In consultation with the Investment Committee, the Board documents the investment policies for the Public Service Pension Plan (the Plan) Fund in the Statement of Investment Policies and Procedures (SIP&P). The Investment Committee is a sub-committee of the Board.
The SIP&P 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.
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. On an annual basis, the SIP&P is subject to a comprehensive review by the Investment Committee. This provides the opportunity to analyse and assess the pension plan requirements and ensure the current investment policies and strategies are sufficient to meet those needs.
Some of the key policies of the SIP&P are highlighted here:
- 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.
- 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.
- 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.
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. Click here for more info.
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.
- Provident10 believes 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, Provident10 believes 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.