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Transcript
Managing the Municipal Pension Plan in a Low Return Environment Municipal Pension Plan AGM Bryan Thomson October 13, 2016 bcIMC MPP’s Investment Manager bcIMC is an investment management corporation for BC’s public sector funds and entities • Largest institutional investor in Western Canada and the 4th largest Assets Under Management (AUM) amongst Canadian pension fund managers • Globally diversified investment portfolio of $122 billion (at Mar. 31, 2016) • Based in Victoria, British Columbia bcIMC takes a long-term investment perspective • • Historically, bcIMC has been a conservative, long-term investor Invests in all major asset classes 2 Primary Investment Goals • Provide the highest possible investment return that meets the Plan’s: – funding needs – investment objectives for a given level of risk 3 Importance of Investment Returns Composition of a Pension Benefit Payment ($1) 75% Investment Return 25% Contribution 4 Municipal Pension Plan Value Municipal Pension Plan Fund – 10 Year Moving Market Value 50,000 $42.7B 45,000 40,000 $ Millions 35,000 30,000 25,000 $21.5B 20,000 15,000 10,000 5,000 0 Mar-06 2006 Mar-07 2007 Mar-08 2008 Mar-09 2009 2010 Mar-10 2011 Mar-11 2012 Mar-12 2013 Mar-13 Mar-14 2014 2015 5 Mar-15 2016 Mar-16 MPP’s Annualized Returns (%) For the period ending March 31, 2016 7.7 Actuarial Target is 6.5% 7.3 9.4 8.0 6.8 6.3 6.6 5.9 -0.2 20 Year 15 Year 10 Year Annualized Pension Returns 4 Year -0.3 1 Year Benchmark 6 1985 to 2014 was a “Golden Era” for Investment Returns! Real Returns TotalTotal Real Returns Annualized Returns Source: McKinsey Global Institute 7 Economic and Business Drivers of Asset Returns are Shifting Inflation has been tamed GDP growth blues Interest rates at historic lows Corporate profits under pressure Source: McKinsey Global Institute 8 Aging Populations are a Headwind 2015 2050 % of population 65+ Source: BofAML 9 Rising Debt Levels are a Headwind $199 Trillion 286% of GDP $142 Trillion 269% of GDP 2007 2014 Source: McKinsey Global Institute 10 Is the Balance Shifting Between Wall Street and Main Street? 52% 10000 9000 8000 7000 48% 6000 5000 46% Index % of GDP 50% 4000 44% 3000 2000 42% 1000 40% 1948 1953 1958 1963 1968 1973 1978 1983 Wages as % of GDP (LHS) 1988 1993 1998 2003 2008 2013 2018 0 50/50 Equity/Bond (RHS) Source: BofAML 11 Long-Term Return Expectations Have Shifted Downwards Capital Markets – Long-Term Expectations 18% Private Equity 16% Real Estate 14% Return 12% 8% Private Equity Global Equities Real Estate 6% 2% 2% 4% 6% 8% 10% Risk Emerging Markets 6.5% Canadian Equities 2016 Mortgages Nominal Bonds Short-term Bonds 4% Canadian Equities 1990 Mortgages Nominal Bonds Short-term Bonds 10% 0% Global Equities Emerging Markets 12% 14% 16% 18% bcIMC's Target return ____ Clients‘ Target Return 12 20% Overall Business Plan Roadmap 2017 F2016-17 • 3-Year Business Plan • Establish targets & milestones • Continue rebuilding the base • Begin implementing strategies F2017-18 • Report net returns & cost savings • Expand & grow investment strategies • Meet incremental targets in public markets F2018-19 • Report net returns & cost savings • Expand & grow strategies F2019-20 • Realize benefits • Continue to grow 13 Summary • A history of strong returns which has contributed significantly to the Plan’s funded status • Future returns are likely to be lower • With Municipal Pension Plan’s support and guidance, bcIMC’s 3-year plan is responding to the challenges 14