December 31, 2016 Pension Quarterly Investment Report

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Performance Review

University of Guelph Pension Plans 4th Quarter 2016

Prepared by:

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

Pension Plans Results Overview

(Net returns for the 12 months ended December 31st, 2016)

The Total Plan gained 9.1% over the last 12 months, an outperformance of 2.2% vs. its unhedged benchmark and 1.0% vs. its hedged benchmark.

Canadian Equity U.S. Equity
  • The Canadian equity portfolio returned 24.1% over the past year, beating the S&P/TSX index by 3.0%.
  • Results are mixed for the plan’s large cap managers. Burgundy and Sionna outperformed the S&P/TSX by 9.6% and 2.6% respectively. However, CC&L lagged the benchmark by 1.5%.
  • The plan’s Canadian small cap manager (Sionna) performed poorly, lagging the BMO Small Cap index by 13.7%.
  • U.S. large caps had solid performance as the S&P 500 returned 8.1% in Canadian dollar terms over the last year.
  • The plan’s U.S. equity investments (including U.S. small and mid-caps) generated a good return of 12.2%, outperforming the S&P 500 by 4.1%.
  • All the plan’s U.S. equities managers lagged their benchmarks. The large cap strategy managed by Barrow lagged the Russell 1000 Value index by 2.9%. The mid cap and small cap strategies managed by Wedge underperformed their corresponding Russell indices by 5.1% and 4.7%.
Global/Non-North American Equity Fixed Income
  • In Canadian dollars, Non-North American equities underperformed both Canada and the U.S., with the MSCI EAFE Index returning -2.0%.
  • Tweedy Browne and LSV beat the MSCI EAFE index by 2.3% and 2.1% respectively. As a result, the plan’s Non-North American equity outperformance during the past year was 2.4%.
  • Global equities, as measured by the MSCI World ex-Canada index, returned 3.9% over the last year. The pension plan’s only Global equity manager, Acadian, underperformed the index by 1.4%.
  • The Canadian fixed income portfolio, which added CIBC Short-Term Bond and CIBC Long Term Bond in December 2016, underperformed its benchmark by 0.5%.
  • The high Cash returns include income distributions from private equities.
  • The real estate portfolio managed by Greystone beat its index by 2.0%.

 

Total Pension Portfolio Vs Composite Benchmark

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

vertical bar graph illustrating total pension portfolio vs composite benchmark current quarter 3.2 vs 1.5 benchmark return vs 1.9 benchmark return (hedged) ; 1 year 9.7 vs 6.9 benchmark return vs 8.1 benchmark return (hedged) ; 3 years 7.8 vs 8.3 benchmark return vs 7.4 benchmark return hedged; 5 years 10.9 vs 10.1 benchmark return vs 9.5 benchmark return hedged; 10 years 6.2 vs. 5.2 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) + 5.5% FTSE TMX Canada Bond Universe + 5% FTSE TMX ST Bond Index + 17.5% FTSE TMX LT Bond Index + 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 since December 2011.

Asset Class Performance

As of December 31, 2016 (Gross of Fees)

Asset Class Performance
  Allocation Annualized Performance(%) Annual Performance(%)
  Market Value ($) % of portfolio Quarter To Date 1 Year 3 Years 5 Years 10 Years 2016 2015 2014 2013 2012 2011
Canadian Equity 334,888,255 23.9 7.1 24.6 7.8 11.7 6.3 24.6 -9.0 10.6 21.9 13.8 -11.9
S&P/TSX Composite Index     4.5 21.1 7.1 8.2 4.7 21.1 -8.3 10.6 13.0 7.2 -8.7
Relative Performance     2.6 3.5 0.7 3.5 1.6 3.5 -0.7 0.0 8.9 6.6 -3.2
US Equity 255,198,064 18.2 9.4 12.8 17.9 22.4 9.5 12.8 15.9 25.3 43.7 16.9 2.6
S&P 500 Index (CAD     5.9 8.1 17.7 21.2 8.5 8.1 21.6 23.9 41.3 13.4 4.6
Relative Performance     3.5 4.7 0.2 1.2 1.0 4.7 -5.7 1.4 2.4 3.5 -2.0
Non-North American Equity 223,571,044 16.0 2.5 1.1 7.9 14.4 4.8 1.1 18.5 4.9 32.5 17.9 -3.8
MSCI EAFE Composite     1.3 -2.0 6.8 13.1 2.7 -2.0 19.4 4.1 31.5 15.2 -9.6
Relative Performance     1.2 3.1 1.1 1.3 2.1 3.1 -0.9 0.8 1.0 2.7 5.8
Global Equity 112,729,885 8.1 4.0 3.2 13.1 17.8 5.1 3.2 19.0 17.9 37.9 13.4 3.8
MSCI World Ex Canada     4.0 3.9 13.0 17.7 6.0 3.9 20.7 15.2 37.0 14.3 -2.2
Relative Performance     0.0 -0.7 0.1 0.1 -0.9 -0.7 -1.7 2.7 0.9 -0.9 6.0
Canadian Fixed Income 384,740,450 27.5 -4.3 0.9 4.4 3.1 4.6 0.9 3.6 8.8 -1.1 3.6 9.8
Fixed Income Benchmark     -3.8 1.3 4.5 3.1 4.7 1.3 3.5 8.8 -1.2 3.6 9.7
Relative Performance     -0.5 -0.4 -0.1 0.0 -0.1 -0.4 0.1 0.0 0.1 0.0 0.1
Real Estate 64,994,567 4.6 4.0 7.7 6.8 N/A N/A 7.7 6.3 6.3 11.7 N/A N/A
IPD Canadian Property Index     1.1 4.7 6.5 9.3 9.1 4.7 7.8 7.0 11.0 16.4 15.4
Relative Performance     2.9 3.0 0.3 N/A N/A 3.0 -1.5 -0.7 0.7 N/A N/A
Infrastructure 13,866,487 1.0 17.2 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Dow Jones Brookfield Global Infrastructure Index     -3.1 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Relative Performance     20.3 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Internal Cash (STIF)* 9,589,112 0.7 0.1 1.7 3.7 1.0 2.5 1.7 3.1 6.3 -0.1 -5.6 0.3
FTSE TMX Canada 91 Day T-Bill     0.1 0.5 0.7 0.8 1.4 0.5 0.6 0.9 1.0 1.0 1.0
Relative Performance     0.0 1.2 3.0 0.2 1.1 1.2 2.5 5.4 -1.1 -6.6 -0.7
Total Pension Gross of Fees 1,398,756,793 100.0 3.2 9.7 7.8 10.9 6.2 9.7 3.0 10.9 19.8 12.0 0.1
Net of Fees     3.1 9.1 7.3 10.5 5.8 9.1 2.6 10.5 19.3 11.5 -0.3
Relative Performance     0.1 0.6 0.5 0.4 0.4 0.6 0.4 0.4 0.5 0.5 0.4
Composite Benchmark (Hedged)     1.9 8.1 7.4 9.5 5.0 8.1 3.8 10.3 16.1 9.5 -0.8
Relative Performance     1.3 1.6 0.4 1.4 1.2 1.6 -0.8 0.6 3.7 2.5 0.9
Total Pension (Gross of Fees) 1,398,756,793 100.0 3.2 9.7 7.8 10.9 6.2 9.7 3.0 10.9 19.8  12.0 0.1
Total Pension ex. FX overlay     3.0 8.6 8.9 11.7 N/A 8.6 6.3 11.8 21.1 11.4 0.1
Relative Performance     0.2 1.1 -1.1 -0.8 N/A 1.1 -3.3 -0.9 -1.3 0.6 0.0


