June 30, 2015 Pension Quarterly Investment Report

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Performance Review

University of Guelph Pension Plans

2ndQuarter 2015

Prepared by:

Pavilion Advisory Group Ltd.
1250 René-Lévesque Blvd. West, Suite 4030
Montreal, Quebec
H3B 4W8 Canada

Pension Plans Results Overview

(Gross Returns for the 12 months ended June 30th, 2015)

The Total Plan returned 7.6% for the last 12 months, an underperformance of 1.7%  versus its composite benchmark.

Canadian Equity U.S. Equity
  • The Canadian equity portfolio returned -0.5% over the past year, beating the S&P/TSX by 0.7%.
  • Results are mixed for the plan's large cap managers. CC&L has been steadily outperforming over all reported periods with a one-year outperformance of 5.6%. Burgundy and Sionna lagged by 2.1% and 2.3% respectively over the last year.
  • Despite the relatively poor performance of small cap stocks in Canada, the plan's manager (Sionna) performed extremely well, outperformed the index by 16.1%.
  • U.S. equity markets performed very well in Canadian dollar terms, with a one-year return of 25.9% for the S&P500.
  • The plan's U.S. equity investments performed well with a return of 28.2%, outperforming the benchmark by 230 basis points.
  • The plan's large cap manager (Barrow) beat the Russel 1000 Value index by 5.4%. Significant value was added versus their respective indices by the small-(6.3%) and mid-cap portfolios (9.5%) managed by Wedge.
Global/Non-North American Equity Fixed Income
  • In Canadian dollars, Non-North American equity largely underperformed the U.S., but outperformed Canada with the MSCI EAFE index returning 12.7%.
  • The plan's Non-North American equity performance deteriorated during the past year with a 2.3% underperformance. Both LSV and Tweedy Browne trailed the MSCI EAFE over the last year.
  • Global equity, as measured by the MSCI World ex-Canada index, performed very well in Canadian dollars with a return of 20.4% over the last year. The pension's only Global equity manager, Acadian, outperformed the index by 40 basis points.
  • The Canadian fixed income portfolio is indexed to the FTSE TMX Universe and, as expected, matched its return of 6.3% over the past year.
  • The 3.3% two-year return for Cash includes a private equity investment that was held at book for many years and was written up to market value and exited in May 2014.
  • The real estate portfolio managed by Greystone underperformed its index by 0.8%.
  • Currency hedging, which is implemented for risk control rather than to generate returns, was a drag on performance as it cost the portfolio 1.9%.

Total Pension Portfolio Vs Composite Benchmark

As of June 30, 2015 (Gross of Fees, Annualized for Periods over 1 year)

Vertical bar graph illustrating total pension portfolio Vs composite benchmark as of June 30, 2015 gross of fees annualized for periods over one year. Last quarter total plan return negative 1.0% benchmark return negative 1.1%. One year total plan return 7.6% benchmark return 9.3%. Three year total plan return 14.2% benchmark return 13.4%. Five year total plan return 11.9% benchmark return 10.9%. Ten year total plan return 8.2% benchmark return 6.5%.

Returns are presented gross of fees in CAD
Current Composite Benchmark: 25% S&P/TSX Comp Capped + 20% MSCI EAFE ($CAD) + 20% S&P 500 ($CAD) + 28% FTSE TMX Universe + 2% FTSE TMX 91 Day T-Bill + 5% IPD Canada Annual Property index.

Annualized Asset Class Performance

As of June 30, 2015 (Gross of Fees)

