March 31, 2016 Pension Quarterly Investment Report

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Performance Review

University of Guelph Pension Plans
1st Quarter 2016


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 March 31st, 2016)

The Total Plan lost 3.4% over the last 12 months, an underperformance of 1.4% vs. its hedged benchmark and 2.1% vs. its unhedged benchmark.

Canadian Equity U.S. Equity
  • The Canadian equity portfolio returned -7.5% over the past year, lagging the S&P/TSX index by 90 basis points.
  • Results are mixed for the plan’s large cap managers. CC&L has been steadily outperforming over all reported periods with a 1-year outperformance of 0.5%. However, Burgundy lagged by 2.6% while Sionna matched the TSX over the last year (-6.6%).
  • Canadian small caps performed poorly, with an index return of -7.2%,and the plan’s manager (Sionna) underperforming by 2.4%.
  • U.S. large caps performed well in Canadian dollar terms, with a 1-year return of 3.9% for the S&P 500.
  • The plan’s U.S. equity investments (including U.S. small and mid caps) did not perform as well with a return of -2.8%, underperforming the S&P 500 by 6.7%.
  • The plan’s large cap manager (Barrow) lagged the Russel 1000 Value index by 2.3%. Significant value was added (5.1%) versus its index by the small-cap portfolio managed by Wedge, although the firm’s mid-cap strategy lagged the Russel Mid Cap Index by 3.5%.
Global/Non-North American Equity Fixed Income
  • In Canadian dollars, Non-North American equities outperformed Canada but lagged the U.S., with the MSCI EAFE Index (net of dividend withholding taxes) returning -6.4%.
  • The plan’s Non-North American equity performance improved during the past year with an outperformance of 3.4%. LSV beat the MSCI EAFE by 2.2%, and Tweedy Browne by 3.6%.
  • Global equities, as measured by the MSCI World ex-Canada index, returned -0.7% over the last year. Moreover, the pension plans's only Global equity manager, Acadian, underperformed the index by 3.8%.
  • The Canadian fixed income portfolio is indexed to the FTSE TMX Universe and, as expected, closely matched its return of 0.8% over the past year.
  • The 4.7% 2-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 lagged its index by 4.3%.

Total Pension Portfolio Vs Composite Benchmark

As of March 31, 2016 (Gross of Fees, Annualized for Periods over 1 Year)

vertical bar graph illustrating total pension portfolio vs composite benchmark current quarter -0.8 vs -1.4 benchmark return vs -0.4 benchmark return (hedged) ; 1 year -3.4 vs -1.3 benchmark return vs -0.2 benchmark return (hedged) ; 3 years 8.3 vs 9.2 benchmark return vs 8.0 benchmark return hedged; 5 years 8.0 vs 7.6 benchmark return vs 7.0 benchmark return hedged; 10 years 6.7 vs. 5.3 benchmark return vs 5.0 benchmark return hedged


Returns are presented gross of fees in CAD.
Current Composite Benchmark: 25% S&P/TSX Comp Capped + 20% MSCI EAFE Net ($CAD) + 20% S&P 500 ($CAD) + 28% FTSE TMX Universe + 2% FTSE TMX 91 Day T-Bill + 5% IPD Canada Annual Property Index. The Hedged Benchmark has the same composition as the Composite Benchmark, but all foreign indices are 50% hedged back to Canadian dollars.
 

Annualized Asset Class Performance

As of March 31, 2016 (Gross of Fees)

