In just a few short years, Concordia University’s pension plan has transformed its governance
model and investment approach.
Before the financial crisis, the university’s plan, like many plans, had its assets in a 60/40 mix,
said Marc Gauthier, Concordia’s treasurer and investment officer. Yet, in the financial crisis, its
funding ratio went from 101 per cent to 74 per cent.
Gauthier knew things needed to be turned around, but he was dealing with a board of directors
that was not interested in making change.
To start shifting the culture to one focused on sustainability instead of headline risk, education
was important, said Gauthier.
He worked for five years on educating the right people to understand the need for change. “I
must have invited over 20 specialists to engage in all of this education.”
Gauthier also undertook an enterprise risk management assessment for the pension plan.
This allowed board members to see where the exposure was held and to
identify risks above their
tolerance. “Then, as fiduciaries, you have no choice [but] to address it. You cannot simply ignore
[it] once you identify risk that is above your tolerance level.”
Coming out of this exercise, the plan developed a funding policy, which then influenced the
plan’s investment policy, Gauthier said. “The directive to the investment policy was to limit the
drawdown of any overall returns, but still [have] the ability to generate returns that meet our
target, which is the discount rate.”
The investment policy was redesigned to be 100 per cent absolute-return driven. “Why?
Because our liabilities are absolute driven. In our going-concern context, interest rate volatility
is actually irrelevant.”
Instead of dividing the portfolio by asset classes, the portfolio is categorized based on funding
objectives. On the defensive side, there is a capital preservation strategy, then there is a growth
category that focuses on specialization, concentration and high conviction, and, finally, there is a diversification strategy that is
disconnected from capital markets, he said.
This has benefits because it doesn’t limit a plan to a certain amount of assets per asset class.
A part of this change was also governance budgeting, Gauthier said. Instead of having one
committee, it now has a specialized subcommittee dedicated to investments that meets on a
monthly basis. The amount of time for the board meetings has also increased.
As well, the plan is very strategic about how it allocates time at each investment committee
meeting for education, discussion, reporting and monitoring. And, at the board level, there is
time allocated for education, discussion, strategic reporting and administration.
The new strategy has now been in place for five years and, over that time, the plan has been
successful in meeting its risk and return targets, Gauthier said.
The committee has also got on board with the changes, he noted. “The culture is outstanding.”