Net Investment Return - 2021
In the second year of living with COVID-19, we again witnessed a unique environment from a macroeconomic and capital markets perspective. There was much anticipation of transition from "pandemic to endemic" that were dashed several times as coronavirus variants continued to cause disruptions. Monetary policy in developed markets remained stimulative for most of the year and looked through a higher inflationary environment that had not been witnessed in developed markets in decades. Fiscal policy began tightening relative to a banner year for government spending in 2020, and economic growth improved year over year in most jurisdictions. Riskier assets such as equities and credit had strong performance throughout 2021.
Our portfolio also had a strong performance generating a net return of 12.0% for the year and outperforming the Plan’s benchmark by 5.1%. This positive performance came across our asset class spectrum and was largely attributable to strong returns from our public equity and private investment portfolios.
Long-Term Performance
Since pension plans invest for the long-term, it is important to consider our asset performance over an extended period of time. Over the last 23 years, our Plan’s assets have generated a since inception net rate of return of over 7%, outpacing our benchmark’s over that same period by just over 1.6% per annum. This represents the value-add from our bias towards active investment.
Breaking our returns down into the various sub-portfolios allows us to determine which asset classes are performing well relative to our expectations. Although it may seem appealing to invest a large portion of a portfolio in a single asset class based on historical performance, it is important to note that doing so can add undue risk and compromise long-term sustainability.
Going Concern Funded Ratio
The Plan is currently estimated to be 99% funded. The Plan's funded ratio is a measure of its financial health and is a key driver of the level of contributions that are required to go into the Plan. It is determined by dividing the Plan's assets by its liabilities. Special contributions, over and above the cost of annual benefit accruals, are being made to bring the Plan to a fully funded position.
