We're ready to go, Mr. Chair. Thank you very much.
So welcome, everyone, to this special meeting of the one
joint investment board and the purpose of this meeting is
to do the last of our three part series on.
Alternative investments conducted by Eckler and this part of. The
education session will focus on portfolio construction. So we'll start
with Oman. Acknowledgement we recognize that our work is the
one joint investment board and the worker municipalities take place
on traditional indigenous territories across Ontario. We recognize and we
respect the history, languages and cultures of the first Nations.
Mati, Inuit, and all indigenous peoples whose presence continues to
enrich our communities. Are there any members of one jib
who have a conflict to declare due to a monetary
interest on any item on today's agenda. So, looking at
my screen here, seeing none, we'll move on. We have
staff from Eckler. Joining us again this morning. So, Jenny,
I think you can invite them in. We'll just wait
for Brad and Kyle to join us. There. I see.
Let's see. I see kyle there. And I see Brad.
Great. Welcome, gentlemen. Thank you for being with us again
this morning. We're looking forward to the presentation. I think
we've really appreciated the last two, and we're looking forward
to this one, so we're ready to go whenever you
are. Sounds great. So we'll kick it off, star Sharon,
as always, if there's any questions that come up, we'll.
Keep our eyes open. We're going to just share. Presentation
here. Share that one. Okay. Let's do.
Screen load. All right, I'll maybe just confirm you can
see that and move to the next slide. A thumbs
up. Okay. Thumbs up. Thank you. Okay. Obviously. Thanks so
much having us back. This one is. We've gone through
different asset classes, obviously. We've been through private, public, some
different things, and this is really portfolio construction and monitoring.
So this is like us, how? You would put it
all together and then check in to see. If it's
working long term. So we just wanted to kick off
with portfolio. It is. Portfolio construction. I think there's a
quote there by Blackrock, right? The world's largest investment manager.
And really what it is, is, yeah, it's putting together
the different. Asset classes and strategies in your portfolio and
understanding how that kind of builds up to a whole
strategy, right? For a lot of groups. Again, this is
how you approach. This is probably somewhat similar, whether you're
a pension plan, a trust fund, an endowment, probably similar
structure, no matter what you are. Kind of starts with
really objectives. Right? So when we talk to most of
our clients, what are the key objectives you're trying to
do. So give you the idea some groups may be
very focused on capital protection. So if you were an
endowment and you had 50 million given to you that
says, listen, you can't spend anything if it takes me
below the initial amount. You're going to. Be very cognizant
of losing any capital. Right. We have other groups where
really it's about generating returns. So you might have a
pension plan that's maybe underfunded. And it needs to move
to a certain position they might be willing to take.
A little more risk because of that. Again, there's a
lot of different goals that you can have. And what
I would always say in the portfolio construction piece is
that it tends to be a teeter totter, right? If
you have one goal, that you push on something else.
Has to move in the system, right? If you push
on return, you have to accept the risk. That comes
with that. If you really want capital protection, then you
may have. To sacrifice some level of return to increase
that. Right. So all of these are going to be
competing at some level, right? So what a lot of
groups talk about is, what are the pain? Points. And
that second part of the process is there's really a
risk budget. So what are the things that you really
want to avoid. So there's the goals of what you
would like to do. That's great. What's the other side
of it? What's the thing that you can't. Stand. Right?
So is it a capital impairment again? Is it corrective
action? Is it decreasing spending? Is it going back to
the beneficiaries or the members or whoever is obviously you're?
Managing this money on behalf and asking them to do
something that you'd rather not ask them to do right
because the portfolio hasn't performed the extent that you've. Looked
at too. So that's really what we would call establishing
the risk budget. And then from what is that thing
that you just don't want to happen or you want
to minimize the risk. Of take whatever that is and
you're willing to take some amount of risk as long
as you can minimize this outcome. And then you spend
that risk budget on the last one, right? So go
out and invest the portfolio consistent with those. Goals and
understanding. What are the things that you're trying to avoid?
So when we do this, On doing this portfolio construction
process. There's a few things that are going to be
inputs. To the process, which a lot of his expected
returns and risk. Right. So for the expected returns, it's
really the forecasting of the long term average return that
is expected to be achieved. Most groups would use some
amount of a 510 15 year window, right? For. Planning
purposes for this. Reno investment. If you're using a one
year window or a two year window, you can still
obviously come up with investment strategies, but it's going to
be difficult if you're using a very short time horizon
to kind of. Use statistic processes like you see in
the industry, because realistically, It's harder. A one year. What's
going to happen in twelve months is actually. More difficult
to predict than what will happen in the next ten,
because in the next ten there's the law of averages
that come into it, which is something you'll see in
this process. Right. So the variability of returns is really
noting that you have an expectation. What's? The degree at
which you think it'll be above or below. So give
an example. If you have a gic. What do you
think the return is going to be next year? It's
almost guaranteed you. Now, there's no variability to that return,
but what's? Canadian equity. You assume it might be 10%,
but you're saying there's. A very good chance it could
be 20 or minus ten. Right. Obviously around that expectation
that's. Going to have a lot of variability. And again,
it's trying to provide you the. Probability of what is
the chance that your expected return is your actual return.
Right. And a lot of what you see in these
kind of processes. It talks about the correlation of expected
returns, right? So not all asset classes perform the same,
and they don't all perform the same during. The same
events or at the same time and use Covid as
examples. One of the most recent. Events. So canadian equities
in the first three months of 2020, down 21% right
far. Below the long term average. Right? So if anyone
said, what do you think equities learn? 8%. So in
three months, you lost 21. That would be an outsized
event. Right. So. That was below what you thought would
happen by quite a bit. Bonds on the other side,
federal bonds. Were up five. Actually. That's above what you
think they would have made over the long term. And
again, the way they did that. Is quite interesting. Ones
going up, one's going down at the same time. So
correlation measures. The tendency. At which returns tend to be
above or below their expectations at the same time. So
on. Slide. Five. And again, this one's a bit busy.
Sorry to kind of cram a few. Things in this
one. Really? What we talk about at the top is
expressing correlations, right? So. One of the things that you'll
see is correlation is a measure from minus one to
plus one, right? So. Perfect negative correlation. When one moves
up, the other one moves down by the exact same.
Obviously, frequency and amount at any given time. Perfect. Positive
is the other way you're moving. Together perfectly. Right. Go
up. Tang go up. Tan go down. Tan go down.
Ten at the same. Time and then uncorrelate it. There
is foreseeability, no correlation to how these two things move.