   
  Allocation Performance(%)
Market Value ($) % of Portfolio Year to Date 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years 8 Years 9 Years 10 Years
Canadian Equity 309,509,858 23.4 1.9 -0.5 14.0 14.6 8.4 10.7 10.8 51 5.1 7.7 8.6
S&P/TSX Composite Index     0.9 -1.2 12.8 11.1 5.3 8.3 8.9 3.1 3.5 5.5 6.9
Relative Performance     1.0 0.7 1.2 3.5 3.1 2.4 1.9 2.0 1.6 2.2 1.7
US Equity 232,042,856 17.5 10.0 28.2 26.9 28.2 22.4 22.3 20.1 15.0 10.0 10.0 9.1
S&P 500     9.1 25.9 25.9 25.5 21.8 21.2 18.3 12.7 8.5 9.2 8.1
Relative Performance     0.9 2.3 1.0 2.7 0.6 1.1 1.8 2.3 1.5 0.8 1.0
Non-North American Equity 228,636,295 17.2 12.4 10.4 18.5 20.5 14.0 15.4 13.3 9.2 5.0 7.1 7.2
MSCI EAFE Index     14.1 12.7 18.8 20.3 12.3 13.7 10.7 5.5 2.8 4.8 5.8
Relative Performance     -1.7 -2.3 -0.3 0.2 1.7 1.7 2.6 3.7 2.2 2.3 1.4
Global Equity 114,841,966 8.7 11.5 20.8 24.0 24.4 18.8 19.9 16.4 8.7 4.9 6.9 7.3
MSCI World Ex Canada     11.4 20.4 23.1 23.4 17.6 17.9 14.9 9.4 6.0 7.3 7.2
Relative Performance     0.1 0.4 0.9 1.0 1.2 2.0 1.5 -0.7 -1.1 -0.4 0.1
Canadian Fixed Income 377,178,134 28.5 2.4 6.3 5.8 3.8 5.2 5.1 5.4 5.5 5.6 5.6 4.9
FTSE TMX Universe Index     2.4 6.3 5.8 3.8 5.2 5.1 5.4 5.6 5.8 5.6 5.0
Relative Performance     0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.1 -0.2 0.0 -0.1
Real Estate 58,119,955 4.4 2.4 5.7 7.4 N/A N/A N/A N/A N/A N/A N/A N/A
IPD Canadian Property Index     2.3 6.5 7.8 9.7 10.9 11.4 10.3 9.1 9.1 10.0 10.8
Relative Performance     0.1 -0.8 -0.4 N/A N/A N/A N/A N/A N/A N/A N/A
Internal Cash (STIF)* 6,607,193 0.5 0.4 1.0 3.3 2.2 0.2 0.2 02 1.4 1.3 16.0 14.6
FTSE TMX Canada 91 Day T-Bill - C$     0.4 0.9 0.9 0.9 1.0 0.9 0.8 1.0 1.4 1.7 1.8
Relative Performance     0.0 0.1 2.4 1.3 -0.8 -0.7 -0.6 0.4 -0.1 14.3 12.8
Total Pension (Net of Fees) 1,325,464,024 100.0 4.4 7.2 13.2 13.7 10.4 11.4 10.6 7.7 6.0 7.8 7.8
Composite Benchmark     5.7 9.3 14.3 13.4 9.9 10.9 10.1 6.4 5.3 6.4 6.5
Relative Performance     -1.3 -2.1 -1.1 0.3 0.5 0.5 0.5 1.3 0.7 1.4 1.3
Total Pension (Gross of Fees) 1,325,464,024 100.0 4.6 7.6 13.7 14.2 10.9 11.9 11.1 8.1 6.4 8.2 8.2
Composite Benchmark     5.7 9.3 14.3 13.4 9.9 10.9 10.1 6.4 5.3 6.4 6.5
Relative Performance     -1.1 -1.7 -0.6 0.8 1.0 1.0 1.0 1.7 1.1 1.8 1.7
Total Pension ex.FX Overlay (Gross of Fees) 1.326,936,257 100.1 5.9 9.5 15.0 15.2 N/A N/A N/A N/A N/A N/A N/A
Composite Benchmark     5.7 9.3 14.3 13.4 9.9 10.9 10.1 6.4 5.3 6.4 6.5
Relative Performance     0.2 0.2 0.7 1.8 N/A N/A N/A N/A N/A N/A N/A
Effect of Passive Currency Hedge     -1.3 -1.9 -1.3 -1.0 N/A N/A/ N/A N/A N/A N/A N/A

Current Composite Benchmark: 25% S&P/TSX Comp Capped + 20% MSCI EAFE ($CAD) + 20% S&P 500 ($CAD) + 28% FTSE TMX Universe + 2% FTSE TMX 91 Day-T-Bill + 5% IPD Canada Annual Property Index.

*Cash amounts and percentages presented exclude residual manager cash balances and FX overlay (currency hedging). However, they include the proceeds of the former Banyan Private Equity position, which explains its high 2-year return of 3.3%. All returns are reported gross of fees in CAD except for the Total Pension Plan where returns are displayed both net and gross of fees. EAFE stands for Europe, Australasia and Far East. The IPD Canadian Property Index is published quarterly with a 2-month lag, it is approximated by taking the previous quarter's return and converting it to a monthly basis (Index data from CIBC Mellon).

