2014 Investment and Endowment Fund Report

FINANCE AND ECONOMIC
DEVELOPMENT COMMITTEE
REPORT 5
10 JUNE 2015
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2014 INVESTMENT AND ENDOWMENT FUND REPORT
RAPPORT SUR LE FONDS D’INVESTISSEMENT ET DE DOTATION DE
2014
COMMITTEE RECOMMENDATION
That Council receive this report on the results of the City’s investments for
2014, as required by Ontario Regulation 438/97 as amended, Section 8 (1),
and the City’s Investment Policy.
RECOMMANDATION DU COMITÉ
Que le Conseil prenne connaissance du présent rapport sur les résultats
des investissements de la Ville pour l’année 2014, comme l’exigent le
paragraphe 8 (1) du Règlement de l’Ontario 438/97 et la Politique
d’investissement de la Ville.
DOCUMENTATION / DOCUMENTATION
Marian Simulik, City Treasurer report dated 26 May 2015 / Trésorière municipale,
rapport daté du 26 mai 2015 (ACS2015-CMR- FIN-0027)
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Report to
Rapport au:
Finance and Economic Development Committee
Comité des finances et du développement économique
2 June 2015 / 2 juin 2015
and Council
et au Conseil
10 June 2015 / 10 juin 2015
Submitted on May 26, 2015
Soumis le 26 mai 2015
Submitted by
Soumis par:
Marian Simulik, City Treasurer/ Trésorière municipale
Contact Person
Personne ressource:
Isabelle Jasmin, Deputy City Treasurer, Corporate Finance, Finance
Department/Trésorière municipale adjointe – Finances municipale, Service des
finances
613-580-2424 ext./poste 21312, [email protected]
Ward: CITY WIDE / À L'ÉCHELLE DE LA
VILLE
File Number: ACS2015-CMR-FIN-0027
SUBJECT: 2014 INVESTMENT AND ENDOWMENT FUND REPORT
OBJET:
RAPPORT SUR LE FONDS D’INVESTISSEMENT ET DE DOTATION
DE 2014
FINANCE AND ECONOMIC
DEVELOPMENT COMMITTEE
REPORT 5
10 JUNE 2015
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REPORT RECOMMENDATIONS
That the Finance and Economic Development Committee recommend Council
receive this report on the results of the City’s investments for 2014, as required
by Ontario Regulation 438/97 as amended, Section 8 (1), and the City’s
Investment Policy.
RECOMMANDATIONS DU RAPPORT
Que le Comité des finances et du développement économique recommande au
Conseil de prendre connaissance du présent rapport sur les résultats des
investissements de la Ville pour l’année 2014, comme l’exigent le paragraphe 8 (1)
du Règlement de l’Ontario 438/97 et la Politique d’investissement de la Ville.
BACKGROUND
The City of Ottawa is authorized, under Section 418 of the Municipal Act, 2001, to invest
funds not immediately required. Ontario Regulation 438/97, as amended, establishes a
set of conservative criteria for eligible investment alternatives considered suitable for
Ontario Municipalities to invest the funds not immediately required.
The City’s Investment Policy, as approved by Council on 25 June 2003, sets sector,
issuer, credit and term limits and acts as the governing guideline for the management of
the City’s investment portfolios. The reporting requirements as stated in the City’s
Investment Policy and Section 8 (1) of O. Reg. 438/97, requires that a report be
submitted to Council each year.
Regulation 438/97 was amended on 12 December 2005, by Regulation 655/05. This
regulation provides a wider range of eligible investments in Canadian corporate bonds
and equities for the City's Endowment Fund. The regulation and the City’s adopted
Statement of Investment Policies and Procedures require reporting on the performance
of the Endowment Fund, which has been included in this report.
DISCUSSION
Financial Market Review 2014
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Canada’s economic performance in 2014 was indicative of a mild growth scenario.
Growth was primarily driven by domestic activity with some support towards the end of
the year from manufactured exports that benefited as a result of the declining Canadian
dollar and strengthening US economy.
The Bank of Canada’s key interest rate held steady at 1 percent, toping off a fourth
consecutive year with no monetary policy action. Bank of Canada’s policy makers
opened the year with indications that the next policy move in interest rates would be an
increase to curb burdensome household debt. However, given the strong influence of
the resource sector on the Canadian economy, the rapid decline in world energy and
commodity prices in the later half of the year resulted in a more cautious monetary tone
coming out of the Bank of Canada. The language expressed concern of a potential
negative growth and economic slow down scenarios that may develop if low energy and
commodity prices are sustained over an extended period.