They seem to be disconnected. Right. So there's no relationship
that you can draw. So in designing a diversified portfolio,
so. Most groups when we talk about diversification, Most groups
strive to create a diversified portfolio. So to create a
portfolio that doesn't have any. We're going to talk about
unnecessary risks that you could diversify away. Right? So. When
you're talking about that, you would typically want to see
lower negatively correlated asset classes. Or patterns of returns together
when you put things together. And we're just showing you
an example. And in that first quarter of Covid, if
you were an all canadian equity portfolio, You're down -21
but if you were half and half, half ball and
half canadian. Equity, you'd be down ten. Right. So obviously
those bonds provided somewhat of an offsetting. Risk right to
being an equity portfolio because they didn't behave the same
way. The same event. So if you take that one
step further, if you took a sampling of our client
base, which is very good portfolio. Portfolios, pension plans, insurance
portfolios, foundations announcements, trust funds. They would have been down
about minus seven or actually better during that same period,
because again, they're even moving beyond just being half equities,
half bonds, but have alternatives as well invested in them.
Again, those asset classes. Really behaved in a way to
dampen that volatility during a very. Extreme event, which is
what you would have seen at the beginning of Covid.
So the last bullet point there is interesting because all
of this, all of this portfolio design is built upon
the fact of you're using what you think is going
to happen. And that's based on class performance and how
capital market theory would tell you things will behave, but
typically what you see. In very volatile periods is what
we call market contagion. So you have events like the
2008 financial crisis was a big one, where all of
a sudden asset classes that didn't. Have a strong correlation
become correlated all of a sudden during a market event,
and hugely negatively when the market's down. And that can
be just a factor that when panic sets. In on
the market. Sometimes everyone gets it at once, right? All
asset classes can be impacted and it can spread across.
Markets quickly. So even it starts in the US and
it hits Europe quickly, when typically you wouldn't think that
those two different areas would necessarily be impacted by the
same event. So a lot of modeling that you see
in the portfolio world when somebody comes to you. And
helps you design a portfolio. A lot of the times
those models have what's built. In it is like a
two stage model or a two event where there's a
lot of view that. If you're testing the stress of
a poor, if you're stress testing a portfolio, trying to
see what will happen to it. In a very negative
event, they tend to increase the correlation. So there's like
a regime switch, is what it would be called, where
you go. To correlations that are probably not as favorable
as they once would have been in a normal market
environment again, that just. Adds another complexity to these kind
of processes. But fundamentally, understanding that these kind of contagions
happen. Over the long term. Most correlations tend to hold
true to some extent over the long term. And can
help you build a portfolio that has diversification. And at
the bottom there, this process really is about. What is
that secret formula, right, that you're using to create a
portfolio? That's going to minimize those risks, right? After fees,
that's the other consideration. You potentially could create a very
sophisticated portfolio. At some point, you have to measure against
what's. It going to cost me, right, to do this?
So when you look at it graphically, this is very
simple. On this chart, if you move to the right.
You're becoming more risky. If you move up, you're getting
more return, right? So. If you started with just 100%
bonds. And you look from that portfolio to the one
with 20% equity, it's the next. One up. You've actually
reduced your risk and increased your return by doing that.
Anyone who's an investor would take that realistically because it's
telling you it's less force, more return. Because even adding
a small amount of equities and equities as it says
at the top, most investment ris. Risk in a portfolio
can be very tightly tied to how much equity exposure
you have. But taking some equities when you're all fixed
income will actually assist you because it's. Going to give
you that uncorrelated source of return that the equities. Can
offer. But you can see as you increase your equity
amount quickly, You start becoming more risky, right? You start
moving further to the right, because the equities. Are now
dominating the portfolio right now. There's those two question mark
portfolios that's what you're trying to get to. If you
could be 40% bonds, 60%. Equity. That one in the
middle, that's a balance fund. That's the bogey. In the
industry for most investors. You can buy those. You can
just go to someone and say, give me a balance
fund, and. Balance fund is assumed to be a medium
term investment. Rise in some bonds, some equities that other
portfolio with the question mark is making you more money,
and it essentially has less risk. Right. So you would
take that if you could. You've got to figure out
what is. That portfolio. Right. And obviously you can see
by the number of pies in that thing, it obviously
has. More and more asset classes than just bonds and
equities. Right? So it's showing you. There's more diversification that
you can get to inside of a portfolio like that.
And fundamentally, that's this whole process is trying to figure
out how can you get to those two question mark
type portfolios again. From a fee perspective and then liquidity
and other issues that you might want to try to
manage. So on size seven. This is slide that we
show quite often. And what this is, is. Every one
of these boxes in this chart is. And you can
see. The yellow is the emerging market return. And this
is annually over the last 24 years, basically. You've got
the EC index, international equities, you got small cap equities.
Canadian equities bonds us and then a balance fund. And
what we've done is we've just traced the SPSX and
the red line. And you can see what's? Happening is
there's many times it's near the top and then the
next year. It's near the bottom, right? And then it
goes back near the top and. It's constantly moving up
and down in that chart, canadian equities on whether they're
the best or the worst asset class, right? And again,
that's the equity roller. Coaster that you're in if you
could call all of those peaks and sell off and.
Buy back in at the bottom. You'd be an amazing
investment manager. It's difficult. To do that. Right. So, what,
the balance fund is that gray? Line and goes through
the gray boxes. That's 40% bonds, 30% canadian equity, 30%
global equity. So that's. A balanced strategy and you can
see. It's tops and bottoms, it's peaks and trows are
much more muted than the pure equity portfolio is because,
again, it's hedging some of the risk off. With the
bonds, and it's got more diversification than just canadian equities
and we show you the results over 24 years on
the bottom. So 24 years in canadian equities. With all
the ups and downs would have averaged. A 6.6% a
year. Right. Volatility of 15 points. So the standard deviation.
Of 15.6%. So that's a pretty high volatility right around
that. Mean of 6.6. So if you look at the
balance fund, it's made a percent less. So ultimately, yes.
If you knew you had a full 24 years and
you never had to check in on this. Money, you're
never going to need it. 100% equity would have got
you better, but. We're only got. You better buy a
better percent a year. But the volatility. Of the balance
fund is significantly lower. Like half, right, 8.6%. So when
you look at the risk adjusted ratio. So that's just
the return by the risk, right? The balance. Fund, technically,
is a more efficient. Portfolio. So for every unit of
risk or every unit of return you're taking or. Sorry.
For every unit risk you'd in zero point 65 in
return, or the canadian equity for every unit of risk.
You're getting zero point 42 and return back to you.
Right. So. Again. Equities would have made you more, but
would have taken you on that ride to get you
that through the whole period, right? So portfolio modeling, all
of this stuff, all of these inputs and this correlation,
this all comes into a portfolio modeling process, which, again,
if you're in a board position, this is typically what
you're being shown as somebody's showing you. These are different
portfolios and different expectations we've come up with, and they
all tend to come out of a stochastic. Model. Like
this. What this is. Pretty. This would be the industry
standard today of what most groups would do is you
look at driving probability distributions out of these asset classes.