Annualized Asset Class Performance
  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 282,001,073 22.1 4.6 -7.5 -0.4 6.5 8.2 4.0 6.4 11.1 4.8 4.7 5.6
S&P/TSX Composite Index     4.5 -6.6  0.0 5.0 5.3 2.1 4.9  9.6 3.2  3.3 4.0
Relative Performance     0.1 -0.9 -0.4 1.5 2.9 1.9 1.5 1.5  1.6   1.4 1.6
US Equity 217,565,225 17.1 -6.5  -2.8 12.5 19.1  19.8 17.1 16.8 18.5 12.4 8.3 8.1
S&P 500      -5.7 3.9 15.9 21.1 19.8 18.1 16.8 17.4 11.2 7.8 8.1
Relative Performance     -0.8 -6.7 -3.4 -2.0 0.0 -0.1  0.0 1.1 1.2 0.5  0.0
Non-North American Equity 209,591,329 16.4 -8.0 -3.0  3.8 11.9 13.2  10.9 10.6 13.4 6.7 3.8 5.5
MSCI EAFE (net)      -9.7 -6.4  3.2  10.7 11.4 8.3 7.8 10.1 3.2  1.2 2.8
Relative Performance      1.7 3.4 0.6 1.2 1.8  2.6  2.8 3.3 3.5   2.6  2.7
Global Equity 103,278,479  8.1 -8.3 -4.5 9.4 16.5 16.4 15.0 14.5 14.7 7.2 4.0 5.6
MSCI World Ex Canada     -7.5 -0.7  10.5 16.9 16.4  13.9 13.1 14.4 7.8 5.1 6.0
Relative Performance     -0.8  -3.8 -1.1 -0.4 0.0 1.1 1.4 0.3 -0.6 -1.1 -0.4
Canadian Fixed Income  386,841,481 30.3 1.4 0.8 5.5  3.9 4.1 5.2 5.2 5.2 5.1 5.1 5.3
FTSE TMX Canada Universe Bond Index     1.4 0.8 5.4 3.9 4.0 5.1 5.1 5.1 5.1 5.2 5.2
Relative Performance     0.0 0.0 0.1 0.0 0.1 0.1 0.1 0.1 0.0 -0.1 0.1
Real Estate  60,684,241 4.8 0.6 6.0 5.9 7.4 N/A  N/A  N/A  N/A  N/A  N/A  N/A 
IPD Canadian Property Index     3.5 10.3 8.6 9.3 10.5  11.4 11.6 10.2 9.2 9.6 10.4
Relative Performance     -2.9 -4.3 -2.7 -1.9 N/A N/A N/A N/A N/A N/A N/A
Internal Cash (STIF)* 8,261,080 0.6 0.1 3.0 4.7 3.1 0.8 0.7 0.7 0.6 1.4 2.0 14.6
FTSE TMX Canada 91 Day T-Bill     0.1 0.5  0.7 0.8 0.9 0.9  0.9 0.8 1.0 1.4 1.7
Relative Performance     0.0 2.5 4.0 2.3 -0.1 -0.2 -0.2 -0.2 0.4 0.6 12.9
Total Pension (Net of Fees)  1,274,875,487 100.0 -0.9 -3.8 3.8 7.9 8.9 7.6 8.3 10.1 6.4 5.1 6.3
Composite Benchmark     -1.4 -1.3 5.8 9.2 9.2 7.6 8.2 10.2 5.7 4.7 5.3
Relative Performance      0.5 -2.5 -2.0  -1.3 -0.3 0.0 0.1 -0.1 0.7 0.4 1.0
Composite Benchmark (Hedged)     -0.4 -2.0 4.9 8.0 8.3 7.0 7.7 9.7 5.3 4.4 5.0
Relative Performance     -0.5 -1.8 -1.1 -0.1 0.6 0.6 0.6 0.4 1.1 0.7 1.3
Total Pension (Gross of Fees) 1,274,875,487 100.0 -0.8 -3.4 4.2 8.3 9.4 8.0  8.7 10.5 6.8 5.5 6.7
Composite Benchmark     -1.4 -1.3 5.8 9.2 9.2 7.6 8.2 10.2 5.7  4.7 5.3
Relative Performance     0.6  -2.1 -1.6 -0.9 0.2 0.4 0.5 0.3 1.1 0.8  1.4
Composite Benchmark (Hedged)     -0.4 -2.0  4.9 8.0 8.3 7.0 7.7 9.7 5.3 4.4 5.0
Relative Performance     -0.4 -1.4 -0.7 0.3 1.1 1.0 1.0 0.8 1.5 1.1 1.7


Current Composite Benchmark: 25% S&P/TSX Comp Capped + 20% MSCI EAFE Net ($CAD) + 20% S&P 500 ($CAD) + 28% FTSE TMX Universe + 2% FTSE TMX 91 Day T-Bill + 5% IPD Canada Annual Property Index. The Hedged Benchmark has the same composition as the Composite Benchmark, but all foreign indices are 50% hedged back to Canadian dollars.


