June 1, 2009
FREDERICTON (CNB) - Investment performance results for fiscal 2008-09 were released today by the New Brunswick Investment Management Corporation (NBIMC). The NBIMC reported a -18.34% overall gross rate of return for that period.
The NBIMC also announced that its annualized four-year return has been reduced to 0.90 per cent. The long-term annualized return since the NBIMC's inception in 1996 is now 5.53 per cent.
"While this time last year we had noted an expectation of a challenging market, there were very few who expected the severity of the global financial markets crisis that we had experienced during the past year," said John A. Sinclair, NBIMC president and chief executive officer. "Very sharp declines in the global equity markets, especially in October and November, significantly impacted our returns.
"Canadian public-sector pension plans, however, have survived this downturn better than many other types of investors, and they benefit from a long-term investment horizon, disciplined investment process, and limited annual cash flow requirements."
The investment returns for the Public Service, Teachers' and Judges' plans were -18.43 per cent, -18.24 per cent, and -18.46 per cent, respectively. These returns came about through the different proportions of investment assets held by each fund.
Net assets under management as of March 31, 2009, were $7.029 billion, down from $8.698 billion as of March 31, 2008. The decrease resulted from $1.602 billion in net investment valuation declines, and net pension payouts of $210 million, being offset by $144 million in special funding payments from the plans' sponsors. The resulting net annual cash flow payments out of the fund were $66 million.
The NBIMC once again noted that it is one of only a few pension investment organizations that report on a March 31 year-end.
"The NBIMC's 2008 calendar year return was -16.95 per cent, which was better than the -18.4 per cent median total return of large Canadian pension plans for the period," said Sinclair.
Sinclair based this remark on the RBC Dexia Plans exceeding $1 billion - total portfolio, for the year ending Dec. 31, 2008.
The NBIMC is a crown corporation that manages the pension assets of more than 49,000 plan members. The NBIMC expects to have its 2008-09 annual report posted online at http://www.nbimc.com in mid-summer of 2009.
EDITOR'S NOTE: Following is a summary by John A. Sinclair, president and chief executive officer, New Brunswick Investment Management Corporation, of key points that need to be considered in the context of the investment approach for defined benefit pension plans. MEDIA CONTACTS: John A. Sinclair, president and chief executive officer, Jan Imeson, chief financial officer, New Brunswick Investment Management Corporation, 506-457-6989.
Statement by John A. Sinclair, president and chief executive officer,
New Brunswick Investment Management Corporation:
It is important to remember that defined benefit pension plans are structured to obtain a significant portion of their ultimate pension payments from investment returns in the financial markets. Achieving these returns requires diversification into a combination of asset classes capable of delivering long-term performance in excess of actuarial requirements.
Financial markets by their very nature are cyclical, and unfortunately over the past year, they experienced one of their most severe downturns witnessed over the past century. Even well-diversified portfolios performed poorly during the year as risk adverse investors fled to the security of federal government bonds.
As noted above, the investment program since inception has provided an annual return of 5.53 per cent. These returns result in cumulative investment earnings of approximately $3.7 billion.
The annualized real return (after adjusting for inflation) since the inception of the NBIMC is 3.38 per cent. Although this return is lower than the long-term actuarial real return requirement of four per cent, it is not out of line with what one might expect after such a cyclical decline, and it is actually better than the annualized return realized at the end of the last financial market downturn during fiscal 2002-03.
Annual pension payments
We also recognize that in the current economic climate, that some pension plan members are worried about the safety of their future pension payments. While the net assets under management have seen a significant decline, the asset mix of each plan has been developed to ensure liquidity for pension benefit payments over the long-term.
Current and future pensioners can take comfort in knowing that we did not hold any of the third-party asset backed commercial paper, American sub-prime debt or hedge fund exposures that created significant concerns in the financial markets over the past year.
Our investment portfolios have been structured primarily with publicly tradable investments in entities based in developed countries that have a higher quality credit exposure. Also, less than five per cent of total assets are committed to less liquid private equity, real estate and infrastructure investments.
The liquidity provided by this $7.029 billion portfolio, in combination with a relatively low net annual cash flow obligation as indicated by the $66 million noted earlier [in the main news release], allows us to make the annual net pension payments for many years into the future while at the same time providing the portfolio with the opportunity to improve in value as market conditions improve.
We believe that our prudent approach and investment strategy positions us well, for the future long-term growth required by the plans, as global markets stabilize and are supported by an eventual economic recovery.