So for canadian equities, you forecast them out. Over again.
I'm going to show you in this example, could be
30 years, and that path you build is based on
all the expectations of how you think canadian equ. Equities
might perform. In different environments. Maybe a high inflationary environment.
Maybe an environment where you have an equity market. Correction.
So you make this probability distribution, and again, you can
do a single asset class, but what? Typically you do,
you start putting different asset classes together. So a portfolio
of bonds, equities. May be real estate infrastructure. Again, it
considers the past, but. Focus considers future expectations. If you're
in a very low interest rate environment, statistically interest rates
will probably increase in the future because they, like, won't
go below zero unless maybe Japan. But most economies, you
would assume. What's the chance of interest rates going up
or down? Pretty much depends on where they're at today,
right? A lot of the modeling, at least the way
Eckler would approach it is, you would assume that if
active management would pay for its fees, so you typically
wouldn't build in a premium that your investment managers are
going to beat the market, that might be a bit
of grass. Step to assume that over the whole way
you could again. Active management might be the cherry on
top, but realistically, we'd assume almost passive is really what
this is saying to you. So you model the expected
risk return of the various asset. Classes. So, again, someone
showed you three portfolios. You could take each portfolio and
put it through. This kind of process and see what
the outcomes look like. So what we would do here
in the example I'm going to show you is modeling
5000. Possible outcomes a year. And we do this over
ten to 15 plus year horizon. And what we end
up with is an enormous set of returns. Right? And
what we try to do is we look. Well, what's
the expected return? And it's really the median outcome in
that. Universe. So if you're on the prices, right, and
you had to bet, you would bet. The media. The
middle one. You'd be the least wrong again. What's the
chance? It's exactly that number. Almost zero, to be honest
with you. But it's the closest want out of what
you think the outcomes would be, and then the risk
for most groups. Is about? What's that? Lowest fifth percentile
return. What's the chance that things go really bad. Most
group. Groups aren't concerned with what's the chance everything becomes
amazing, we end up in the very 95th. That's great.
That probably means you got more money than you think.
You would have. And that's just usually, you probably don't
have to be concerned. About that one ahead of time.
Unless you've got kind of any. Some clients we have.
Maybe in negotiation positions, or maybe that would be an
issue if they had too much money, but. Most groups
are in a position. Of too much money is not
really the thing we're worried about. It's what if we
lose a lot. Right? And this is what these processes
get you, which is slide nine. This is an actual
output from this kind of model. This is assuming if
you had a balance fund. Right. So that again, what
have you had? Kind of a middle of the road
investment strategy? So in the one year that first. Column
in this chart. What that's telling you is that 5.9%
is the median of. That 5000 outcomes in the first
year, 5.9 is right in the middle at the very
top. It says 19.2 at the very top of that
chart. That's the 95th. Percentile. So what that means is
95% of the time you'd be making 19% or less.
There's only 5% of outcomes where they would ever be
above 19% the same. Thing at the bottom. The minus
eight. That's the bottom fifth. So instead of telling you
95% of the time, you should be better than that.
5% of the time it could be worse, right? So
if you ask me, in a given year, what do
I think you'll? Make. I could go. Well, 90% of
the time you're between. 19 and minus eight. And you'd
say, that's not very helpful to me, that's. A very
big window, and I would say that's the difficulty. If
you tried to guess one year out, right. But what
you see is if you move across 510, 15 is
that that distribution becomes much tighter. Right. So maybe we'll
look at the ten years or. Sorry. The 15 one
I have in the middle that's highlighted that 15 still
has. A median return of about 5.9, but the fifth
percentile, instead of being minus eight, is now minus is
1.8. So that's a big change. So the reason why
these models work for a lot of groups, and planning
over the long term is the chance of you experiencing?
A one in 5000 event. Every year for 15 years
is statistically insignificant. It's basically very unlikely you would have
these multiple, like, seven COVIds back to. Back to back
to back to back for eight years. So what this
can do is when you use this kind of modeling
is it can help you over the longer time get
a sense of well, what is the expected return? And
what's that bottom return risk that I'm going to have.
And you can use this through multiple asset classes. So
as you add. Infrastructure you could see. Does infrastructure increase
the medium? But what's it doing to the fifth? Percentile.
Am I seeing a better result because of these different
asset classes? And this is what you will likely see
as somebody showing you portfolio modeling in different asset classes.
Is this kind of analysis over the time periods that
you want to plan over, right? So all this leads
into kind of the goal setting, which is really from
a board's perspective. What are you trying to do? And
what are you trying to probably tell your ocio? Manager,
your consultant. Like, what are the goals that we're trying
to set that will influence that portfolio modeling. Right? So
a lot of it. I mean, we'd ask groups, why
are you here? What are you trying to achieve? You're
obviously investing a port. Portfolio for some purpose. What are
your measurable goals like? What is the success for the
portfolio? What do you hope? To achieve. If you can
answer some of these high level questions, that should again
set the foundation. For your decision making, right? About what
are the asset classes? So again, if you said, listen,
we. Really need to prioritize liquidity. We might need to
spend 20% of this portfolio. At any given. Year because
our liability of what we're trying to do is, could
be variable that would tell you. Maybe I have significant
liquidity requirements, and I don't think I would look. At
infrastructure or real estate as an asset class, because I
don't know if they'll have the liquidity I need, but
you could say, listen, long term, I think we know.
The liquidity of the portfolio. We're only going to need
to draw a few percent. So we think we can.
Take on some of those risks and hopefully be compensated
for that. Right. But again, one thing we would always
say is that goals and objectives here that you sat
typically might set them independent of the investment strategy because
you're kind of thinking of them first, right? What are
the things? You're trying to achieve, but they should be
consistent. And when we give you an example, is, some
groups may have es. ESG beliefs. So environmental, social, governance
concerns, where they say, listen. We want to have a
fossil fuel free portfolio, or you want to have no,
say, arms or anything like that, or tobacco or anything
in our portfolio. But then you're going to implement the
strategy and pooled funds. We're an investment manager selling a
pool fund that already exists. You may have an example
where the ESG believe can't be implemented through the process
of, obviously, the pool funds that you've chosen. So when
you think of how your goals are going to be
structured, sometimes the tail does wag the dog back and
that you'll have to make sure that if. You have
a goal that it's likely implementable based on the size
of your portfolio. Based on what's available to you, right?
