At ATRF we focus on finding the right balance of risk and returns, and ensuring our investments are aligned with our strategic goals.
ATRF’s investment portfolio is structured to deliver the returns necessary to fund pension benefits over the long term. It is diversified by asset type, geography, and risk profile in order to control the impact of short-term volatility in investment markets to the extent possible.
As of 2021, responsibility for the direct management of ATRF investments was transferred to AIMCo as required by law. Today, ATRF plays the vital role of providing investment strategy that sets the direction for investing overall, and guides all the investment decisions made by AIMCo. ATRF also carefully monitors investment performance, paying particular attention to ensuring adherence to the strategy.
Long-Term Investment Performance
As a true pension manager, ATRF focuses on the long-term investment results that are needed to fund our plans. We are very pleased to report that at the end of 2021-22 fiscal year, ATRF’s investment portfolio had earned annualized rates of return well above our benchmarks of 9.04% over the trailing 10-year period, and 6.59% over the trailing 6-year period.
|Asset Class||ATRF 10 Years (%)||10 Year Benchmark (%)||ATRF 4 Years (%)||4 Year Benchmark (%)||ATRF 1 Year (%)||1 Year Benchmark (%)|
|Fixed Income (FI)||1.7||1.7||-0.1||-0.3||-13.5||-13.7|
|FI - Universe Bonds||2.0||1.8||0.5||0.3||-11.1||-11.3|
|FI - Long-term Bonds||1.6||1.7||-1.3||-1.3||-19.1||-19.0|
|FI - Short-term Bonds||0.8||0.8||1.0||0.9||0.8||0.6|
|Return Enhancing (RI)||12.3||11.4||8.4||7.0||-4.3||-10.8|
|RI - Global Equity||9.9||10.6||4.4||6.0||-11.4||-10.7|
|RI - Private Equity||20.4||13.9||21.0||8.8||15.4||-9.1|
|Inflation Sensitive (IS)||11.2||7.3||10.8||8.9||13.5||18.6|
|IS - Real Estate||10.3||7.5||9.8||9.6||17.0||23.7|
|IS - Infrastructure||13.4||7.0||13.3||7.9||8.9||11.5|
Investment performance net of fees, as at August 31, 2022
Investment Performance Analysis
Last year was a challenging one for financial markets, to say the least. A number of factors combined to create unusual and unpredictable volatility, and the markets declined significantly overall. ATRF investments continued to perform well considering these conditions, outperforming the markets and surpassing our benchmarks.
Financial market performance was dismal over the fiscal year, and very unusual. Such poor returns from fixed income markets are exceedingly rare. It is even more rare to have such poor fixed income returns at a time when equity markets are also falling fast. Typically, fixed income markets provide a welcome offset to negative equity markets. Indeed, that is a key reason they are in the portfolio in the first place.
Yet, the year in question was anything but typical. Instead, the dramatic fiscal and monetary stimulus put in place to battle the economic impact of the pandemic, combined with persistent supply chain issues, caused inflation to accelerate. Initially, central banks believed that such elevated price pressures were transitory and were less concerning than a renewal of COVID-19 difficulties. Thus, they were initially slow to withdraw stimulative policies and then had to react forcefully, with rapid interest rate increases, when inflation pressures proved to be very persistent. Neither fixed income or equity markets react well to unanticipated interest rate increases.
ATRF’s portfolio includes significant exposures to private and absolute return assets that are not fully exposed to the forces described above. Indeed, ATRF’s holdings of Absolute Return, Private Equity, Real Estate, and Infrastructure assets all delivered positive returns for the year. To be sure, the overall portfolio return was negative for the year (-1.8%), but this is much better than the market.
And there is more encouraging news. The total portfolio’s relative performance was excellent over the year, with performance exceeding that of the benchmark by 2.25%. There was considerable variation across asset classes in relative performance, with Private Equity primarily responsible for the strong year on this score. While the old saying that one does not eat relative return is true, solid outperformance of the benchmark is welcome, especially in bad market years.
Finally, there is some genuinely excellent news to report. For a pension plan like this one, results over one year are interesting but not especially important, even in a difficult year. Even with this year’s challenges, the long-term performance of the plans has been excellent. Over a 10-year horizon, ATRF has delivered a total return of over 9% per annum and excess return over its benchmark of 1% per annum. Because of such solid long-term returns, despite the difficult year, the plans remain in robust health.