New Brunswick Investment Management Corporation Performance

April 27, 2015
Minister of Finance Plan Governor for Provincial Court Judges’ Pension Act
PSSRP Board of Trustees
NBTPP Board of Trustees
Governing Bodies of Other Public Sector Clients
Other NBIMC Stakeholders
RE: New Brunswick Investment Management Corporation Performance Objectives
The Board of Directors of the New Brunswick Investment Management Corporation (NBIMC),
in an effort to ensure the transparency and communication of our investment management
activities, is pleased to provide this letter outlining our goals and objectives for the 2015-2016
fiscal year.
NBIMC’s Responsibilities
Under the New Brunswick Investment Management Corporation Act, our objects and
purpose include:
•
•
•
•
To act as trustee for the funds referred to in subsection 14(1);
To provide investment counseling services and other services in respect of the funds
referred to in section 15;
To promote the development of the financial services industry and capital markets in the
Province, and
To carry out such other activities or duties as may be authorized or required by this Act
or the Lieutenant-Governor in Council may direct.
Currently, we serve as the Trustee for the Provincial Court Judges’ Pension Act (Judges’) and as
investment manager for the Public Service Shared Risk Plan (PSSRP), the New Brunswick
Teachers’ Pension Plan (NBTPP) and two other public sector funds.
Our corporate mission is to provide innovative, cost effective, and prudent investment
management services that address the investment challenges of New Brunswick based public
sector funds.
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Corporate Governance
The Board of Directors is responsible for the governance and stewardship of the Corporation and
its investments, trusteeship of the Judges’ pension funds and overseeing the management of the
Corporation’s business and affairs. The Board guides the Corporation’s strategic direction,
evaluates the performance of the Corporation’s Chief Executive Officer (“CEO”), approves and
monitors the Corporation’s business plan and financial results, and is ultimately accountable to
the Minister.
The Board ensures that all of NBIMC’s transactions are conducted on a purely commercial basis,
and that decisions and actions are based on sound business practices.
The President is, subject to the direction of the Board, charged with the general direction,
supervision and control of the business of NBIMC, and may exercise such other powers as may
be conferred on the President by the by-laws of the Corporation.
Operating Principles
NBIMC operates under a few basic investment beliefs, upon which we continually reflect when
recommending or setting pension investment strategy. These beliefs are:
1. NBIMC is a relatively low risk asset manager when compared to its peers.
2. Real Return Bonds, because of their long-term inflation-linked characteristics, are
considered to be an excellent match for pension and other long-term liabilities.
3. New asset classes and strategies are introduced incrementally in order to progressively
gain experience and to minimize transition costs.
4. The recommendations and/ or establishment of the appropriate asset mix for each of our
clients’ investment funds under our management is heavily influenced by both their longterm return and risk objectives and their funding status.
5. NBIMC believes that market inefficiencies present opportunities to add value through
active management.
Specific Corporation Responsibilities
Our overall investment objective in acting as the Trustee and/or investment manager for the
funds under our management is to maximize their investment returns while at the same time
protecting the value of the accumulated assets. This overarching objective is specified in each
investment management agreement to which we are a party.
The Province’s independent actuary calculates the funding status of the Judges’ pension plan on
a periodic basis. One of the main actuarial assumptions employed for the going concern
actuarial valuation is the expected real (after inflation) return on the portfolios. As at April 1,
2013, the expected real return for the Judges’ plan is 4.25% (net of fees). While these return
expectations are the primary economic objective of the investment policy design, NBIMC also
gives due consideration to the potential impacts of market volatility on the stability of employer
contributions, and to potential financial reporting unpredictability.
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NBIMC will continue to work closely with actuarial cash flow projections and funding estimates
when received from the independent Actuary, to continue to develop and implement investment
policies that are targeted to achieve the desired long-term rates of return necessary to fund each
pension plan under our management in a risk-controlled fashion.
The main investment performance objectives that NBIMC focuses on for its Pension Fund
clients can be summarized as follows:
(a)
Judges’ Pension Fund for which NBIMC serves as Trustee:
The primary investment performance objective, as outlined above by the plan actuary,
is to achieve a long-term real return of at least 4.25% per annum.
