The Colleges of Applied Arts and Technology pension plan saw a strong 2019, delivering a 16 per cent return, net of investment management fees, while growing its assets under management to $13.5 billion.
“On an absolute basis, all asset classes contributed positively to returns in 2019, with global developed equity, long bonds and real assets being the largest contributors,” said the annual report. “Interest rate and inflation hedging asset classes returned 11 per cent in aggregate, while return-enhancing asset classes returned 20.5 per cent. The plan’s currency hedging policy added 1.8 per cent to returns.”
For 2019, the CAAT plan is 118 per cent funded on a going-concern basis.
While 2020 markets have gotten off to a bumpy start, the CAAT plan has a long-term perspective. “Even though we are monitoring what’s going on in the marketplace, I don’t have any real concerns from an investment perspective at this time,” says Derek Dobson, chief executive officer of the CAAT plan.
He highlights the plan’s fairly large funding reserve and asset smoothing reserve, at $2.9 billion and $0.8 billion, respectively. “And the volatility in the marketplace hasn’t even used up our asset smoothing reserve yet. So we’re still very much [in] a strong, well-funded position.”
Further, the plan has a globally well-diversified portfolio, adds Dobson, noting the portfolio is performing as expected. “Clearly, with a 16 per cent net rate of return in 2019, I’m super pleased and proud that our asset mix and our team’s performance is exceeding my expectations.”
The CAAT also regularly conducts asset-liability modelling studies to measure its health against different scenarios. These studies have confirmed the plan can weather severe downside situations.
For its Jan. 1, 2020 valuation, the plan’s discount rate was lowered from 5.5 per cent to 5.15 per cent to reflect expected lower returns in the future.
“The lower discount rate marginally lowers the plan’s 2020 funded status, but increases the likelihood that its funded status will improve in the future because it is more likely that future investment returns will exceed the lower discount rate,” the annual report said.
Overall for 2019, Dobson says he’s most proud of the work the CAAT plan has done to expand defined benefit coverage in Canada, noting in 2019, it added more than 10,000 members by welcoming single-employer plans into its DBplus plan. “If we were to look at our purpose, which is to make simple, secure, valuable workplace pensions accessible to all Canadian workplaces, I think we made a major step — or even two or three major steps in 2019 — to contribute to the retirement income security industry.”