So a lot of what we have is you. Make
goals smart. This is actually what we do for everybody
in Eckler when they set their goals for the year
in terms of performance management is try to use this
right, which is specific, measurable, attainable, realistic. Time down. And
really a good example. So an example we'd have for
a portfolio would be achieve a ten year annualized gross
rate return of 6% to sport, a real spending target
of four while limiting capital impairment. So just give you
an idea. So it's specific. That goal is giving you
a pretty specific thing. It isn't. Just let's make some
money. That would be pretty vague, right? This is giving
a very specific goal that you're trying to do. It's
measurable. Because you've given exactly what you're hoping to do
and you can measure the amount of return you make
attainable. That's probably a little harder to assess, but ultimately,
are you willing to invest in asset classes that could
get you that kind of return. So that would maybe
be obtainable. Realistic. So. Realistic. I'll come back to time
bound. It's obviously ten years. The realistic one. In the
obtainable is the one most groups get probably thinking about
is. Do we think that this is realistic for what
we're willing to take on for risk? And again, the
last bullet point. There is this goal that this group's
and again, to be honest, it is a realistic goal
that we would have somebody make. Satisfies most of those
criteria, but may not be realistic depending on what happens
in the first few years. So you can set a
goal and it might be realistic in year. One. But
by year three, it's not anymore. Again. Any example? You
might not want any. Capital impairment. But what if you
set this goal in 2019 and then you walk into
the Covid environment, and you might have to sit there
and go, wow. I think that goal now has become
unrealistic for us to achieve based on what's happened in
the market and you may have to reassess. Right. So
the risk management framework that really you build around this
process and your goals, typically when we go through it
is try to identify the risks that are most significant.
And greatest impact on you to achieve your goals. Call
that like a risk ranking? Again, that's? Really that idea
of capital impairment, liquidity risk. Can you take that? All
of these ideas not making enough money. Inflation, obviously. If
you're worried about maintaining spending in real terms, For most
institutional investors in that second bullet point, you have to
accept some level of investment risk. If you're going to
support the goals of the portfolio. So most groups acknowledge
at some level, we have to accept some amount of
risk to invest. Right? Or else we're just. Holding cash.
And again, that comes with a risk in and of
itself. We're not even going to maintain spending at inflation
levels if we're not willing to take at least some
amount of return. Right? And then you decide on how
to approach eat. Risk. So this is a pretty standard
process in risk management is identify the risk. Obviously, you
want to try to identify the risk that are out
there. Sometimes. You can only identify or mitigate the risk
you know about, right? There may be risk out. There
that you just can't even think about and can't assess
and there's. Not a lot you can do about that,
but you identify it, you assess the risk and then
you either assume the risk and monitor it or avoid
it and mitigate it, which is really in the next
piece, right? So risk realistically for most groups can be
class. Classified as rewarded, so you're rewarded for the risk.
You're unrewish. I'll give you an example. A rewarded risk
could be like illiquidity risk, right? By investing in private
markets. Right. So that's a risk you're not going to
be able to get your money back quickly if you
need it. But typically there's an illiquidity premium that's paid
to you for investing in those asset classes. You accept
that risk, and you're. Being rewarded for. You're being paid
unrewarded. Risk could be like idiosyncratic. Risk in a stock,
right? So you invest your entire canadian equity portfolio in
RBC, right? That comes with a big risk. What if
something happens to that one company? You're going to be.
Very impacted by it. You could diversify across all the
banks if you wanted to. So again, idiosyncratic or concentration
risk typically is not rewarded because you can easily not
have that risk and be diversified and not take it.
So again, only risk that should be rewarded. Technically are
the ones you want to take, the ones that are
not rewarding you. You want to try to mitigate or
remove. And again, you may want to hedge them. Right.
So. Insure against the risk. So for a lot of
groups, currency risk is one you can hedge. There is
a risk to being a canadian investor and assuming other
currencies, because, again, When you invest in Canada in an
equity, what you get is the return of the equity
that's what impacts your return. But if you invest in
the United states, there's the return of the equity and
the return of the US dollar to you as a
Canadian, that now adds a different risk to it. So
you can hedge that you can easily mitigate it or
sometimes you can't hedge your risk, right? Something might be
harder for you to hed. Hedge away and whether or
not you should hedge it or unhedge it typically involves
the risk. What are you getting for not hedging it?
What's the return? You're going to get and how much
is it going to cost you to hedge it? So,
again, currency. Is a good example. Some groups currency heads,
some groups don't because they view long term they just
think that there's not enough there to justify the costs
that are involved in maintaining the hedges, right? They think
you're better off not paying that cost. And assuming that
risk because they don't. Feel that the risk is material
enough to wear it. And again, some risks are simply
unforeseen or unavoidable, like we get political regulatory. Obviously, it's
a very recent political one that's happened. Could you have
hedged against that? It would be hard for you to
assume how to hedge. Against that? What are the things
you're going to hedge against that outcome? And so some
things. You have to assume them, and you can't necessarily
know what the risk or the outcome. Of that risk
is ahead of time, right? So I think that's really
the portfolio construction. Process. I don't see any questions to
lay that out for you. That's really. About, I think,
goal setting, trying to arrive at what's the purpose of
the funds, why? Are you investing and then understanding that?
When somebody's coming and showing you different portfolios that are
trying to achieve the goals that you've outset. What are
the inputs to that process? Obviously, the expected returns, variability,
all those things you saw, and then the risk part
of it, which is, how can different portfolios potentially help
you mitigate some of those risks that you've. Had and
understanding that some level of risk likely has to be
taken to achieve a return. Right, or else. You're likely
not going to invest. There for 1 second and see
if there's any questions before we move on to implementation.
Board member giles. Thank you, chair Hughes. Yeah. A few
questions and or comments. So far, so good. Thanks, Kyle.
We have to be careful about treating bonds and equities
as monoliths. You can adjust. The risk profile of your
bond portfolio. Quite a lot. And the correlations will change
in your risk profile will change. And one thing you
have to think about is what type of bond portfolio
do you want to get the total risk for the
portfolio that you're looking for. So if you have a
bond portfolio with fairly low quality, like a lot of
double b's, it's going to react a lot more like
the equities do. The economic considerations will be more important.
I would agree, Cole. I think for purposes of this,
I think we've kind of just given. Again, 10,000 foot
view of government bond and a canadian equity, but I
agree 100%. Some bonds look more like equities, and how
you define that, that probably gets into the implementation very
tightly on. You got the strategy, how you're going to
implement it. Yeah. There's a huge spectrum of strategies you
could pick. I 100% agree. And the last comment you
made about currency hedging? To me, it's not so much.
Where the security trades, but what its underlying business is.
So if you have a canadian listed company, But it
does most of its business. In Chile, for example. You
may have chile. And currency exposure, which is not easy
to either know about or hedge. So hedging is not
as easy as just looking at where the current the
security trades and hedging that. Yeah, 100%. I think there's
almost two ways to think about that. Yeah, you could.