*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. 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)

Annual Asset Class Performance
  Performance (%)
  Apr-2015 to Mar-2016 Apr-2014 to Mar-2015 Apr-2013 to Mar-2014 Apr-2012 to Mar-2013 Apr-2011 to Mar-2012 Apr-2010 to Mar-2011 Apr-2009 to Mar-2010 Apr-2008 to Mar-2009 Apr-2007 to Mar-2008 Apr-2006 to Mar-2007
Canadian Equity  -7.5  7.2  22.0 13.2 -11.3 19.7 43.9 -30.6 4.0 14.4
S&P/TSX Composite Index -6.6 6.9 16.0 6.1 -9.8 20.4 42.1 -32.4 4.0 11.4
Relative Performance -0.9 0.3 6.0 7.1 -1.5 -0.7 1.8 1.8 0.0 3.0
US Equity -2.8 30.2 33.4 21.8 6.9 15.3 29.4 -22.4 -19.3 5.9
S&P 500 3.9 29.4 32.2 16.0 11.5 10.5 21.2 -24.1 -15.5 10.5
Relative Performance -6.7 0.8 1.2 5.8 -4.6 4.8 8.2 1.7 -3.8 -4.6
Non-North American Equity -3.0 11.1 29.9 17.2 2.1 9.6 31.6 -30.4 -16.7 22.1
MSCI EAFE (net) -6.4  13.7 27.5 13.3 -3.2 5.5 25.0 -34.4 -13.4 18.8
Relative Performance 3.4 -2.6 2.4 3.9 5.3 4.1 6.6 4.0 -3.3 3.3
Global Equity -4.5 25.3 32.1 16.3 9.4 12.0 15.7 -33.0 -18.4 21.4
MSCI World Ex Canada -0.7 22.9 30.7 14.8 4.8 8.9 22.8 -29.0 -14.2  14.8
Relative Performance -3.8 2.4 1.4 1.5 4.6 3.1 -7.1 -4.0 -4.2 6.6
Canadian Fixed Income Composite 0.8 10.3 0.8 4.6 9.8 5.1 5.3 4.1 5.5 7.4
FTSE TMX Canada Universe Bond Index 0.8 10.3 0.8 4.5 9.7 5.1 5.1 4.9 5.8 5.5
Relative Performance 0.0 0.0 0.0 0.1 0.1 0.0 0.2 -0.8 -0.3 1.9
Real Estate  6.0 5.8  10.3 N/A N/A N/A N/A N/A N/A N/A
IPD Canadian Property Index 10.3 6.8 10.7 14.5 15.1 12.2 2.4 2.7 12.7 17.7
Relative Performance -4.3 -0.1 -0.4 N/A N/A N/A N/A N/A N/A N/A
Internal Cash (STIF)* 3.0 6.5 -0.1 -5.6 0.3 0.2 0.1 7.1 6.9  228.3
FTSE TMX Canada 91 Day T-Bill 0.5 0.9 1.0 1.0 0.9 0.8 0.3 2.4 4.6 4.2
Relative Performance 2.5 5.6 -1.1 -6.6 -0.6 -0.6 -0.2 4.7 2.3 224.1
Total Pension (Net of Fees) -3.8 11.9 16.5 12.2 2.5 11.5 21.7 -16.3 -4.5 18.2
Composite Benchmark -1.3 13.5 16.3 9.0 1.5 11.1 22.8 -20.8 -3.0 11.0
Relative Performance -2.5 -1.6 0.2 3.2 1.0 0.4 -1.1 4.5 -1.5 7.2
Composite Benchmark (Hedged) -2.0 12.4 14.3 9.3 1.9 11.1 22.9 -20.8 -3.0 11.0
Relative Performance -1.8 -0.5 2.2 2.9 0.6 0.4 -1.2 4.5 -1.5 7.2
Total Pension (Gross of Fees) -3.4 12.4 17.0 12.6 2.9 12.0 22.2 -16.1 -4.2 18.5
Composite Benchmark -1.3 13.5 16.3 9.0  1.5 11.1 22.8 -20.8 -3.0 11.0
Relative Performance -2.1 -1.1 0.7 3.6 1.4 0.9 -0.6 4.7 -1.2 7.5
Composite Benchmark (Hedged) -2.0 12.4 14.3 9.3 1.9 11.1 22.9 -20.8 -3.0 11.0
Relative Performance -1.4 0.0 2.7 3.3 1.0 0.9 -0.7 4.7 -1.2 7.5




