September 30, 2017 Pension Quarterly Investment Report

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Performance Review

University of Guelph Pension Plans

Prepared by:

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

Pension Plans Results Overview

(Net of fees returns for the 12 months ended September 30th, 2017)

The Total Plan gained 7.3% over the last 12 months, an outperformance of 0.4% vs its unhedged benchmark, and an underperformance of 0.3% vs its hedged benchmark.

Canadian Equity U.S. Equity
  • The Canadian equity portfolio matched the S&P/TSX index return of 9.2% over the past year.
  • Results are mixed for the plan’s large cap managers. Burgundy and Sionna outperformed the S&P/TSX by 1.2% and 3.2% respectively. However, CC&L lagged the benchmark by 4.2%.
  • The plan’s Canadian small cap manager (Sionna) had solid performance (10.7%) over the last year, beating the BMO Small Cap index by 6.6%.
  • U.S. large caps had solid performance as the S&P 500 returned 12.9% in Canadian dollar terms over the last year.
  • The plan’s U.S. equity investments (including U.S. small and mid-caps) generated a return of 11.3%, underperforming the S&P 500 by 1.6%.
  • The plan’s large cap manager (Barrow) beat the Russell 1000 Value index by 1.7%. The mid-cap portfolio managed by Wedge also added 3.9% versus its index, but the firm’s small-cap strategy lagged the Russell 2000 Value Index by 4.5%.
Global/Non-North American Equity Fixed Income
  • In Canadian dollars, Non-North American equities outperformed both Canada (9.2%) and the U.S. (12.9%), with the MSCI EAFE Index returning 13.8%.
  • LSV beat the MSCI EAFE index by 3.1%, while Tweedy Browne lagged the index by 2.3%. As a result, the plan’s Non-North American equity outperformance during the past year was 0.4%.
  • Global equities, as measured by the MSCI World ex- Canada index, returned 13.2% over the last year. The pension plan’s only Global equity manager, Acadian, matched the index 1-year return.
  • The Canadian fixed income portfolio changed from CIBC Universe Bond in November 2016 to CIBC Short-Term Bond and CIBC Long-Term Bond. Addenda Mortgage and Robeco Global HY Bond were added in September 2017.
  • The total fixed income portfolio underperformed its benchmark by 0.8%.
  • We note that the bond portfolio is being transitioned from a FTSE/TMX Universe index to a combination of the Short-Term and Long-Term indexes. During this period it will be difficult to benchmark.
  • The real estate portfolio managed by Greystone beat its index by 4.2%, while the new infrastructure investment managed by Brookfield matched its index return of 4.7%.

Total Pension Portfolio Vs Composite Benchmark

As of September 30, 2017 (Gross of Fees, Annualized for Periods over 1 Year)

vertical bar graph illustrating total pension portfolio vs composite benchmark current quarter 0.5 vs 0.5 benchmark return vs 0.8 benchmark return (hedged) ; 1 year 7.9 vs 6.9 benchmark return vs 7.6 benchmark return (hedged) ; 3 years 6.5 vs 7.2 benchmark return vs 6.6 benchmark return hedged; 5 years 10.1 vs 9.9 benchmark return vs 9.2 benchmark return hedged; 10 years 6.6 vs. 5.6 benchmark return vs 5.4 benchmark return hedged

Returns are presented gross of fees in CAD. Current Composite Benchmark: 20% S&P/TSX Comp Capped + 20% MSCI EAFE Net ($CAD) + 20% S&P 500 ($CAD) + 10% FTSE TMX ST Bond Index + 17.5% FTSE TMX LT Bond Index + 2.5% FTSE TMX 91 Day T-Bill + 5% IPD Canada Annual Property Index + 5% Barclays Global High Yield Index Hedged to CAD. The Hedged Benchmark has the same composition as the Composite Benchmark, but all foreign indices are 50% hedged back to Canadian dollars from December 2011 to March 2017, 37.5% hedged from March to June 2017, 25% hedged from June to September 2017, 12.5% hedged since September 2017.