Current Fixed Income Benchmark: 20% FTSE TMX Canada Bond Universe + 18% FTSE TMX ST Bond Index + 62% FTSE TMX LT Bond Index.

Current Composite Benchmark (Hedged): 25% S&P/TSX Comp Capped + 20% MSCI EAFE Net ($CAD) + 20% S&P 500 ($CAD) + 5.5% FTSE TMX Canada Bond Universe + 5% FTSE TMX ST Bond Index + 17.5% FTSE TMX LT Bond Index + 2% FTSE TMX 91 Day T-Bill + 5% IPD Canada Annual Property Index. All foreign indices are 50% hedged back to Canadian dollars since December 2011.

 

*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 CIBC Mellon.

 

 

Performance Attribution

Total Pension Plans Vs Attribution Benchmark
1 Year Ending December 31, 2016

a grouping of bar graphs illustrating performance attribution numbers in percentages part 1 performance: total fund 9.67 vs attribution benchmark 7.02, total value added 2.64 part 2 attribution of total value added: asset allocation -0.61; manager value added 2.06; FX hedge and other 1.19 part 3 average active weight, contribution to total asset allocation value added (-0.61) and contribution to total manager value added (2.06) by canadian equity are -2.45, -0.38 and 0.74; us equity 1.38, -0.02 and 0.79; non-north american equity 0.41, -0.15 and 0.56; global equity 0.16, -0.06 and -0.05; canadian fixed income 1.86, -0.09 and -0.12; real estate -0.31, 0.00 and 0.14; internal cash (STIF) -1.35, 0.10 and 0.01

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 + 5.5% FTSE TMX Canada Bond Universe + 5% FTSE TMX ST Bond Index + 17.5% FTSE TMX LT Bond Index + 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 December 31, 2016

bar graph illustrating pension plans asset mix total value $1,398,756,793 market value, target allocation, actual allocation and allocation difference for canadian equities are $328,849,648, 25.0%, 23.5% and -1.5%; us equities $309,257,278, 20.0%, 22.1% and 2.1%; non-north american equities $260,564,131, 20.0%, 18.6% and -1.4%; canadian fixed income $384,494,616, 28.0%, 27.5% and -0.5%; real estate $78,830,565, 5.0%, 5.6% and 0.6%; cash $36,760,555, 2.0%, 2.6% and 0.6%

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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).

Growth of Pension Assets

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

combined bar and line graph illustrating year over year comparison of the quarter-end market values and net 1-year returns to quarter-end of each year. $M pension fund market value for total plan (professional, non-professional and retirement plan) for 2007 909.8 2008 755.2 2009 836.9 2010 904.5 2011 893.7 2012 989.8 2013 1,160.6 2014 1,274.4 2015 1,299.5 2016 1,398.8 percentage Cad$ return net for 2007 -0.1% 2008 -14.4% 2009 14.6 2010 9.6% 2011 0.3% 2012 11.5% 2013 19.3% 2014 10.4% 2015 2.5% 2016 9.1%

Over the last 12 months the Total Pension portfolio increased $ 99.3 M to $1,398.8 M consisting of:
– Total contributions of $ 64.2 M and disbursements of $ 80.3 M
– 1-year return (net of investment management fees) of 9.1% compared to 2.5% one year ago.