Calendar Year 2016 Performance and Commentary

Calendar Year 2016 Results

The Pension and Endowment both generated a return of 7.1% net of all fees and expenses in 2016. This was above the University’s target return of 5.5% but in-line with the Reference Portfolio return of 7.2%. For the 4 year period covering calendar years 2013 to 2016, Pension returned 10.5% annualized and Endowment returned 10.7% annualized. Both results are well above the University’s target return of 5.5%. Over this 4 year period, UTAM outperformed the Reference Portfolio return by 2.5% annualized in Pension and 2.7% annualized in Endowment, which equates to over $550 million in value added for Pension and Endowment combined. Over the 10 year period ending in 2016, Pension and Endowment underperformed the University’s target return, but UTAM outperformed the Reference Portfolio by 0.3% annualized in Pension and 0.4% annualized in Endowment.

Results20164 - Year
Annualized
(2013-2016)
10 - Year
Annualized
(2007-2016)
PENSIONENDOWMENTPENSIONENDOWMENTPENSIONENDOWMENT
University Target Return5.50%5.50%
5.50%5.50%5.60%5.60%
Reference Portfolio Return*7.20%7.20%8.10%8.10%3.30%3.30%
Actual Net Return7.10%7.10%10.50%10.70%3.60%3.70%
UTAM Value Added (%)-0.10%-0.10%2.50%2.70%0.30%0.40%
UTAM Value Added (Millions)**$-2$-1$332$225$211$140
*   The Reference Portfolio was adopted by Endowment in March 2012 and by Pension in May 2012. Benchmark/Policy Portfolio used for prior periods.
** All dollar value added calculations in this table and throughout the website are based on the percentage value added in each year multiplied by the beginning of year asset level. Multi-year values are the simple sum of single year values.

2016 return for pension and endowment of

2016 target return for pension and endowment exceeded by

4 year annualized return of

In pension exceeding THE target return by
5.1% per annum

in Endowment exceeding THE target return by
5.3% per annum

4 year annualized UTAM value added of 2.5% in Pension and 2.7% in Endowment equating to an additional

$0Million

$0Million

UTAM VALUE ADDED OVER THE LAST 4 YEARS FOR PENSION AND ENDOWMENT COMBINED

As shown in the Pension and Endowment Tables below, 2016 was a strong year for equity returns within the Reference Portfolio, with Canadian equity posting the highest return at 21.1%. Fixed Income returns in the Reference Portfolio were positive but less than equities with Canadian Government Bonds returning 0.9% and Canadian Corporate Bonds returning 3.7%. The combination of equity and fixed income returns in the Reference Portfolio produced a return of 7.2%.

2016 was a disappointing year for UTAM active management. After five successive years of strong outperformance versus the Reference Portfolio, we slightly underperformed in 2016. Despite the short term underperformance, we remain confident that the portfolios will continue to outperform over the longer term.

The biggest detractors to value added in 2016 were Canadian and US equity where our private equity managers were unable to keep up with the strong returns in the public markets. Our credit portfolio, which maps into the Reference Portfolio’s Canadian Corporate Bonds asset class, had a very strong year and outperformed by 3.9% in Pension and 4.2% in Endowment. This portfolio consists of managers investing in Canadian corporate bonds but also managers pursuing “alternative credit” strategies such as lending directly to corporations, taking long and short positions in credit instruments, and investing in non-performing loans.

PENSION*
Reference Portfolio Asset Class
Assets
($Millions)
Dec. 31, 2016
Pension
Return
Benchmark
Return
Value
Added
Equity
Canadian Equity44418.7%21.1%-2.4%
US Equity879 10.2%12.0%-1.7%
International Developed Markets Equity6646.2%5.3%0.9%
Emerging Markets Equity 44210.5%11.2%-0.7%
Global Equity2217.0%6.6%0.5%
Fixed Income
Canadian Corporate Bonds9057.6%3.7%3.9%
Canadian Government Bonds8610.4%0.9%-0.4%
Total Portfolio4,4147.1%7.2%-0.1%

ENDOWMENT*
Reference Portfolio Asset Class
Assets
($Millions)
Dec. 31, 2016
Endowment
Return
Benchmark
Return
Value
Added
Equity
Canadian Equity26119.0%21.1%-2.1%
US Equity517 10.1%12.0%-1.8%
International Developed Markets Equity3906.2%5.3%0.9%
Emerging Markets Equity 26010.2%11.2%-1.0%
Global Equity1297.2%6.6%0.6%
Fixed Income
Canadian Corporate Bonds5217.9%3.7%4.2%
Canadian Government Bonds5170.6%0.9%-0.3%
Total Portfolio2,5947.1%7.2%-0.1%
* All returns are in local currency terms except for Emerging Markets and Global Equities which are in US dollars. The Global Equity asset class was added to the Reference Portfolio on June 30, 2016 and the returns in this table for Global Equity cover the period from June 30 to December 31, 2016. Asset values and returns by Reference Portfolio asset class incorporate the impact of mapping asset classes and strategies not in the Reference Portfolio to the most appropriate asset class within the Reference Portfolio. For example, Canadian Government bonds includes $396 million of Absolute Return hedge fund strategies in Pension and $244 million in Endowment, and the reported returns for this asset class include the impact from Absolute Return hedge fund strategies. Totals may not add due to rounding.