Invest in a business and it has exposure. So again,
a lot of people, you could say, do you have
emerging market securities in your portfolio, right? And you might
say, oh, I only invested United. States. I don't. Arguably,
there's a ton of companies in the United States that
drive revenue from emerging markets. So you're getting. That exposure
through those companies, I think for a lot of groups,
and they think are currency, hedging I think it's more
about what's the security denominated in. Because I think that
carries. A very clear, like, canadian dollar to us that's
traded every day, and it's posted. And to that point,
you can know exactly what it is in hedge it.
Exactly. You can't necessarily go to, like, for example, Michelin
and try to hedge away. The fact that they're trying
to drive more business in China by selling more tires
and there's a risk to that. I will say the
last piece is a lot of companies. Internally, maybe doing
currency hedging on their own. So if you're Michelin and
you're selling a bunch of contracts in China, you may
already. Be trying to hedge out that currency risk inside
of your own business, not necessarily thinking about what investors
are doing when they buy your stock, right? It's probably
a russian doll. You know what I mean? That you
could open up and. There's like ten more that come
out. Yeah. So all I'm trying to say is currency.
How are you going to do complicated? We could have
a two hour run on that easily. Okay, thanks. No,
great points. Anything else? So if everyone's good, we can
talk a little bit about the implementation. Think everyone's good.
Yeah. No, thanks. We'll jump into that. Okay, you got
your policy. You've designed these asset classes. You've gone through
this. Risk budgeting. You're tired now. Again, how are you
going to go and. Put it to youth. Right. So
the idea of the investment policy is really the blueprint,
right? Like you design a house, you're probably very much
concerned about whether it's got five bathrooms or one kitchen
or the rest. That's probably what you want to know.
What? Color the floor is might be interesting to you,
but probably less material. Right, but this is really. I
think, kind of how you think about this a bit,
the policy. Piece is really good. The portfolio construction is
going to be whether you have gym sport where they
have corporate bonds, high yield bonds, some of these other
things, whether you have equities at all that's coming into
the. Portfolio. The implementation now is how you're putting that
plan into action. Right? So one of the first. Again,
not that you wouldn't be concerned about it, but again,
what tends to drive. The biggest risk profile of your
portfolio is what asset classes you pick less so exactly
who's implementing them. So one of the first things you
typically look at is active or passive. Management, right? And
we've shown you this year passive management with that little
arrow there's going to be a narrow range of results.
Active management is huge, right? So passive management is trying
to replicate an index. So you can just buy the
S and P TSX index and RBC. Will be the
biggest holding you have, and everyone else is just based
on what their weight is. In the index for most
market weighted inde. Indexes. If you go to active management,
you now hired someone that says, listen, I think I
can outperform the market. Let me outperform it for you.
There's going to be a fee to that. Typically, active
management costs more than passive because passive is very easy.
To implement active management requires more effort. Right? So the
buy. And sell decisions. Passive management is constantly trading just
to match the index. There's no forethought to trying to
do it. Asterisks is a lot of fixed income. Passive
management does require a little more. Decision making because you
can't perfectly replicate a bond index the way you can
an equity. Index. But that's another point. Active Management now
is about the investment manager having the decision. On what
to buy and sell and how to wait again, there's
multiple approaches at the bottom right, like fundamental. The Warren
Buffett approach of trying to determine. Do I think this
company is going to make money? What are their suppliers
saying? Do I think they know something about this business
that other people don't. Quantitative is usually more driven. On.
You have statistical models now analyzing the price of stocks
and the trading of them and the behavior and trying
to make decisions based on that. Right. So equity style,
so quickly, just a few things. You'll see in your
life when you're looking at the implementation. There's 100 ways
to skin a cat in the investment industry. There's many
ways. The first one being value managers are a big
one that have existed. For a long time. That's the
idea that you're looking to buy stocks at bargains realistically.
So stock trading below its fair price right has the
market miscalculated. The value of this stock. So typically, these
managers look for low price to earnings ratios, low price
to book ratios. They're really concerned about the valuation of
the stock relative to the merits of the business. Right.
Growth managers are at the other end of the spectrum.
They tend to care less about those Matt tricks what
they're really concerned about. So if you invest in a
company like Apple, Apple can have at times, like, pe
ratios of, like, 80, which would be like. That basically
means what you're paying for the stock. Would take you
80 years to get your money back. Based on current
price to earnings, how much? The stocks worth based on
what you're paying on it. So in that scenario, that
manager is less concerned about today, but very much focused
on what is this company doing into the future. And
they're going to increase revenue and increase growth at kind
of exponential levels, potentially. That will pay you. For that
investment back. A growth manager and a value manager not
going to agree with each other. On what is the
right way to run a portfolio, and they likely will
not hold the same. Stocks and a core or a
blended portfolio could be mixture of both. And what we
say on the second one is. It's usually not that
clear cut. There's a lot of growth managers that do
things that are called growth, quality growth, where they're. Saying,
okay, I'm a growth manager, but I'm not going to
outpay. For what I'm buying. I'm still very much focused
on some of these fundamental metrics. You can have value
investors that tend to be deep, deep value. And now
you're. Looking at like they're going to be very volatile.
They might look more like a growth manager in terms
of the return profile, but they're focused on different kinds
of companies. All right, so. Capitalization approach at the bottom.
Again. Classifications can be different here. 's kind of view
of it, I guess. So company capitalization is really, again,
is there share price by number of shares outstanding? Right?
