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Pension plan investment structure
By Glenda
Willis
Manager, Benefits and Pensions
For many years the Memorial
University pension fund has been externally managed by three
investment management firms under a "balanced fund"
mandate, under which an investment manager invests in stocks
(Canadian and foreign), bonds, and short-term securities. The
Investment Policy for the Memorial University Pension Fund provides
a broad framework for investing and contains guidelines on the
allowable percentage allocations to each asset category.
Measurement of investment performance – of the total fund
and by investment manager – is performed quarterly by Royal
Trust Funds Evaluation Services in terms of the absolute rate
of return on invested assets and the relative performance compared
to a sample of other Canadian pension funds. Investment performance
is monitored by the university pensions committee, which represents
the entire university community, in concert with pensions staff
at Human Resources. While investment results are examined on
a quarterly basis, it is generally accepted that a market cycle,
for comparative evaluation of investment performance, occurs
over a four-year period. The investment managers are evaluated
on an ongoing basis within this time frame.
In May the Board of Regents approved a recommendation of the
pensions committee that the services of one of the investment
management firms, Lincluden Management Limited (with 25 per cent
of the fund under investment), be terminated because of inferior
investment performance over a four-year period ending March 31,
2000. Lincluden's services were terminated effective May 4 and,
as an interim measure, their portion of the fund was transferred
to one of the other two fund managers – TAL Institutional
Management, which already invests 25 per cent of the pension
fund. Sceptre Investment Counsel invests the remaining 50 per
cent.
Investment
Strategy Review Underway
A review of the overall investment strategy is being conducted
by a subcommittee of the University Pensions Committee. This
review is being conducted in two phases.
Phase 1
Phase 1, supported by the services of S.E.I. Investments (the
firm that previously provided performance measurement services),
consists of a review of the overall investment structure of the
plan in relation to its liabilities – an asset-liability
planning study. Prudent pension plan management is undertaken
to ensure that there are sufficient funds available to meet the
plan's obligations to its members; therefore it is reasonable
to expect that assets be managed in terms of their ability to
meet liability requirements.
This study will identify the optimal mix of assets (stocks, bonds,
short-term investments) for the university pension fund given
the risk tolerance of the plan, the liability structure (benefit
entitlement, ratio of retirees to active members, expected future
growth/decline in plan membership, and projected liabilities
in future years) and the financial market conditions. The findings
of this study will be used to develop a statement of investment
policies and goals.
Phase 2
This phase, to be assisted by Eckler Partners Ltd., actuary for
the pension plan, will focus on implementation actions relative
to investment management structure. Key items to be addressed
include:
Balanced vs. Specialist Management: whether investment
managers continue to be given a "balanced fund" mandate
or whether some "specialist" mandates – separate
managers for each asset class – be introduced (e.g., an
investment manager engaged to invest in Canadian equities only).
Active vs. Passive Management: whereas the pension fund
is now actively managed, whether a portion should be passively
managed through investing only in those securities that comprise
a specific securities index (e.g., Toronto Stock Exchange 300
Composite Index for Canadian equities).
An analysis of these and other implementation issues may lead
to a search for additional and/or replacement investment managers.
The selection process would seek to identify investment management
firms likely to provide the highest possible returns given the
level of risk to be assumed.
The work of the investment strategy review subcommittee will
lead to a series of recommendations to the pensions committee
and, in turn, to the Board of Regents. The target completion
date for this comprehensive review is March 2001. Until then
– barring extenuating circumstances – TAL Institutional
Management and Sceptre Investment Counsel will each continue
to manage 50 per cent of the fund.
If you have any questions about your pension plan, please contact
us at 737-7406 or by e-mail at pensions@mun.ca. Stay tuned for more
pension information in future issues of The Communicator.
Investment
Strategy Review Subcommittee:
Fred Durant, Board of Regents
Wayne Thistle, vice-president (administration and finance) &
legal counsel
Glenda Willis, manager, benefits and pensions, Human Resources
George Hickman, director, Human Resources
Dr. John Bear, MUNFA
Jane Ryan, CUPE, Local 1615
Ed Brown (representing combined NAPE Locals 7405, 7801, 7803,
7804, 7850)
Ray Smallwood, external representative
Dr. John K.C. Lewis, Pensioners' Association