Report: Pension Committee - March 25, 2020

Via Virtual Meeting Room

March 25, 2020 

To the Governing Council,
University of Toronto. 

Your Committee reports that it held a virtual meeting on Wednesday, March 25, 2020 at 4:00 p.m. with the following members present: 

Janet L. Ecker (Chair), Alex D. McKinnon (Vice-Chair), David Bowden, Colleen Burke, Louis Florence, Joan Johnston, Brian D. Lawson, Leanne MacMillan, Kim McLean, Joanne McNamara, Cynthia Messenger, John Paul Morgan, Arthur G. Rubinoff, Maureen Stapleton, Andrew Szende, Bruce Winter

Anna Kennedy, Kenneth MacDonald 

Non-Voting Assessors:
Sheila Brown (Chief Financial Officer), Scott Mabury (Vice-President, Operations and Real Estate Partnerships (VOOREP)), Kelly Hannah-Moffat (Vice-President, Human Resources and Equity (VPHRE))

Patrick McNeill (Committee Secretary)

In Attendance: 
Rosalyn Figov (Chief Operations Officer, Office of the VPHRE), Geoff Matus (Member, Investment Committee), Steve Moate (Senior Legal Counsel, Office of the President), Pierre Piché (Controller and Director of Financial Services), Allan Shapira (Plan Actuary, Aon), Daren Smith (President and Chief Investment Officer, University of Toronto Asset Management Corporation (UTAM)), Paul Whittam (Observer, CUPE)

The Committee met in closed session 

1. Chair’s Remarks 

The Chair welcomed members and guests to the virtual meeting. She expressed thanks to Ms Leanne MacMillan, CUPE representative of the administrative staff, for her service and contibutions as a member of the Committee. 

2. Review of Investment Performance as of December 31, 2019

Sheila Brown reminded members that the investment performance report had reflected a partial year return for the period July 1, 2019 to December 31, 2020. The full year results for the Pension Master Trust (PMT) would be reported at the September meeting and cover the period from July 1, 2019 to June 30, 2020. 

Daren Smith presented a report on the Review of Investment Performance to December 31, 2019.  Mr. Smith stated that the University evaluated investment performance for the PMT against the investment return targets, the risk limits, and the Reference Portfolio returns, as specified in the Statement of Investment Policies and Procedures (SIPP). 

Highlights of Mr. Smith’s report regarding the above-noted 6-month reporting period for the PMT included the following:

  • the target investment return for the PMT was 3.0%; 

  • the actual return for the PMT was 4.8%; and 

  • the return for the Reference Portfolio was 5.1%. 

Mr. Smith stated that capital markets performed well over the 6-month period (June 30 to December 31) and this was reflected in the portfolio return – figures were net of investment fees and expenses, including UTAM costs. He noted that over 5 and 10 year periods, actual returns had exceeded target returns.   

Mr. Smith reported that the Reference Portfolio returned 5.1% in the first half of fiscal year 2020, outperforming the target return by 2.1%; it had outperformed the target return over the last 1, 5 and 10 year periods.  Mr. Smith stated that over the 6-month period ending December 31, 2019, manager selection was the main contributor to UTAM’s underperformance relative to the Reference Portfolio. He noted, however, that over the last 10 years, UTAM has added over $300 million in value to the Pension portfolio. 

Mr. Smith reported that as part of the Active Risk Budget, active risk remained well within the target zone. He also confirmed that as of December 2019, the Pension assets had been managed in compliance with the SIPP during the 6-month reporting period. 

With respect to a member’s question regarding the implications of any continued negative market activity and the pending transfer of assets to the new University Pension Plan (UPP) and the University’s special payments under the current plan, Mr. Shapira responded that the next valuation required for filing purposes was July 1, 2020 and that any increase in special payments would not start until July 1, 2021, at which point the University would be entering the UPP. 

In response to a member’s question on the ability of the University to make special payments beyond 2021, Ms Brown stated that, although she could not forecast what would be the size of the deficit at the inception of the UPP at July 1, 2021 or the resulting level of need for special payments post 2021-22, the University’s current special payment budget included sufficient funding to support annual special payments of about $80 million per year, which would fund a deficit of about $800 million over 15 years. 

In response to a member’s question regarding the status of the UPP, Mr. Shapira stated there was continued commitment to proceed with the JSPP and there was no indication of wavering from any of the three institutions on the current agreed upon plan structure.  The Universities continued to be in contact with the Ministry of Finance in respect of the current investment market challenges. 

The Review of Investment Performance as of December 31, 2019, was received for information.

