1818 Society Annual Meeting Management Statement on Pension Finance Matters. October 24, 2013

Transcription

1 1818 Society Annual Meeting Management Statement on Pension Finance Matters October 24, 2013

2 Highlights Governance Assets held in legal trust, contributions irrevocable Accrued entitlements protected by Plan Document PFC members drawn internally and externally from stakeholder groups Regular communication with stakeholders Financial Management Aims to strike balance between contributions and investment income in funding benefits This balance is reflected in funding and investment policies Investment Strategy Informed by Plan Liabilities and driven by Investment Beliefs Diversified across asset classes and risk factors Responsive to changes in markets Performance Long-term performance in excess of LT Real Return Objective (now 3.5%) PBO Funded Status 88% (as of Dec 31, 2012) SRP Annual Returns (Net) Rolling as of Dec 31, 2012 Years Nominal 11.7% 3.4% 7.9% 8.0% Real 9.7% 1.6% 5.3% 5.4% 2

3 CY12 Results Calendar Year Annual Performance (%) Gross nominal return (21.0) Net nominal return (21.5) Net real return (21.6) Funded Ratio Measures (PBO-based) discounted using High quality real corporate rates* Risk-free real rates percent real interest rate * This PBO measure, required by U.S. accounting standards for plan sponsors, is the most commonly used and reported measure within the pension industry. 3

4 Plan Performance 4

5 Contribution History and Outlook The PFC approved a pension contribution rate of 20.88% of net salaries for FY2014. Outlook is for the contribution rate to level off at about 19% of net salaries assuming actuarial assumptions are realized. 5

6 Financial Management Objective Fund benefits through a combination of current assets, investment returns and contributions Investment Policy Risk Tolerance Tradeoff between risk, expected investment returns and contributions Funding Policy Investment Beliefs Liabilities explicitly considered when defining investment policy Diversification improves risk/return profile Illiquidity risk is rewarded Strategy based on forwardlooking assumptions SAA is a very important decision affecting long-term performance Asset Allocation Implementation 6

7 Investment Objective Current Plan Assets Investment Returns Contributions Benefit Liabilities The objective of the financial management of the Plan is to meet the liabilities in a timely manner through a combination of current assets, contributions and investment returns Consequently, the objective of the investment strategy is to achieve investment returns over time consistent in real terms with the assumptions made in the funding policy without taking undue risks 7

8 Asset Allocation Current Strategic Asset Allocation (SAA) Fixed Income, 26% Opportunistic Strategies, 5% Absolute Return Strategies, 10% Real Assets, 12% Private Equity, 20% Developed Market Equities, 16% Emerging Market Equities, 11% The asset allocation is reviewed periodically to reflect changes in the macroeconomic environment and to preserve the ability of the portfolio to achieve the desired expected return over the medium term. 8

9 CY13 Market Environment Market Performance in CY 13 (Sep 30 YTD, USD) Gold -21% US Inflation-Link 10Y+ Bonds India Equities ($) Brazil Equities ($) -13% -13% -11% Emerging Market Debt ($) Emerging Market Equities ($) US Corporate Bonds US Treasury Bonds US Mortgage-Backed Sec-s China Equities ($) -7% -4% -2% -2% -1% 0% US High Yield Bonds REITs 4% 5% Europe Equities ($) US Equities 16% 20% Japan Equities ($) 24% -30% -20% -10% 0% 10% 20% 30% Source: Bloomberg, WB Treasury 9

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