PSP Investments’ mandate is defined in Section 4 of the Public Sector Pension Investment Board Act:
To manage and invest amounts1 that are transferred to it in the best interest of contributors and beneficiaries under the Plans; and to maximize returns without undue risk of loss, having regard to the funding, policies and requirements of the Plans and the ability of those Plans to meet their financial obligations.
Our Investment Approach
Based on PSP Investments’ mandate, the Board of Directors has implemented an investment approach around two key pillars:
- A Policy Portfolio
PSP Investments’ Policy Portfolio defines the asset mix, or how assets will be allocated among various asset classes. It is designed with the aim of achieving a return at least equal to the long-term actuarial rate of return used by the Chief Actuary of Canada in his latest actuarial valuation of the Plans (i.e. a real return of 4.2%2). In the absence of other factors affecting the funding of the post-2000 obligations of the Plans, it is the rate of return required to maintain funding requirements and pension benefits at their current levels. The Policy Portfolio also takes into account the linkage between the assets and the liabilities related to post-2000 pension obligations.
- Active Management Activities
Active management activities are designed to generate returns over and above our Policy Portfolio and assist us in achieving the actuarial rate of return, within an active risk budget.
Our investment approach and our Policy Portfolio are outlined in our Statement of Investment Policies, Standards and Procedures.
Our Investment Objectives
The success of our investment approach is measured by the following investment objectives:
- Absolute Return: To achieve a long-term return (net of expenses) at least equal to the actuarial rate of return;
- Relative Performance: To achieve a target return exceeding the Policy Portfolio return.
Our Competitive Advantage
PSP Investments is in a unique position as one of the few large pension plans in the world that can expect net positive cash flows for at least the next 15 years. This enables us to act on opportunities that may arise and maintain our investments for the long-term, even in difficult market conditions without the burden of liquidity constraints.
- These amounts are liable for pension obligations for service on or after April 1, 2000 except, in the case of the Reserve Force Plan, where they are liable for service on or after March 1, 2007.
- In the actuarial reports on the Plans for the Canadian Forces as at March 31, 2011, tabled in Parliament in October 2011, the actuarial real rate of return was reduced from 4.3% to 4.2%.