Asset Class Performance

As of September 30, 2017 (Gross of Fees)

   
  Allocation Annualized Performance(%) Annual Performance(%)
Market Value ($) % of Portfolio Quarter to Date 1 Year 3 Years 5 Years 10 Years 1 Year Ending Sep-2016 1 Year Ending Sep-2015 1 Year Ending Sep-2014 1 Year Ending Sep-2013 1 Year Ending Sep-2012
Canadian Equity 278,600,553 19.3 4.0 9.6 4.7 10.0 5.3 14.9 -8.8 20.5 16.6 14.5
S&P/TSX Composite Index     3.7 9.2 4.5 8.1 4.1 14.2 -8.4 20.4 7.1 9.2
Relative Performance     0.3 0.4 0.2 1.9 1.2 0.7 -0.4 0.1 9.5 5.3
US Equity 225,005,472 15.6 -1.4 11.8 14.3 20.2 10.9 10.4 20.8 26.6 33.0 24.3
S&P 500 Index (CAD)     0.6 12.9 15.0 19.8 9.9 13.2 19.2 30.2 24.7 22.9
Relative Performance     -2.0 -1.1 -0.7 0.4 1.0 -2.8 1.6 -3.6 8.3 1.4
Non-North American Equity 249,636,483 17.3 1.5 15.2 10.1 15.0 6.6 6.2 9.2 16.4 29.4 11.8
MSCI EAFE Composite     1.6 13.8 9.5 14.2 4.2 4.9 10.0 13.8 29.8 7.9
Relative Performance     -0.1 1.4 0.6 0.8 2.4 1.3 -0.8 2.6 -0.4 3.9
Global Equity 112,094,356 7.8 0.2 14.1 12.5 17.8 6.5 8.7 14.8 26.2 26.4 16.4
MSCI World Ex Canada     1.0 13.2 12.8 17.5 7.4 9.7 15.5 22.7 27.3 15.9
Relative Performance     -0.8 0.9 -0.3 0.3 -0.9 -0.1 -0.7 3.5 -0.9 0.5
Fixed Income 457,632,143 31.8 -2.3 -3.0 2.8 2.7 4.7 6.4 5.3 6.4 -1.2 5.5
Fixed Income Benchmark     -2.5 -2.2 3.1 2.8 4.8 6.3 5.3 6.3 -1.3 5.5
Relative Performance     0.2 -0.8 -0.3 -0.1 -0.1 0.1 0.0 0.1 0.1 0.0
Real Estate 69,296,507 4.8 2.2 10.9 7.6 8.3 N/A 6.1 5.7 8.3 10.7 N/A
IPD Canadian Property Index     1.6 5.6 6.6 8.3 8.4 7.2 7.1 9.2 12.4 13.6
Relative Performance     0.6 5.3 1.0 0.0 N/A -1.1 -1.4 -0.9 -1.7 N/A
Infrastructure 20,570,180 1.4 -1.9 10.4 N/A N/A N/A N/A N/A N/A N/A N/A
Dow Jones Brookfield Global Infrastructure Index     -0.4 4.7 N/A N/A N/A N/A N/A N/A N/A N/A
Relative Performance     -1.5 5.7 N/A N/A N/A N/A N/A N/A N/A N/A
Internal Cash (STIF)* 28,373,622 2.0 -0.1 2.1 2.3 2.6 1.8 4.3 0.6 6.0 -0.1 -5.6
FTSE TMX Canada 91 Day T-Bill     0.1 0.5 0.6 0.7 1.1 0.5 0.8 0.9 1.1 0.9
Relative Performance     -0.2 1.6 1.7 1.9 0.7 3.8 -0.2 5.1 -1.2 -6.5
Total Pension(Gross of Fees) 1,440,597,251 100.0 0.5 7.9 6.5 10.1 6.6 9.4 2.5 15.5 15.8 13.5
Net of Fees     0.4 7.3 6.1 9.6 6.1 8.8 2.1 15.0 15.4 13.0
Relative Performance     0.1 0.6 0.4 0.5 0.5 0.6 0.4 0.5 0.4 0.5
Composite Benchmark (Hedged)     0.8 7.6 6.6 9.2 5.4 9.6 2.6 14.9 11.6 11.3
Relative Performance     -0.3 0.3 -0.1 0.9 1.2 -0.2 -0.1 0.6 4.2 2.2
Total Pension (Gross of Fees) 1,440,597,251 100.0 0.5 7.9 6.5 10.1 6.6 9.4 2.5 15.5 15.8 13.5
Total Pension ex. FX overlay     0.1 7.3 7.3 11.0 N/A 9.1 5.5 16.8 16.5 12.6
Relative Performance     0.4 0.6 -0.8 -0.9 N/A 0.3 -3.0 -1.3 -0.7 0.9

