Investment returns over the past five years have been very strong for Pension and Endowment as these portfolios have benefited from a favourable capital markets environment. However, we believe the market environment over the next five years will prove more challenging. Over this period, we expect returns to come down and volatility to increase. In this time of heightened global uncertainty, we will continue to manage the portfolios in a risk-controlled and prudent manner.

Much has been written about the apparent demise of active management (i.e. the inability of active managers to outperform a passive benchmark). UTAM is also skeptical about many aspects of the active management world. However, we do believe that with the right people, tools, and processes, it is possible to identify skilled active managers. Our default position is to always invest passively unless we can identify an active manager who we believe with a high level of conviction will outperform the relevant passive benchmark after all fees and expenses. This approach results in an investment portfolio for Pension and Endowment that contains a mix of passive and active mandates, with the majority at this time comprised of active mandates.

How has UTAM’s active management approach fared? As described in this year’s annual report, the results are very encouraging. Over the past four years the Pension has outperformed the Reference Portfolio by 2.5% per year and the Endowment has outperformed by 2.7% per year. This equates to over $550 million in additional assets in the Pension and Endowment combined. While we do not expect to replicate this level of outperformance over the next four years, we do believe that we have the people, processes, and governance in place to continue to outperform the Reference Portfolio.

2016 represented a watershed moment for UTAM in terms of embracing responsible investing. Although we made significant progress in 2016, there is still more work to be done. We believe this is a long-term journey, and we are committed to enhancing our processes as new information, metrics, data, and best practices emerge. We are excited to be releasing our first ever responsible investing report later in 2017, and we look forward to sharing our progress with you in the years ahead.

A top priority for UTAM in 2017 is to increase the level of transparency provided to the University community. To that end, we provided much more information in our 2016 annual report about Who We Are, What We Do, and How We Do It, than in previous annual reports. In addition, we have completely redesigned our website to make it more user-friendly, and included additional content that we hope you find useful.

We hope you like these changes, and we welcome your comments, so feel free to contact us with any feedback you have.

Daren M. Smith, CFA
President and Chief Investment Officer
May 2017