So. Some managers are small cap managers. They're focused on
smaller companies in the index. Their view is that small
companies are less researched and tend to be areas where
you can add value because the market is not covering
them as well. If you think of a company. Like
again, Microsoft. There are thousands of analysts looking at Microsoft
and trying to come up with what's the fair value
of Microsoft. Do you think you're going to figure out
something that everyone else hasn't. But again, if you're a
very small company, right, and. You have one or two
bank analysts following you. There might be something getting missed
at investment manager. Can pick up, right? So small cap
mid. Cap. Now you're coming up, you're a bit bigger
and then into large cap. Companies. And there's also mega
cap today, so some companies. That can really, once talk
alone, can move the index based on its performance, based
on how big it gets right. So one thing that
you'll often see when you look at different strategies again,
correlation. So even though you've talked about correlation of different
asset classes, you can see correlation of different investment managers,
different strategies. And what we've done here is you can
have two investment managers say a value. And a growth
manager in the same portfolio, and they're going to be
going up and down at different times. Right. But what
you can potentially try to create for yourself is that
middle line, which is if you utilize more than one
strategy, you can sometimes create a portfolio that actually is
better than the sum of its parts. Right? So these
two managers offset each other, and we'll give you some
diversification. And when favors fall in or, sorry, when different
equity styles fall in and out of favor of the
market. There's many times value investing has been a hard
place to be over the last five plus years, the
growth managers have won. The kind of contest lately when
you look at the US market especially, right? So the
kind of stocks, tech stocks, these other stocks that value
managers don't like. You might have value managers out there
today that are just. They're pretty depressed, right? They're going
to their client meetings, and the numbers are. All red
and they're saying, listen, I bet you it's going to
turn right. And it could. And if it does turn,
they're all going to shoot to the top. Right. And
the growth managers will crash. Right. And this is the
thing, they both have views the value manager, a growth
manager. It can be hard to determine who's right and
who can see what's going to happen. Potentially, by diversifying
across them, you can kind of get yourself some obviously
offsetting styles and that's what. Again, we have a lot
of clients that utilize this approach and equities. Sometimes in
other asset classes like bonds, you may see less ability
for managers to create these kind of profiles, but we
won't get into that. So one of the things we
got asked a little bit about last time. Was a
bit about funds and how should boards look at different
things. So we just wanted to. Really kind of recap
a little bit in a few minutes. There's different ways
you can approach implementing a portfolio. Right. One of the
ways that a lot that you can do is called
again. And the pop bullet point there. Following decisions related
to active management and equity style. Those are typically the
first ones you might make usually. Then you might talk
about segregated or funds. So a segregated account or fund
about how you want to set up the investment or
the strategy. Both approaches here have pros and cons, which
we'll talk about. Segregated accounts were typically years ago, really
what most people had, that was actually the standard, a
segregated account is where you have a custodian? And you
own the securities directly. So if you have a canadian
equity manager, you own every single security in your portfolio.
And what happens is the manager has authority to trade
in your portfolio, so. Basically, they're making the calls of
what to buy and sell. But you hold those securities.
Directly. Right. They're in your name. The segregated accounts can.
Have some advantages, so they can allow you to customize
the strategy to yourself. So if you told the manager.
Listen, I don't want you to buy this one stock
again. This can sometimes happen in the corporate world where
you go. Listen, I don't want you buying any. Of
my competitors inside of this portfolio, they can say, okay,
I won't buy that one. Stock for you. We'll take
it out because all the. Securities are in your name
and they're trading in the portfolio, and you can potentially
make securities lending income. So a lot of portfolios on
the segregated side will lend out securities, right? For securities
lending to managers that engage in that, you can make
some money beyond just holding your securities. Right. The segregated
account structures can be difficult sometimes. To implement depending on
how much money you have and the market. Canadian equities
simpler if you want a segregated emerging market portfolio? Your
custodian has to open markets in all of these different
parts of the world that are maybe more difficult to
do, and it could be cumbersome for you to be
able to implement it that way. So depending on the
strategy, how big you are, A lot of investment managers
tend to would rather have you go into their fund,
which is the last one at the bottom. So the
industry has moved a lot towards investment manager will make
their own pooled fund or a mutual fund. Same idea.
Where basically they are managing the strategy, and every investor
buys units of the funds. So instead of owning the
physical securities. You own units of a fund that owns
the physical securities. It's like inception. Right. How many levels
down? Right. Do you go before you own the thing?
A lot. Of the pool funds that you see today
can provide flexibility around having a custodian. You may not.
Necessarily need a custodian. You need a custodian for a
segregated account? You don't. Necessarily need that for a pool
fund and can potentially reduce fees depending on the manager.
Scale. Sometimes investment manager will charge you less on a
pool fund than they will on a segregated account. And
again, pool funds, they'll reduce your ability to have client
specific constraints. So in that example, where you might not
want to own your competitor pool fund won't allow it
because. They can't make one decision for you that affects
everyone else in the pool fund. The pool fund has
its own investment policy. And you're going in on that
policy, right? That's the way it runs. And then typically,
trading costs and securities lending are spread across the whole
pool, so everyone is paying together for trading. Everyone's receiving
their share of the securities lending and again. There is
sometimes pool funds can have additional, well, they do it.
They have additional operating costs that may or may not
be less than what you would pay on your own
if you had a segregated account. We can't necessarily say
exactly. It depends on the size of the manager, size
of your. Portfolio and who the manager is, right? So
that's really fundamentally kind of two approaches, right? And when
you move over to the, that's really public markets, when
you over the private markets. You would have to be
very large to have a private market manager, like an
infrastructure manager. Make you a segregated portfolio, because in this
case, you can think they're not just putting the securities
in your portfolio, they're buying you a bridge or a
hospital, and they're putting it in your portfolio. Right. So
segregated accounts on the private side really exist only at
the mega end of the spectrum again. There's asterisks to
that. You could potentially have kind of. Co investments with
some managers, that would look like a segregated portfolio. But
in general. Most investors on the institutional side exist in
the private market through fund investment, so the manager has
a fund has created it for you. And there's two
main structures there's open ended and closed ended. Right. Open
ended funds are evergreen exist forever. Right. And so the
idea is you buy into a fund, you get ownership
of all the assets that are already. In the fund,
but again, typically very much on the valuation. Last meeting.
There's talk about appraisal policies and the like. That is
a factor. In these funds because how the assets are
being appraised is how you're going. To move in and
out of the fund. So an open ended fund offers
you liquidity, but is getting that acquittal off of appraised
values. Right? So close ended funds are the other side,
where you have an investment manager that goes to market
fundraises. For a strategy. And then once they put, it's
like an auction. They put up their hand for last
calls. You can commit, and after that it's over. They
go and implement. The strategy. Nobody leaves or comes until
the fund winds up at the end and it's. Fulfilled
its investment strategy. More restrictive for redemptions you can't redeem.
You can try. To sell your interest in the second.
Secondary market. But again, that can be difficult. You can
imagine. Try selling your car on Kojigi. Right? Somebody comes
in. It looks like you drove it into a tree
one day. Right? Imagine when you're looking. At an infrastructure
fund and trying to sell that to someone. Right. It
comes more difficult as you can imagine to do those
kind of transactions. So again, what happens in the private
space can be a little bit different than what's available
in the traditional, and we want to drive us back
to what's the focus for most boards, right? And I
would say the decisions made. At the investment policy level.
That idea of portfolio construction. They're typically the largest focus
for most boards because they have the largest impact on
the risk and return. The expected results of the portfolio
are really going to be driven by the decisions you
make at the policy level. So the second one. It's
important to understand what you've invested in from a strategy
perspective, but typically where if you utilize an ocio, you've
delegated the implementation. To this third party. So again, there's
a cost to delegation, right? You've hired. Them to do
this for you if you've hired someone to do it.