The secondary investment performance objective is to add value, above the various
asset class benchmarks in the fund’s investment policy, through active management
strategies. This added value is expected to first cover the fund’s investment management
costs, including NBIMC’s operating costs, and subsequently targets an additional 42
basis points (0.42%) per annum to the fund over the long term. It is important to note
that this target has been selected to represent a first quartile type achievement amongst
similar investment managers.
(b)
Other clients, such as the PSSRP and NBTPP, for which NBIMC serves as Investment
Manager:
The investment performance objectives are:
i) to achieve a long-term real return and risk performance that meet specific return and
risk targets for clients’ where we provide investment policy advice, and
ii) to exceed the investment performance benchmarks, over the long-term net of
investment management costs, by the value added target(s) published in each client’s
respective Investment Policy Statement or other such directives / guidelines.
Please note that the corporation has also developed a series of other key performance indicators
that correspond to our 2015-2020 Strategic Plan. These indicators have been developed based on
discussions and consultations with stakeholders such as the Plan Governor of the pension plan
trusteed by NBIMC, the PSSRP Board of Trustees, the NBTPP Board of Trustees, the governing
bodies of our non-pension plan clients, the Province’s Board of Management, staff of
Management Board and the Office of Human Resources, and direct plan member feedback.
We have outlined a number of these Key Performance Indicators as continuous performance
objectives along with the investment objectives noted above in Appendix I. These indicators are
being monitored on a quarterly basis by the NBIMC Board and will be publicly reported in our
F2014-15 Annual Report.
Finally, as part of our investment policy monitoring activity we will also continue to review the
long-term risk adjusted returns of our investment programs against other peer plans and
pooled fund databases.
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Government’s Responsibilities
Government is responsible for the legislative, regulatory, and public policy frameworks in which
NBIMC operates. In that regard, we look forward to collaborating with Government on matters
related to the overall regulatory environment for the investment industry and to its pension
reform activities.
Reporting
As a Crown Corporation, NBIMC is accountable to the Legislature of the Province of New
Brunswick through the Crown Corporations Committee of the Legislature.
As the investment manager and trustee of the Judges’ pension fund, NBIMC reports to the Plan
Governor, the Minister of Finance as the Chair of the Board of Management, via its Annual
Report, as well as an annual budget presentation and quarterly performance reports.
As the investment manager for certain other public sector funds, NBIMC reports those funds’
investment performance regularly to their governing bodies.
NBIMC also reports to a number of stakeholder groups at least annually through the following
means:
•
PSSRP and NBTPP Newsletters (jointly with the Office of Human Resources)
•
Annual and semi-annual press releases on financial results
•
www.nbimc.com
In conclusion, we look forward to reporting our results against these noted objectives, and
welcome any questions or comments at your convenience.
Sincerely,
Michael W. Walton
Chairperson
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Appendix I - NBIMC Performance Objectives
Primary Investment Performance Objectives for Judges’ Pension Fund where NBIMC
serves as Trustee
Objective
1.
2.
Actual
F2015-2016
Achieved
Target
Real Return –
Trustee Pension Fund
>= 4.25%
Nominal Return Trustee Pension Fund
>= 6.50%
Longer Term
4 Yr Average Since Inception
Secondary Investment Performance Objective for Judges’ Pension Fund where NBIMC
serves as Trustee
Objective
3.
Relative Return, net of costs
Trusteed Pension Fund
Actual
F2015-2016
Achieved
Target
Longer Term
4 Yr Average
42 bps/yr
Investment Performance Objectives for Funds where NBIMC serves as Investment
Manager
4(a).
4(b).
Objective
Target
Returns and risk performance
meet ALM targets
Specific for
each Client
Objective
Target
Relative Return, net of costs
As directed by
each Client
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Actual
F2015-2016
Achieved
Longer Term
4 Yr Average
Actual
F2015-2016
Achieved
Longer Term
4 Yr Average
Continuous Performance Efficiency Objectives
Objective
5.
Trade Matching Efficiency
6.
Budget Efficiency:
(i) Internal (ex. incentives)
(ii) Total Costs
Actual
F2015-2016
Achieved
Target
Regulatory +
2.5%
< 100%
< 100%
7.
Absenteeism
<= 2%/yr
8.
Employee Turnover
<= 3/yr
9.
IT system Availability
>= 99%
10.
Timely Client Reporting
< 45 days
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Longer Term
4 Yr Average