The Canadian equity markets had a positive year gaining 7.30 percent in 2014. The
S&P/ TSX Composite Index opened the year at 13,622.00 and closed at 14,629.50.
Canada’s housing market remained resilient in 2014. Average home prices rose 6.98
percent on a year-over-year basis. Some analyst continue to express their concern for
the over heating housing market in Canada with concerns mostly concentrated in two
regional housing markets; Vancouver and Toronto.
2014 was a net cash flow neutral year for the City that resulted in similar investment
balances year-over-year. The cash balances were reinvested in short and long-term
investments with a slight bias towards the longer-term to take advantage of higher
returns from fixed income investments with longer maturity dates. The following table
shows the average portfolio balance during 2014 and the income earned for the year.
Document 1, attached, outlines the investment portfolio by asset class, term and credit
exposure
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Table 1 - Average Portfolio Balance During 2014 (in millions)
Portfolio
Average Portfolio
Value
Earned Income
Investment
Return
(Percent) [1]
Short-Term Investments
Long-Term Funds
Total General Funds
Sinking Funds
All Funds
1,022.0
12.1
1.19
663.4
15.4
2.32
1,685.4
27.5
1.63
67.0
2.5
3.73
1,752.4
30.0
1.71
1
Represents the return on the monthly average holdings for the year 2014 compared to Note 4
in the draft Consolidated Financial Statements which provides the weighted average yield on
investments held as at December 31, 2014.
Endowment Fund
The Endowment Fund (Fund) was established from the proceeds received from Hydro
Ottawa when it completed its refinancing in 2005. The Province broadened the scope
of eligible investments for the Fund to include Canadian equities and corporate bonds.
Two external investment managers manage the investments for the Fund.
The market value including accruals of the Fund as at December 31, 2014 was $197.5
million. The fund made three payouts to the City in 2014 - on Feb 18, 2014 in the
amount of $13 million, on June 12, 2014 in the amount of $7.1 million and on December
9, 2014 in the amount of $13.8 million for the total payout of $33.9 million. The market
value of the fund has increased to $203 million as at May 11, 2015.
The following are the details of the payments from the Fund compared to expected
returns over the past year and since inception:
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Table 2
Actual
Payments
Expected Return
Note (1)
2014
13,000,000
32,458,396
2015
13,000,000
-
Since
Inception
104,000,000
104,000,000
[1] As a result of strong returns in 2014 the City was able to declare and payout the annual 6.5
per cent contribution for the 2015 year in 2014 plus recover past payout shortfalls since
inception to bring the Actual Payments are in line with the Expected Return since inception
($104.000.000).
On June 14, 2006, Council adopted the investment policy and procedures for the Fund
which set the target return at 6.50 percent and established the Endowment Fund
Investment Committee to oversee the operation of the Fund. The Endowment Fund
year end was set at September 30 to provide the Committee sufficient time to declare a
payout to the City for the following budget year. Each year the Investment Committee
reviews the returns for the Fund and calculates the amount to be distributed to the City
based on a formula of 6.5 per cent of the average market value for the Fund at the end
of the three immediately preceding years ending September 30 provided that the Fund
does not fall below the initial amount invested of $200 million. On October 10, 2012,
Council endorsed the following recommendation: “That the City of Ottawa Endowment
Fund be maintained at $200 million and any excess continue to be directed to fund the
capital program (ACS2012-CMR-FIN-0039).
RURAL IMPLICATIONS
There are no rural implications as a result of this report.
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CONSULTATION
The public consultation process is not applicable.
COMMENTS BY THE WARD COUNCILLOR(S)
Not applicable.
ADVISORY COMMITTEE(S) COMMENTS
Not applicable.
LEGAL IMPLICATIONS
There are no legal impediments to receiving this report.
RISK MANAGEMENT IMPLICATIONS
There are no risk management impediments to receiving this report.
FINANCIAL IMPLICATIONS
It is the opinion of the City Treasurer that all investments were made during 2014 in
accordance with the City’s Investment Policy.
ACCESSIBILITY IMPACTS
There are no accessibility implications with this report.
TERM OF COUNCIL PRIORITIES
This aligns with FS2, maintain and enhance the City’s financial position.
SUPPORTING DOCUMENTATION
Document 1 – Investment portfolios by asset class, term and credit exposure (held on
file with the City Clerk)
DISPOSITION
Following consideration by the Finance and Economic Development Committee, this
report will be forwarded to Council for information.