And then again, you hire. Somebody to come in and
renovate your house, a general contractor. And then you're constantly
over a shoulder. Ask them every decision he's making. You
might not be getting the value. What you've hired this
professional to go out and do, right? So the idea
is most boards, especially in an ocio structure, are focused
on the policy. But again, you want to see reporting
on the strategies you're in, but there has to. Be
a position of the implementation is being delegated and we're
retaining these policy decisions. Right again because most boards can
commit the time required to review all aspects at the
implementation stage. There's a lot of work at the implementation
stage that you have to consider. You may not have
your fiduciary duty. Maybe better spent in other areas. If
you're kind of taking effort that could be spent in
areas where you can drive. More value because you're getting
into the weeds. In some spots, you might determine is
this the best outcome for us. Right? And then ongoing
monitoring and strong governance is really what you try. To
do. You try to have a feedback loop where obviously
you're dictating or. Delegating to someone, they're giving you the
reporting you need to determine. That you're satisfied that the
implementation, that the policies being carried out. As you wanted
to. Right? So I know we've got about another ten
minutes for the. Last section, hopefully a little bit quicker.
This is really the oversight and the monitoring that we
can touch on. So I don't know if there's any
questions through the implementation, but. This one's going to look
a little bit about the results. Not seeing any questions.
So keep going. So that's a mari. So, monitoring function.
This is that feedback loop, right? I think on the
first day, we showed you, like, a recycling sign, right?
Like, policy implementation, monitoring. So monitoring is trying to assess
those other two areas. Right. So an institutional and monitoring
function in most institutional portfolios, typically monthly to quarterly. Right.
You're getting reports sent to you on performance assets. Here's
what's happening. All right. And then more and more probably
in depth policy reviews are being conducted more annually, right?
So there's kind of an annual function for most groups,
and then quarterly or monthly, frequently. Reporting. Again, performance reporting
should link back to the investment policy. Right. And the
metrics benchmark set up by the board. So if you
have the objective, if you put objectives in the policy,
that says over the next five years, we want to
earn. 6%. Well, the monitoring should probably be incorporating. Well,
what has been the five year return is it meeting
that objective. Right. So we talk about both absolute and
relative performance assessments. So how is an invested again. If
you're a value manager, you're underperforming the benchmark. But how
do you look like next to other value managers? Are
you the best? Are you the best of the worst,
right? So those. Are things you want to see. A
relative assessment can give you some barometer to what a
strategy is doing right, and then qualitative assessment, we would
say, is crucial, if not more. Important than the quantitative,
right? So the numbers are one thing, but what's happening?
Obviously. At the investment firms or the OCI managers that
you've employed. Those are factors you would want to know.
Right? Firm changes. So one of the things straight from
the c, if anyone's a CFA Turner. Holder has gone
through this. They made you learn this. This is basically
how you set a good benchmark. There's this acronym, Samurai,
right? So specified in advance. If you're going to have
a benchmark, that investment manager is going to be accountable.
To. Should be specified in advance. Should be appropriate. Right.
So you should know about it. Again. Shouldn't benchmark an
equity manager to a bond index that doesn't make a
lot of sense, measurable. Should be able to actually calculate
it, right? Unambiguous. It should be clear what securities are
in it. The relative of current market opinions means. You
shouldn't have kind of obscure securities in it that no
one can form an opinion. On because there's no information
available. Accountable. The manager will take ownership of it and
investable. Should be able to recreate it or invest in
the benchmark. If you didn't. Want to be active. Not
all benchmarks meet all of these, right? So if you're.
A real estate manager and you say I'm going to
benchmark myself. To cpi plus four. Yeah. That might be
somewhat specified in advance might be accountable, but it's not
investable. You can't invest in it. So there's always going
to be areas where you have to give and take
on making a benchmark, but these are technically the concepts
you should be. Trying to look at when you put
one in place. Right. So we've given you a modern
example. This is this example client, right? So you get
results, right? June 30. So this portfolio you can see
made 1.67% in the quarter, and it underperformed its benchmark
by 00:15 so this report you'd hopefully want to see
well, what were the areas that underperformed in the benchmark?
But over the five years this client might have had
a goal of make 6%. Hey, we've exceeded that. We
made eight, but also we beat our benchmark by the
full percent over. Five years. There's also a relative percentile
ranking at the top. So this is comparing the portfolio
to other similar portfolios. So again, maybe you made eight,
but everyone else made twelve. Maybe the eight doesn't look
so good anymore. Right. So what's the relative performance? To
other similar funds. And then we also look at the
risk on the far right. So what did you take?
To get this right. So there's an information ratio for
everyone familiar? That's kind of your unit of return for
your risk. Then use your capture ratios. A lot of
clients we have focus on how does the portfolio perform
when the market's up? How does it perform? When the
market's down. So this specific fund, every time the market
goes up, there's. 112 there on the up market. Capture
if you look to the right. That means if the
mark goes up ten, they go up, basically. Another 12%
above that, the market falls, or capturing 107% of all
the markets. So they're doing worse than the market when
it's down, but they're exceeding by a higher merch and
when it stops. So technically, that relationship has helped them.
They've more than compensated for the losses they've had on
down markets through the performance and up markets, right? There's
a lot of. Statistics that you can get generated on
a portfolio. These are just a sampling, but these are
some of the ones that we find most groups are
somewhat interested in. Right. Relative risk and then absolute next
to your benchmark, but all of that is timepoint sensitive.
That was all at one date. That was at the
second quarter. The same portfolio, you can look at trend
analysis over time. So this is every core? These are.
Five year returns on a quarterly basis going down. So
if you look in that first column of the added
value. You can see that starting in the first quarter
of 2022, it started to deteriorate, so it starts falling.
So this might be something. If you're bored, you could
look there and say, hey, listen. The numbers are still
green, but there seems to be an alarming trend here.
Every quarter we're losing some. Six continues. We're going to
be negative soon. What's happening? In the portfolio that's driving
this same thing on that bear market capture. You want
that? To be less than 100. You want to be
better than the market when it's negative. It used to
be. And then you can see that something obviously started
to get worse. Over a few quarters. But on the
flip side, the bowl actually somewhat improved through a few
of them. Right. So all this trend analysis might help
you try to determine, is there something going on? From
a risk perspective in the portfolio that I'd want to
be aware of right by. Not just looking at a
specific point in time. Every report. A lot of things
that you want to know. Is compliance. Right. So you
have an asset mix policy that says we got to
be this much. Fixed income, this much equity, and there's
ranges for most portfolios that you can operate. Within. So
this is actually showing you what are you above and
below in? Right. So this would show you the current
quarter, the previous quarter, and the policy. Right. And the
range of what you're allowed to be in to make
sure you're within the limits. And a qualitative assessment is
an example where. Who do you have managing something for
you in this example? Even Ocio, an alternative manager and.
