Government Operations Committee on June 7th, 2016

[André Bourbonnais]

Yes.

[Erin Weir, NDP, Regina—Lewvan, SK]

Excellent.

[The Chair, Conservative, Tom Lukiwski]

You have 30 seconds.

[Erin Weir, NDP, Regina—Lewvan, SK]

I won't worry about it then.

[The Chair, Conservative, Tom Lukiwski]

Thank you.

Our final intervenor is Mr. Whalen.

[Nick Whalen, Liberal, St. John's East, NL]

May I have your 30 seconds?

Thank you very much, Mr. Chair. I'm going to share my time with Mr. Grewal.

Following up on Ms. Ratansi's question earlier regarding board appointments, we read a lot in the papers about the performance of boards that are both gender and ethnically diverse and how they perform better than other companies. Are there any stated requirements within your organization to ensure either that the boards of the companies you invest in are diverse or when you have the opportunities to appoint, are you trying to fill any quotas, or do you have any mandate to ensure gender diversity on the boards of our investments?

[André Bourbonnais]

I will answer the question first internally. Our view is that we have a meritocracy but we do take very seriously diversity because we do think that it leads to better decisions, better operating decisions, better investment decisions, and we've made significant progress. We had no women on our senior management team. We appointed two women. We have increased the number of women in leadership positions at PSP, and we're really proud of our accomplishment.

Now, we're not going to stop there. We're going to continue to aim...without having quotas. I'm not sure quotas help organizations or women, quite frankly. You always want to make sure that you have the best candidates and you want to ensure that you give them the opportunity to access those positions, and you develop them.

With respect to our investment policies, we don't have any specific policy in our ESG, but we do try to influence the board to have diversity, and we do take that into account when we invest in a company, public or private.

[Nick Whalen, Liberal, St. John's East, NL]

With respect to performance, people need to be happy. The after-inflation rate of return at the end of last year was 5.8% over the last 10 years. It looks good. The target is 4.1% so we're ahead of target, but as baby boomers retire and they're going to have this need for cash, the thought is there's going to be a lot of supply of equities onto the market.

What's the forward outlook on sustainability of these returns, and how are you going to be managing the cash requirements to pay off pensioners, amounts that are going to greatly accelerate over the next 10 years?

[André Bourbonnais]

I'll let Daniel jump in because that's his area of expertise, but I will tell you that we do expect for the next few years that it's going to be a very low growth, low return environment, and the way to address that is to have diversification. We have the benefit of being able to invest in asset classes that for the time being give us better returns, whether it's infrastructure or real estate, and we need to make sure that we have the proper diversification. Where we're going to be able to generate return is in asset allocation, and we will determine what percentage of our assets in which asset classes.

[Nick Whalen, Liberal, St. John's East, NL]

In terms of liquidity on those investments, I'd love to hear from Mr. Garant on the liquidity part.

[Daniel Garant]

The good thing for us is, as my colleague was pointing out, we are receiving net inflows, net contributions, so liquidity for us is of course something we manage. We make sure we have enough liquidity to face ongoing obligations, but with positive inflows, positive contributions, coming our way for the next 10 years plus, it's something that helps, definitely, managing liquidity.

What we do is we look for assets that are going to give us a good combination of growth, capital gain, and revenue income. That would be, for example, infrastructure and real estate. They provide both characteristics, and with these asset classes and the diversification that André was alluding to, we hope to generate good returns, specifically risk-adjusted returns.

[Nick Whalen, Liberal, St. John's East, NL]

You don't expect there would be a problem with liquidity over the next 10 years.

[Daniel Garant]

No.

[Nick Whalen, Liberal, St. John's East, NL]

Okay.

Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you.

In terms of the investment strategy, what percentage of your holdings are in real estate or real estate tied assets?

[André Bourbonnais]

We have about 17% in real estate. Overall, we have about 32% in liquid assets.

[Raj Grewal, Liberal, Brampton East, ON]

Are those tied to real property or equities that have a mortgage-backed security?

[André Bourbonnais]

Some of them are: infrastructure and, to some extent, timberland and agri land. Other liquids are less tied to inflation, like private equity, which is more a function of the market.

[Raj Grewal, Liberal, Brampton East, ON]

Is that including financial companies that may have a large exposure to the housing market?

[André Bourbonnais]

I would have to come back to you on that. I don't have that here.

[Raj Grewal, Liberal, Brampton East, ON]

The leading question is that there's a concern in Toronto and Vancouver about the housing market. Is there anything the pension board is doing to curtail that strategy or hedge against that strategy?

[André Bourbonnais]

No. We are essentially in commercial real estate, with some residential, but mostly development, and we're also in shopping malls, so there's very little exposure to that kind of market.

[Raj Grewal, Liberal, Brampton East, ON]

Including lending companies that would be involved in....

[André Bourbonnais]

Yes, I—

[Raj Grewal, Liberal, Brampton East, ON]

There would be a trickle-down effect. If you unwrap some of the complicated financial assets or products out there, a lot of them.... If something happens like what happened in 2008—we're all hoping not—we want to make sure that our public sector pension plan is well aware of it and, more important, that they have a strategy in place to ensure we can respond to it adequately.

If you have more information on that and can get it back to the committee, that would be great.