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How we invest

We invest with a long-term perspective — one that’s grounded in thoughtful decision making, diversification, and prudent risk management rather than short-term market timing.

Our current asset mix

The current mix includes four key areas, which is reassessed every three to five years to ensure it remains aligned with the Plan’s Funding Policy and investment goals.

Our strategic asset mix

Our investment team leverages its combined domestic and international expertise, overseeing a strategy that’s built on a well-diversified portfolio of investments that will deliver the best risk-adjusted returns — the key to long-term investment success.

CURRENT ASSET MIX – June 24
STRATEGIC ASSET MIX – June 24

The current mix includes four key areas:

EQUITIES

45%

Also known as stocks, these can be shares of a publicly traded company — something you would see listed on an exchange or investments in private equity.

Equity is often seen as more volatile and typically carries greater risk, but has the potential to deliver stronger performance over a long-term period.

REAL

ASSETS

15%

Real assets are investments like real estate and infrastructure. Since these are tangible assets, they’re typically also a longer-term investment.

Real assets can offer strong risk-adjusted returns and often respond to the market differently relative to asset classes like stocks.

FIXED

INCOME

35%

Fixed income includes bonds and other debt instruments — investments that generate returns in the form of interest.

Fixed income typically seen as lower risk than equities, as they can be more predictable in their returns.

ABSOLUTE

RETURN

5%

Absolute return is an asset class that focuses on delivering a positive return over time, regardless of how the broader market performs.

Absolute return can include a number of different investment types to diversify, manage risk and deliver an absolute return.

Our criteria

We use a thorough and rigorous risk-controlled approach by choosing an optimized risk level within a multi-year framework and by selecting and weighting asset classes to achieve a target return. By identifying an acceptable risk threshold, we can determine the mix of assets with the best chance to achieve its goal.

Investments
Investment beliefs
  • Understanding the nature of the Plan’s liabilities is critical to establishing an appropriate investment strategy.
  • Asset allocation is the most important determining factor in investment performance.
  • Investment risk is necessary to earn the returns required to meet our pension obligations, but we recognize this may result in periodic investment losses.
  • Investment risk can be reduced through diversification across key factors including asset classes, geographies, managers, and investment style.
  • Markets are not completely efficient and so we look for skilled managers to add value through active management.
  • Foreign investments expose the Fund to currency risk which may cause returns to be volatile over the short term. Hedging will be employed for non-Canadian currency exposures in certain asset classes, specifically non-Canadian fixed income.
  • Tactical asset allocation strategies generally do not add long-term value at an acceptable level of risk. A rebalancing policy is established with tolerance bands around the strategic asset mix to manage risk due to portfolio drift.
Asset mix policy

The Plan’s strategic asset mix policy was established based on an asset-liability analysis that took into consideration the Plan’s liabilities, the Board’s risk tolerance and the long-term return requirements.

Responsible investing strategy
  • Provident10 makes every effort to utilize investment professionals that adhere to the CFA Institute Code of Ethics and Standards of Professional Conduct and the Asset Manager Code of Professional Conduct.
  • We believe that environmental, social, and governance (ESG) factors should be given consideration by the Fund’s investment managers in the investment decision-making process and proxy voting.
  • While the primary goal of the responsible investing strategy is to assist in maximizing the Fund’s risk-adjusted returns, we believe that private investments should not result in a loss of Canadian public-sector jobs. The Fund will only invest in projects whose management demonstrate a principle of strong and healthy labour relations.
Risk management
  • The Fund should be prudently managed to assist in improving the Plan’s funded ratio and avoiding excessive volatility in annual rates of return. Due to the long-term nature of the open defined benefit pension plan, the Fund has an above-average risk tolerance.
  • To manage risk, an asset-liability study will be conducted on a regular basis to assist in establishing the strategic asset mix policy. The current policy has a bias towards return-seeking assets based on the Board’s risk tolerance.
  • Diversification in asset classes and among investment managers reduces volatility and risk and provides opportunity for gains.

Sustainability of the Fund

Since 2015, we have led the transformation and financial management of the Fund — improving the overall health of the pension plan in that timeframe.

The PSPP Funding Policy is designed to guide the Plan towards maintaining its fully funded status.

Growth of the Fund is generated through
three main components:

  1. Member and employer contributions
  2. Investment earnings
  3. Repayment of a promissory note* from the Government of Newfoundland and Labrador

*The promissory note (currently 20% of the total net assets of the Fund) provides steady cashflow and liquidity to the Fund, which is beneficial in providing stability to the funded status.

Investments

Important ongoing considerations and uncertainties that can impact the Plan’s funded status:

  • Aging Plan member profile
  • Global investment and economic environment
  • Heightened global political tensions

The funding policy lays out defined thresholds that must be met before implementation of any Plan improvements are allowed and identifies whether changes are required to improve Plan funding.

Fund governance

In consultation with the Investment Committee, our Board of Directors documents the investment policies for the Public Service Pension Plan Fund in the Statement of Investment Policies and Procedures (SIP&P).

The SIP&P provides a means for the Board and the Investment Team to measure and monitor the performance of the Fund against its stated objectives. It addresses key matters including the Fund governance, investment objectives and beliefs, philosophy, asset mix policy, risk management, permitted types of investments, and the responsible investing strategy.

How we’re governed
  • The Board of Directors has overall responsibility for investments of the Fund, which includes monitoring investment performance, Fund operation, and compliance with the SIP&P. Where appropriate, the Board may delegate to the Investment Committee or professional advisors to meet this responsibility.
  • The Provident10 CEO and Investment Team are responsible for the administration of all matters related to implementation of the investment program.