Thank you very much.
Good morning. I'm pleased to appear before the committee today to discuss the results of the special examination of PSP Investments that was tabled at the end of 2021.
I would like to start by acknowledging that, since I'm in Vancouver, I am on the traditional unceded territory of the Coast Salish peoples.
I am accompanied virtually on this call today by PSP's CEO, Neil Cunningham, and its chief financial and risk officer, Jean-François Bureau.
The special examination was performed by PSP's joint auditors, the Office of the Auditor General of Canada and Deloitte. It considered whether PSP's systems and practices provided reasonable assurance that its assets are safeguarded and controlled, its resources are managed economically and efficiently, and its operations are carried out effectively. I am happy to report that this is the case and that no material deficiencies were found as part of this detailed and extensive audit exercise.
PSP is a Crown corporation that operates at arm's length from the Government of Canada. It was established in 1999 to invest the amounts transferred by the Government of Canada for the funding of the post-2000 obligations of the pension plans of the public service of Canada, the Canadian Forces, the RCMP and, since March 1, 2007, the reserve force pension plan. As of March 31, 2021, PSP's net assets under management were $205 billion.
PSP Investments' statutory mandate is to manage the funds in the best interests of the contributors and beneficiaries and to maximize investment returns without undue risk of loss, having regard to the funding, policies and requirements of the plans and their ability to meet their financial obligations. PSP's investment approach is designed to achieve the best possible alignment with the obligations of the pension plans. The government communicates its risk tolerance for the pension plans to PSP annually. Our task is to design and implement the most suitable investment strategy, taking into consideration the level of risk tolerance of the government while also maximizing returns and fulfilling the other requirements of our mandate.
One way to evaluate the success of our investment approach is to compare PSP's return with the return of a reference portfolio. A reference portfolio is an example of the returns an investor could achieve with a passive investment approach that reflects the government's risk tolerance. PSP's investment strategy is focused on the long term, in line with the long-term nature of the pension obligations, so we believe that comparisons with the reference portfolio are most useful when considered over a long-term horizon, such as a 10-year horizon.
Over the last 10 years, I'm proud to report PSP has achieved a return of 8.9%, which compares favourably with the 8.2% return of the reference portfolio. This additional 0.7%, representing close to $11.3 billion, represents the value added by PSP Investments' strategic decision to build a more diversified portfolio—called the policy portfolio, it includes less liquid assets—and to engage selectively in active management activities.
Let me now turn to the main focus of our appearance today, which is the result of the special examination. We were pleased that the auditors concluded that there were no significant or material deficiencies in the corporate management practices or management of the investment operations of PSP. The findings validate the diligent work of the board, management and our hard-working and dedicated employees to implement and maintain a comprehensive and effective risk governance framework.
The board oversees the business and affairs of the corporation, and PSP is accountable to Parliament for the tabling of its annual report. The special examination confirmed that PSP's board functions independently, provides strategic direction, has the capacity and competencies to fulfill its responsibilities and effectively carries out its oversight role. I feel privileged to have the opportunity to serve on the board of PSP with truly exceptional individuals who take great pride in serving their country and working diligently to ensure PSP's success in delivering the pension promise.
While all systems and practices were found by the auditors to meet established criteria, some areas of improvement were identified.
PSP has already implemented measures to address three of those areas. We have set and improved risk appetite metrics and thresholds for significant non-investment risks. We have completed compliance risk assessments to evaluate adherence to relevant regulations. We have established a solid and more frequent framework for reporting of regular and ad hoc risk areas to the board.
A fourth recommendation to ensure that strategic objectives are supported by measurable performance indicators is nearly fully implemented, with full implementation expected to be completed by the end of March 2022.
An action plan to implement the last recommendation—to develop and apply an enterprise-wide risk management framework for model risk—has been launched, with significant progress already having been made. The model governance framework currently in place for risk group models is being reviewed and adapted to include the chief investment officer group models. This recommendation is expected to be fully implemented by the end of the next fiscal year.
In conclusion, I would like to thank our auditors, the Office of the Auditor General and Deloitte for performing such a thorough and diligent examination.
The board of directors, management and employees of PSP all share the same objective, and that is to fulfill PSP's mandate to the very best of our abilities. While the recent pandemic has most certainly taken a physical and emotional toll, we're proud that we were able to stay focused on our investment mandate, our responsibilities to the contributors and beneficiaries and the health and well-being of our people.
Before I close, I would like to acknowledge the announcement yesterday of our—