Download CADC2005

Teck Cominco Limited
Canadian – Head Office in Vancouver
and globally focused on:
• Exploration
• Mining
• Refining
Gerry Wahl, Assistant Treasurer Teck Cominco Limited
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Teck Cominco Pension Environment
• 9 DB plans
• 12 DC plans
• 12
Group RRSP’s
• 20 Supplemental plans (some funded)
• Joint Ventures and partnerships
• Canada & the US
• C$1.6 billion in assets
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Subject of my presentation today
Why small plans don’t invest in
“alternate assets”
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“Understand the Problem” …
Kepner-Tregoe
First step in solving a problem:
identify it as completely as possible
Break a situation down into its smallest and
simplest pieces
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A key underlying concept
“ The essence of investment management is
the management of risk, not the management
of returns” Benjamin Graham
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The underlying “problem” …
Administrators and committees of smaller plans are
not familiar or comfortable with the concept of risk:
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It’s not a simple concept – takes time & effort to understand
Definition(s) of risk - focus is usually on “loss” vs. “volatility”
Statistical nature of the risk measures is intimidating
Linkage between returns and volatility is not clear
Linkage between risk and plan objective is not clear
Jargon is confusing
Committees and administrators are more comfortable with the
concept of annual returns
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As a result …
• The “primary objective” of a plan may be
overlooked
• Dependence on style “boxes” and asset
liability studies
• Input to asset liability studies is minimal
• Asset liability studies are expected to address
all situations
• Asset Liability studies are a source of
frustration
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A critical problem …..
from both a governance and financial service
providers perspective a critical problem is
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Overcoming the resistance or lack of
comfort in dealing with risk.
An approach? ..keep it simple…make it
comfortable …at least initially
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Key issue for a corporate plan
Solvency deficits must be eliminated within 5
years of filing a valuation
This is a critical requirement …….from a financial
perspective
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How about simple model - focused on
Short term (5 year) funding and volatility
Underlying Objective
increase the awareness and comfort level with “RISK”
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Reasonable objective for smaller plans
Mitigate fluctuations in:
A. cash contributions
B. funded ratios
Which however are the result of :
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Asset liability mismatches
Short term volatility of certain asset classes
Correlations
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Focus on Basics – On understanding
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the nature/duration of the pension liability
the financial risk related to contributions
the role and implications of asset mix
the limitations of asset liability studies
the importance of benchmarks
the major source of “contribution” risk
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Marketing approaches
•Assess client “readiness” levels and focus efforts accordingly
• Sponsor or provide risk conferences, seminars or training sessions
• Understand each client plan’s primary objective and benchmark(s)
• Understand the client’s current portfolio asset mix
• Deal in “knowns” such as annualized 4-5 year returns which reflect
volatility
• Frame the product in terms of a risk management approach rather
than as a source of alpha
• Demonstrate how the product would (have) impact on the current
portfolio’s longer term i.e. 4-5 year return performance
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What’s a good result ?
Once comfortable with the concepts and
problems relating to risk, there will likely be
more willingness to entertain “alternate”
solutions
A small plan doesn’t have to target the optimal
level of active risk to gain benefits from a
better awareness and management of risk
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