3. Pension Fund Master Trust Statement of Investment Policies and Procedures (SIPP), March 25, 2020 

The Chair reminded members that the usual approval practice for the SIPP was that proposed changes were discussed in one meeting and then approval was sought in the following meeting.  She noted, however, that the proposed changes contained in the update would permit UTAM to enter into trades that UTAM, the Investment Committee, and the University Administration strongly believed would be risk reducing and provided additional downside protection to the Pension investment portfolio. For this reason, and the fact that capital markets were currently exhibiting a much higher level of volatility than was typical, the Pension Committee was being asked to consider approving the proposed changes in one meeting rather than the usual two. 

Ms Brown explained that the change proposed this year was to permit the introduction of a portable alpha program in respect of government bonds, which in most environments would decrease risk in the actual pension portfolio, to be implemented using direct leverage of up to 15% of the actual portfolio.  She stated that the change had been under discussion for some time and that the Investment Committee had approved the requested investment program as had the University Administration, on the strong belief that it was in the best interests of the portfolio to move ahead with the recommendation. 

Mr. Smith commented that there was a strong investment case to add government bond exposure to the Pension portfolio and that it would provide more downside protection to the portfolio, especially in a crisis.   

In response to a member’s request for clarification, Mr. Smith indicated that the existing SIPP already permitted the use of derivatives for leverage, but the additional wording was being proposed for clarity. 

Mr. Geoff Matus agreed that the additional government bond exposure which had already been under discussion in prior months as an appropriate strategy was even more crucial at the current time – the strategy was fully endorsed by the Investment Committee. 

On motion duly moved, seconded and carried 


THAT the Pension Committee approve the Pension Fund Master Trust Statement of Investment Policies and Procedures dated March 25, 2020, attached as Appendix C, replacing the Statement of Investment Policies and Procedures, attached as Appendix A, which had been approved by the Pension Committee on September 18, 2019. 

4.UTAM Carbon Footprint Report (CFR), 2019 

Mr. Smith stated that the Carbon Footprint Report (CFR) was being presented for the second time to the Committee.  

Mr. Smith stated that he was pleased to release the UTAM Carbon Footprint Report, 2019, titled “Towards a Greener Future”.  He proceeded to highlight the 2 major announcements contained in the Report: 

  • UTAM had committed to an ambitious goal: reducing the carbon footprint of the Pension and Endowment investment portfolios by 40% or more compared to 2017 levels by the end of 2030; this aligned with U of T’s Low-Carbon Action Plan, which aimed to cut greenhouse gas emissions by 37% from 1990 levels by 2030 and put it on a path to becoming a “net-zero” institution: and 

  • UTAM was endorsing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The endorsement made U of T (through UTAM) the first Canadian university to endorse the TCFD recommendations on behalf of its Pension and Endowment funds, joining the ranks of over 930 public and private sector organizations in supporting the initiative.  

Mr. Smith stated that both of these announcements were consistent with the direction provided by the Pension Committee, as expressed in the Responsible Investment section of the SIPP; and that UTAM had developed a comprehensive approach to Responsible Investing – he was pleased to add the carbon reduction target and support of the TCFD recommendations to UTAM’s growing list of activities in this area.  

In response to a member’s question regarding progress achieved versus the carbon reduction target, Mr. Smith noted that more than half of the reduction was due to an absolute decrease in carbon emissions in the portfolio with the remainder due to an increase in the value of the portfolio.  He further responded that it was possible that should UTAM achieve portfolio growth similar to the past 10 years going forward to 2030, then UTAM could meet its emission reduction goal – the total carbon footprint of the UTAM portfolio would be unchanged from the present. 

Mr. Smith stated that there were several different carbon metrics that had been developed for the asset management industry against which investors could benchmark performance. These included carbon emissions per million dollars invested (the measure adopted by UTAM), carbon emissions per million dollars of revenue, and weighted average carbon emissions.  Mr. Smith highlighted the benefits of the measure adopted by UTAM and noted that other leading organisations had adopted the same metric for their reduction targets.   

Mr. Smith agreed with a member’s comment that it was important to get the communication right regarding meeting the reduction targets and reporting on this in the future, particularly in view of the variety of benchmarking measures. 

Ms Brown added that the pension committee approved the SIPP, which contained wording regarding ESG, with specific ESG initiatives the responsibility of the administration – future reporting would continue to evolve.  

The Chair stated that the administration was aware of the issues raised by members.  She thanked Mr. Smith for his report which was received for information. 

5. Report of the Previous Meeting 

On motion duly moved, seconded and carried 


THE Pension Committee Report Number 39, from the meeting of December 10, 2019, be approved.

6. Business Arising from the Report 

There was no business arising from the report of the previous meeting.

7. Date of Next Meeting 

The next meeting of the Pension Committee was scheduled for Wednesday, May 27, 2020. 

8. Reports of the Administrative Assessors 

There were no reports of the Assessors. 

9. Other Business 

There were no items of other Business. 

The meeting adjourned at 5:14 p.m. 

May 10, 2020