraine Heseltine

Lily Lee

Louise Mah

Maricres De Leon

Kathy Pang

Chelsey Maher

Shirley Lim

Claudia Chan

Executive Director, Pensions

Executive Director – Investments

Associate Director

Systems Analyst

Systems Analyst

Faculty Pension Plan Manager

Member Services Specialist

Member Services Associate

Pension Clerk

Pension Plan Accountant

Communications Manager

Communications Assistant

Project Coordinator

Office Administrator

43

43

Plan Considerations

• Lower risk through broad diversification

- 12 Managers, 14 Mandates

• Provide flexibility regarding contribution,

investment, retirement and withdrawal options

• Low cost

• High level of member service

• One part of member’s overall retirement plan

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