Then we've given performance objectives straight from your policy. Are
they meeting them? Yes. No, manager. Changes. Is there anything
going on with this? So the one manager at the
bottom there, we've given an example. Maybe they were doing
okay on performance, but they have significant organizational turnover. Maybe
they're. Failing so you can have an overall rating. And
if you have managers that are failing, you might put
them on a watch. Right. So now it's a more
formal assessment. You're going to do based on whether or
not they're performing, this could be for no CIO. Manager.
This could be a very investment manager as well. And
then monitoring an OCIo mandate. Which might be applicable to
you. So within the ocio governance structure, the Dec. Decisions
relating to underlying managers are delegated or strategies are delegated
to the oci. So you want to receive ongoing reporting,
likely on the results, but also you got to represent
that's. Not a decision factor that you're making. You're not
picking the strategy, the OCio manager is so again they
may sit there and have again. If you see an
underperforming. Strategy. You might have a question for them on
what's your plan for that, but you wouldn't. Necessarily be
making the call to, say, fire that strategy. Right. So
monitoring an ocio. Relationship requires aspects of traditional investment manager
monitoring but also needs a qualitative assessment around the ocio
because those CIO is implementing. But they're typically also giving
you advice, right? On the policy on. New asset classes.
So you kind of want to get an assessment of.
Do I think that advice is adding value. And again,
Eckler has quite a bit of experience doing these reviews,
so. Obviously where we do them, we think it's obviously
quite good to try to determine where you might see
differences in opinion. So I'll stop there for the question.
Yeah, I think board member test a question. Thank. You,
Kyle. Terrific presentation. My question is really to talk about.
I think this is a key point. For us who
are employing an ocio model. And the question I have
for you is whether or not you typically see. The
introduction. Of a policy that specifically outlines what's been delegated
to the Ocio versus what the governing board retains. And.
If that policy lives within a broader investment policy or
if it's a standalone document and the reason I'm feeling
that is actually post your training. One of the questions
that I have is I've seen some areas of our
delegation. For example, minor adjustment to policies. And, Jim, I
think you've raised it a number of times of how
much are we allowing? Investment policy adjustments to go on
beyond because. There is. This dual challenge that you face
where you want to give the Ocio, the nimbleness. To
execute. But ultimately, our role is to ensure that the
assets are invested according to an investment policy. So how
much flex do you give in adjustments, particularly during the
implementation phase when you're onboarding? New provinces. So one, do
you advise a policy? To. How tight is that? In
particularly implementation phases. Yeah, I think those are great points.
So on the first part of your question, so most
clients we would have, I would 100%. Agree with you.
It should be very clear who's responsible for what that'd
be. Fundamentally, I would agree. Whether the policy. Extend. Most
groups would have it in the investment policy. To be
honest with you, there'd be a clear section at the
beginning that talks about governance. Right. So who's responsible for
what? And also, again, there's usually a section of responsibilities
that goes through. Ocio has to do this. This. The
board is responsible for this. The board has delegated certain
tasks even to staff or other people that would do
that. So to answer that, I don't think there's a
set rule on whether it has to be in your
investment policy or a standalone what you'll see, though, is
you probably have an investment management agreement, some. Somewhere, right?
Like an Ima with an OC. Typically what they say
in that Ima. You could write whatever you want in
your own policy. That Ima is what they're talking to
legally, to say, this is what I'm responsible for because
you sign this agreement with me. So you'd want to
make sure. The IMA is kind of consistent with what
you come up with in your policy. And again, most
OCI managers would want to see your investment policy to
say. You kind of have this thing outlined in your
policy. I just want to make it clear to you.
Our IMA does not say we're responsible for that. So
should we adjust this? Or do you think that we
need to talk about this point? But that's how I
think most groups would look at that. I can answer
you the second one in terms of ranges or flexibility
when you're implementing I think is kind of the point.
Again. There usually is some amount of. So if you
had investment policy, you might have ranges in it. For
asset classes. Right? That says this much. This much. Most
groups, if you're going through a transition to a portfolio
that's going to be materially different than what you're. In.
You may have a sentence under there that says, listen,
we acknowledge that the portfolio is. Conducting a transition to
a new governance structure during. This time period, the board
will allow for temporary deviations to the asset mix policy.
Any deviation in the policy has to be either you
could seek. That has to be approved by the board.
In advance or reported to the board within one quarter
with an explanation how we will move towards policy. Right.
So you typically would have some kind of overarching. Statement
that says, listen, I understand these are all our ranges,
but we acknowledge that it may not. Be possible to
stay within all of them. So again, most groups would
have it let's say you commit to real estate, a
real estate manager may not be able to take your
money. Immediately. Right. So you're going to be underweight, your
target. Right. Because you can't. Invest in it. So you
might have a sentence that says, listen, I acknowledge that
this might happen so to. The extent it happens, I
want to see reporting on it, and I want the
ocio manager to tell me what the strategy is to
get me to policy compliance in the timeline. Right. I
would rather not say. We're trying. We'll see what happens.
Should be. What are you telling me is going to
happen to get me there, right? So that's usually what
we would say so, Kyle, I'm retaining a couple of
things. One. That the delegation to the OcIo needs to
be articulated somewhere. And ideally, some kind of reference should
be made. To the IMA and the document of what
the manager themselves has accepted to take on as a
responsibility. I'm also retaining that in a transition period where
you may have assets in movement and where there needs
to be flow that can be called out in an
investment policy. I know I've used that in my own
personal. Work relationships where you call out a transition period
of time. So that there's a natural cessation. Okay. This
is very helpful. Thank you. No, thank you. Not seeing
any more questions yet. Do you have maybe one more
slide? Is that right? Oh, yeah. No, it's just a
big eckler. I don't have anything on that one. Okay,
great. Last call for questions, then. No, not seeing any.
Okay, well. This has been very helpful. All three sessions
have been very helpful, so thank you. Maybe we'll just
do some of. The regular admin stuff that we do.
So could I have a motion to receive the presentation
from Eckler? Thank you. Board member ready? Makes that motion.
All in favor, please raise your hands. Thank you. That
Carrie is very good. So thank you again, Kyle and
Brad, very much for these sessions. It's great. Thank you
so much. And obviously, if there's any questions that come
up after the fact. Feel free to reach out to
us more. Happy to answer. Okay, great. Thank you. Yeah.
All right. Have a great day. Thank you. Thanks a
lot. Now, before everybody goes, can I have a motion
that the appropriate staff of one jib and one investment
be given the authority to do all things necessary, including
executing any documents to give effect. To the board's decisions
today. Board member Giles makes that motion. All in favor,
please raise your hands. Any opposed? No. All right. Can
I have a motion to adjourn? Makes that motion. All
in favor, please raise your hands. Any opposed? I would
say that carries so. We are now adjourned. And just
as a reminder, our next meeting is on Wednesday, November
27 at 10:00 so we'll look forward to seeing you
all there. Thanks very much, everyone.