Annual Asset Class Performance

(Gross of Fees)

  Performance(%)
Jul 2014 to Jun 2015 Jul 2013 to Jun 2014 Jul 2012 to Jun 2013 Jul 2011 to Jun 2012 Jul 2010 to Jun 2011 Jul 2009 to Jun 2010 Jul 2008 to Jun 2009 Jul 2007 to Jun 2008 Jul 2006 to Jun 2007 Jul 2005 to Jun 2006
Canadian Equity -0.5 30.7 15.8 -8.4 20.6 10.9 -23.2 5.3 30.7 17.4
S&P/TSX Composite Index -1.2 28.7 7.9 -10.3 20.9 12.0 -25.7 6.7 22.7 19.6
Relative Performance 0.7 2.0 7.9 1.9 -0.3 -1.1 2.5 -1.4 8.0 -2.2
US Equity 28.2 25.5 30.9 6.7 21.6 10.0 -11.4 -19.4 9.9 1.7
S&P 500 25.9 25.8 24.8 11.4 18.8 4.5 -15.6 -17.1 15.3 -1.4
Relative Performance 2.3 -0.3 6.1 -4.7 2.8 5.5 4.2 -2.3 -5.4 3.1
Non-North American Equity 10.4 27.2 24.7 -3.4 20.9 3.4 -12.4 -20.5 26.3 7.4
MSCI EAFE Index 12.7 25.3 23.3 -8.5 19.1 -2.8 -21.0 -14.2 22.0 15.3
Relative Performance -2.3 1.9 1.4 5.1 1.8 6.2 8.6 -6.3 4.3 -7.9
Global Equity 20.8 27.2 25.3 3.5 24.3 0.2 -27.9 -18.1 24.3 11.4
MSCI World Ex Canada 20.4 25.8 24.2 1.7 19.2 1.0 -18.5 -15.3 18.6 6.3
Relative Performance 0.4 1.4 1.1 1.8 5.1 -0.8 -9.4 -2.8 5.7 5.1
Canadian Fixed Income 6.3 5.3 0.0 9.4 4.7 7.2 6.0 6.5 5.0 -0.6
FTSE TMX Universe Index 6.3 5.3 -0.2 9.5 4.7 6.9 7.0 6.8 4.8 -0.7
Relative Performance 0.0 0.0 0.2 -0.1 0.0 0.3 -1.0 -0.3 0.2 0.1
Real Estate 5.7 9.1 N/A N/A N/A N/A N/A N/A N/A N/A
IPD Canadian Property Index 6.5 9.2 13.4 14.8 13.3 5.2 1.7 9.6 17.0 18.5
Relative Performance -0.8 -0.1 N/A N/A N/A N/A N/A N/A N/A N/A
Internal Cash (STIF)* 1.0 5.6 0.0 -5.3 0.2 0.1 9.2 0.0 243.9 2.9
FTSE TMX Canada 91 Day T-Bill-C$ 0.9 1.0 1.0 1.0 0.9 0.3 2.0 4.1 4.3 3.2
Relative Performance 0.1 4.6 -1.0 -6.3 -7.0 -0.2 7.2 -4.1 239.6 -0.3
Total Pension (Net of Fees) 7.2 19.6 14.7 1.1 15.4 6.7 -8.4 -5.1 23.7 7.3
Composite Benchmark 9.3 19.5 11.6 0.1 15.2 6.1 -13.3 -2.4 15.6 7.9
Relative Performance -2.1 0.1 3.1 1.0 0.2 0.6 4.9 -2.7 8.1 -0.6
Total Pension (Gross of Fees) 7.6 20.1 15.2 1.6 15.9 7.1 -8.1 -4.8 24.0 7.6
Composite Benchmark 9.3 19.5 11.6 0.1 15.2 6.1 -13.3 -2.4 15.6 7.9
Relative Performance -1.7 0.6 3.6 1.5 0.7 1.0 5.2 -2.4 8.4 -0.3
Total Pension ex. FX Overlay (Gross of Fees) 9.5 20.8 15.5 N/A N/A N/A N/A N/A N/A N/A
Composite Benchmark 9.3 19.5 11.6 0.1 15.2 6.1 -13.3 -2.4 15.6 7.9
Relative Performance 0.2 1.3 3.9 N/A N/A N/A N/A N/A N/A N/A

 

Current Composite Benchmark: 25% S&P/TSX Comp Capped + 20% MSCI EAFE ($CAD) + 20% S&P 500 ($CAD) + 28% FTSE TMX Universe + 2% FTSE TMX 91 Day T-Bill + 5% IPD Canada Annual Property Index.