Current Fixed Income Benchmark: 30.8% FTSE TMX ST Bond Index + 53.8% FTSE TMX LT Bond Index + 15.4% Barclays Global High Yield Hedged to CAD.

Current Composite Benchmark: 20% S&P/TSX Comp Capped + 20% MSCI EAFE Net ($CAD) + 20% S&P 500 ($CAD) + 10% FTSE TMX ST Bond Index + 17.5% FTSE TMX LT Bond Index + 2.5% FTSE TMX 91 Day T-Bill + 5% IPD Canada Annual Property Index + 5% Barclays Global High Yield Index Hedged to CAD. The Hedged Benchmark has the same composition as the Composite Benchmark, but all foreign indices are 50% hedged back to Canadian dollars from December 2011 to March 2017, 37.5% hedged from March to June 2017, 25% hedged from June to September 2017, 12.5% hedged since September 2017.

*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 September 30, 2017

a grouping of bar graphs illustrating performance attribution numbers in percentages part 1 performance: total fund 7.86 vs attribution benchmark 6.93, total value added 0.93 part 2 attribution of total value added: asset allocation 0.27; manager value added 0.24; FX hedge and other 0.42 part 3 average active weight, contribution to total asset allocation value added 0.27 and contribution to total manager value added 0.24 by canadian equity are -1.46, -0.01 and 0.09; us equity 1.57, 0.09 and -0.18; non-north american equity 0.68, 0.02 and 0.20; global equity 0.33, 0.00 and 0.13; fixed income -1.11, 0.10 and -0.25; real estate -0.34, 0.00 and 0.25; internal cash (STIF) -0.82, 0.06 and 0.00

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 follow: 20% S&P/TSX Comp Capped + 16% S&P 500 ($CAD) + 16% MSCI EAFE Net ($CAD) + 8% MSCI World + 10% FTSE TMX ST Bond Index + 17.5% FTSE TMX LT Bond Index + 5% IPD Canada Annual Property Index + 2.5% FTSE TMX 91 Day T-Bill + 5% Barclays Global High Yield Hedged to CAD.
“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 September 30, 2017

bar graph illustrating pension plans asset mix total value $1,440,597,251 market value, target allocation, actual allocation and allocation difference for canadian equities are $271,982,270, 20.0%, 18.9% and -1.1%; us equities $289,651,723, 20.0%, 20.1% and 0.1%; non-north american equities $274,099,030, 20.0%, 19.0% and -1.0%; fixed income $457,477,447, 32.5%, 31.8% and -0.7%; real estate $89,605,179, 5.0%, 6.2% and 1.2%; cash $57,781,602, 2.5%, 4.0% and 1.5%

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

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. $M pension fund market value for total plan (professional, non-professional and retirement plan) for 2008 805.7 2009 828.1 2010 865.1 2011 856.3 2012 961.8 2013 1089.5 2014 1,245.3 2015 1,264.2 2016 1,357.7 2017 1,440.6 percentage Cad$ return net for 2008 -10.5% 2009 6.0% 2010 6.5% 2011 0.3% 2012 13.0% 2013 15.3% 2014 15.0% 2015 2.1% 2016 8.8% 2017 7.3%

Over the last 12 months the Total Pension portfolio increased from $1,357.7 M to $1,440.6 M consisting of:

  • -Total contributions of $61.5 M and distributions of $76.7 M.
  • -1 year return (net of investment management fees) of 7.3% compared to 8.8% one year ago.