Vestcor Addresses Absolute Return Benchmarking Criticism | May 1 2018
May 1, 2018
For information purposes only
Fredericton, NB, May 1, 2018 – The following information is being provided by Vestcor to address a recent materially inaccurate article published and broadcast by CBC New Brunswick on April 24, 2018 with respect to the investment benchmarks used for our innovative Absolute Return Strategies and their related impact on the compensation program applicable to our professional investment staff.
It is important for our stakeholders, our clients, and their members to note that the Vestcor Inc. Board of Directors remains very focused on following industry best practices and guidelines with respect to investment performance benchmarking and related compensation matters to ensure that we continue to provide low cost investment management services that meet the specific goals of our clients.
We also feel that transparency is an important component of our activities. Therefore, we provide a significant amount of governance information and a detailed series of annual reports on our website at www.vestcor.org. Investment management is a complex business and it is important to review this information in its entirety to fully understand the various objectives and outcomes.
The Vestcor Inc. Board, with the assistance of its Human Resources and Compensation Committee, monitors industry best practices with the assistance of a number of industry audit and consulting relationships. This monitoring process has been in place since our inception as the New Brunswick Investment Management Corporation in 1996 and was examined by the NB Auditor General, who later became a Director of our organization, in his 2008 report “Investment Performance and Cost Analysis”. In 2011 we also obtained a positive related assessment by Deloitte LLP of the report “Compensation Practice Assessment Against Financial Stability Board Principles” which is available on our website.
Absolute return investment strategies are an important part of the investment program for many of our clients. These strategies are particularly effective for our Shared Risk and Target Benefit Pension Plan clients as they allow Vestcor to generate returns that are uncorrelated with traditional investments, therefore improving a total portfolio’s risk and return profile.
Investment benchmarking is always an important consideration. Vestcor’s Absolute Return strategies benchmark is chosen so that all returns that are generated in excess of the benchmark are due to investment skill and not passive market exposure. The benchmark that has been identified to measure investment management performance for these strategies represents a passive short-term fixed income return which is similar to what is used by several of our national public peer fund managers. The Vestcor investment team, and their related performance-based compensation program, subsequently targets adding an additional 3.5% to this benchmark to create a long-term return which in combination with the benchmark return provides for a solid investment return that is uncorrelated with other financial market asset classes such as equity securities and bonds. This ensures that investment team compensation is closely aligned with our client’s success in meeting their funding goals and objectives.
Finally, we would note that investment benchmarking and the return target setting process is a complex procedure. In fact with respect to the initial April 24th CBC article we understand that one of the referenced critics, Mr. Leo Kalivakis who is a frequent commenter on Canadian pension fund issues on his blog “Pension Pulse”, has subsequently revised his thoughts once he better understood our specific process. For reference his updated comments can be found in the later portion of his webpage pensionpulse.blogspot.ca/2018/04/are-vestcors-benchmarks-joke.html.
Vestcor remains proud of our contribution to the ongoing investment success of our many clients. Our locally based team of investment professionals looks forward to continuing to help our clients meet their investment objectives in this challenging financial market environment at total costs that are well below typical industry levels.
Please feel free to address any questions or remarks to firstname.lastname@example.org.