There’s little room for luxury in higher education, and even less room for the luxury of major risk in the Queen’s University Pension Plan, where caution is the watchword of the day.

“Good returns are worth getting, but we’re conscious of the fact that we don’t want to take big risks and get hurt as badly as we did in 2008,” says Bill Forbes, special advisor, investments, at Queen’s and the university’s former director of investment services. “We certainly took our hits [then], like a lot of funds. One of our global equity managers was down over 40%.”

Since then, the fund has solidified its conservative strategy, focusing its asset mix on bonds and fixed income. The outcome? Modest growth in 2010, the result of strong equity returns and income managers besting their benchmarks, says Forbes.

That common investing approach works for the unique hybrid plan: member contributions go into their own money purchase accounts, which are credited an annual rate of return. At retirement members can convert their accounts into a pension. “It’s fairly uncommon,” notes Forbes about the plan design. “There are probably six or eight plans—including York University and Carleton—that are similar to ours. It’s more developed in the university sector.”

The fund currently seeks strategies that offer downside protection. “In exchange for that, we’re prepared to give up a little bit of returns in a good market,” he says. “We care about bear market capture [more] than we probably do about bull market capture.”

Opting out of alternatives
Although the fund briefly examined alternative choices, it has opted against hedge funds, real estate and infrastructure investments. “We’ve looked at some of those asset classes, but have not been convinced that any of those will do better for us that what we can do in the public markets,” Forbes says.

Still, he’s aiming for a higher-than-average performance in the future. “We’re certainly trying to get above the actuarial assumptions, which are roughly 6% a year,” Forbes says.

One thing that may help: a recent move into currency hedging. After hedging the U.S. dollar, the fund has recently started to hedge its Euro exposure, with positive results.

Overall, “we hope to be in the 7% to 8% annualized return range and are trying to find an asset mix that will deliver those sorts of returns with good risk attributes.”

Forbes is also eyeing the biggest risk factor: the global economy. “Everyone worries,” he says. “You have the Greek situation and Japan, and there’s a lot of political risk. I do worry about the Middle East and how it’s all going to play out.”

For 2011, the plan will stay the course. “We’re not expecting to see another 20% gain in Canadian equity returns [and] we’re thinking cautiously about where future gains are going to be,” he says.

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