*All returns are reported gross of fees in CAD except for the Total Pension Plan where returns are displayed both net and gross of fees.
Cash amounts and percentages presented exclude residual manager cash balances and FX overlay (currency hedging). However, they include the proceeds of the former Banyan Private Equity position, which explains the high 2014 return of 6.3%. The 2006 cash return was caused by marking to market value a private equity position that was held at book value since inception.
EAFE stands for Europe, Australasia and Far East.
The IPD Canadian Property Index is published quarterly with a 2-month lag, it is approximated by taking the previous quarter's return and converting it to a monthly basis (Index data from CIBC Mellon).

Performance Attribution

Total Pension Plans Vs Attribution Benchmark
1 Year Ending June 30, 2015

0.20%. Bar graph illustrating manager value added Internal cash (STIF) 0.00% Real Estate negative 0.04% Canadian fixed income 0.01% Global equity 0.10% non North American equity negative 0.39% US equity 0.37% Canadian equity 0.15%.

Returns are presented gross  of fees in CAD
The Attribution Benchmark was created to account for small variations of asset allocation between the Total Pension Plans and their Composite Benchmark. Its composition is as follows: 25% S&P/TSX Comp Capped + 16% S&P 500 ($CAD) + 16% MSCI EAFE ($CAD) + 8% MSCI World + 28% FTSE TMX Universe + 5% IPD Canada Annual Property Index + 2% FTSE TMX 91 Day T-Bill.
The Benchmarks do not assume currency hedging.
“Other” includes the effects of all other factors on the Total Pensions Plans' relative return, including rebalancing and residual trading returns.

Pension Plans Asset Mix

Actual Allocation Vs Investment Policy Allocation
As of June 30, 2015

$1,325,464,024. Bar graph illustrating Pension Plans Asset Mix Canadian Equities $300,285,910 target allocation 25.0% actual allocation 22.7% allocation differences negative 2.3% US equities $282,851,173 target allocation 20.0% actual allocation 21.3% allocation differences 1.3% non North American equity $271,442,718 target allocation 20.0% actual allocation 20.5% allocation differences 0.5% Canadian fixed income $375,943,133 target allocation 28.0% actual allocation 28.4% allocation differences 0.4% Real Estate $58,123.267 target allocation 5.0% actual allocation 4.4% allocation differences negative 0.6% Cash $36,817,822 target allocation 2.0% actual allocation 2.8% allocation differences 0.8%

Note: this actual allocation displays the aggregate managers' holdings regardless of their mandate: Cash presented includes internal cash (STIF) and manager residual cash balances (data from CIBC Mellon). Real Estate includes Greystone Real Estate and a residual position in Banyan Private Equity ($3,239).

Pension Currency Exposure

As of June 30th, 2015

Stacked bar graph illustrating Pension currency exposure June 30, 2015 unhedged as detailed in the following table. Stacked bar graph illustrating Pension currency exposure June 30, 2015 hedged as detailed in the following table.

Currency June 30, 2015 Unhedged Gross Exposure (CAD) Hedge (CAD) June 30, 2015 Hedged Net Hedged Exposure (CAD)
Canadian Dollar 56.6% 750,940.505 291,903,670 78.7% 1,042,844,175
US Dollar 25.1% 333,268,294 -170,705,183 12.3% 162,563,111
Euro 6.0% 80,099,491 -43,064,127 2.8% 37,035,363
British Pound 3.3% 43,768,363 -23,444,445 1.5% 20,323,918
Swiss Franc 2.6% 34,145,031 -17,855,057 1.4% 16,289,974
Japanese Yen 2.8% 37,032,235 -18,582,709 1.2% 18,449,526
Other 3.6% 47,753,195 -19,724,380 2.1% 28,028,815

Note: The Net Hedged Exposure equals the fund's original currency exposure to its total investments (Gross Exposure) plus the currency hedge implemented by Mesirow, which is designed to protect the pension fund from excessive foreign currency fluctuations.

Growth of Pension Assets

Combined bar and line graph illustrating year over year comparison of the June market values and net one-year returns to June 30 of each year. $M Pension Fund market value Professional, Non professional and retirement plan for 2006 $735.0 2007 $906.0 2008 $876.0 2009 $778.0 2010 $812.0 2011 $931.0 2012 $928.0 2013 $1,047.0 2014 $1,239.0 2015 $1,325.0. Percentage Cad$ return net for 2006 7.3% 2007 23.7% 2008 negative 5.1% 2009 negative 8.4% 2010 6.7% 2011 15.4% 2012 1.1% 2013 14.7% 2014 19.6% 2015 7.2%.

Over the last 12 months the total Pension portfolio increased $86 M to $1,325 M consisting of:

  • -Total contributions of $65.2 M and distributions of $65.0 M
  • - one year return (net of investment management fees) of 7.2% compared to 19.6% one year ago