Current Composite Benchmark: 25% S&P/TSX Comp Capped + 20% MSCI EAFE Net ($CAD) + 20% S&P 500 ($CAD) + 28% FTSE TMX Universe + 2% FTSE TMX 91 Day T-Bill + 5% IPD
Canada Annual Property Index. The Hedged Benchmark has the same composition as the Composite Benchmark, but all foreign indices are 50% hedged back to Canadian dollars.


*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. 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).



Total Pension Plans Vs Attribution Benchmark

1 Year Ending March 31, 2016

a grouping of bar graphs illustrating performance attribution numbers in percentages part 1 performance: total fund -3.37 vs attribution benchmark -1.22, total value added -2.15 part 2 attribution of total value added: asset allocation -0.11; manager value added -1.27; FX hedge and other -0.77 part 3 average active weight, contribution to total asset allocaiton value added (-0.11) and contribution to total manager value added (-1.27) by canadian equity are -2.48, 0.06 and -0.21; us equity 1.67, 0.06 and -1.19; non-north american equity 1.29, -0.11 and 0.58; global equity 0.66, -0.03 and -0.31; canadian fixed income 1.12, 0.00 and 0.02; real estate -0.49, -0.06 and -0.18; internal cash (STIF) -1.42, -0.03 and 0.02


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 ($CAD) + 16% MSCI EAFE Net ($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 March 31, 2016

bar graph illustrating pension plans asset mix total value $1,274,875,487 market value, target allocation, actual allocation and allocation difference for canadian equities are $276,110,694, 25.0%, 21.7% and -3.3%; us equities $268,123,493, 20.0%, 21.0% and 1.0%; non-north american equities $242,460,906, 20.0%, 19.0% and -1.0%; canadian fixed income $386,668,288, 28.0%, -30.3% and 2.3%; real estate $60,684.241, 5.0%, 4.8% and -0.2%; cash $40,827,866, 2.0%, 3.2% and 1.2%


________________________________
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).



Pension Currency Exposure

As of March 31st, 2016

stacked bar graph illustrating pension currency exposure at quarter-end unhedged as detailed in the following table. stacked bar graph illustrating pension currency exposure at quarter-end hedged as detailed in the following table.


 

Currency  March 31st,
2016 Unhedged		 Gross Exposure
(CAD)		 Hedge (CAD) March 31st,
2016 Hedged 		 Net Hedged
Exposure (CAD)
Canadian Dollar 58.2% 737,770,336 257,296,926 78.1% 995,067,262
U.S. Dollar 24.3% 308,151,684 -146,118,278 12.7% 162,033,406
Euro 6.1% 77,316,074 -38,530,414 3.0% 38,785,660
British Pound 3.0% 38,081,672 -18,898,250 1.5% 19,183,423
Swiss Franc 2.9% 36,750,649 -21,881,703 1.4% 14,868,945
Japanese Yen 2.3% 29,431,425 -11,006,485 1.2% 18,424,941
Other 3.2% 40,738,862 -14,209,218 2.1% 26,529,645


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


March Market Values and Net 1-year Returns to March 31st of Each Year

combined bar and line graph illustrating year over year comparison of the quarter-end market values and net on-year returns to quarter-end of each year. $M pension fund market value for total plan (professional, non-professional and retirement plan) for 2007 895.2 2008 881.3 2009 714.0 2010 848.6 2011 925.5 2012 945.8 2013 1,047.7 2014 1,205.1 2015 1,345.1 2016 1,274.9 percentage Cad$ return net for 2007 18.2% 2008 -4.5% 2009 -16.3 2010 21.7% 2011 11.5% 2012 2.5% 2013 12.2% 2014 16.5% 2015 11.9% 2016 -.3.8%


Over the last 12 months the Total Pension portfolio decreased $ 70.2 M to $1,274.9 M consisting of:
– Total contributions of $ 61.6 M and disbursements of $ 77.8 M
– 1-year return (net of investment management fees) of -3.8% compared to 11.9% one year ago.