Item - 2018.EX35.16

The Executive Committee recommends that:  

1.  City Council approve the following amendments to the City Council-approved Investment Policy (Policy) and adopt the amended Policy as set out in Attachment 2 to the report (June 5, 2018) from the Interim Chief Financial Officer:
 

a.  the Asset Mix for Equities for Long Term Fund and Sinking Fund be adjusted by combining all four equity categories into one category called "Global Equity" with a Targeted Asset Mix of 20-percent with a range from a Minimum of 0-percent to a Maximum of 30-percent;

b.  the MSCI All-Country World Index (MSCI ACWI) be included as a benchmark to measure the performance of the equity portfolio in its entirety for the Long Term Fund and Sinking Fund;

c.  the benchmark for the Fixed Income component of the Sinking Fund be changed to "Customized" based on the "Liability Driven Investments" approach;   

d.  the average credit rating of the fixed income portfolio for the Long Term Fund and Sinking Fund be lowered from "A" to "A-" (or equivalent) to be equal to the fixed income benchmark (Financial Times Securities Exchange (FTSE) TMX Universe Canada Bond Index);

e.  the Asset Mix for the Trust Fund be adjusted by increasing the Maximum weight of Schedule 1 Bank from 50 percent to 100 percent which aligns with the current limit in the Investment Policy for the City's Short Term Fund;

f.  the minimum credit rating requirements of the Schedule 1 Banks for the Trust Funds be lowered from "AA-" to "A" (or equivalent) to be the same as the requirements for the City's Short Term Fund.

2.  City Council approve the establishment of a corporate reserve account named the Investment Stabilization Reserve in Schedule 3 - Stabilization Reserves of City of Toronto Municipal Code Chapter 227, Reserves and Reserve Funds ("Chapter 227"), the purpose of which is to stabilize investment income contributions to the operating budget by minimizing in-year variances through receiving funds in years when investment income is in excess of the amount expected in the operating budget and withdrawing funds in years when investment income is below budget, with criteria as set out in Attachment 5 to the report (June 5, 2018) from the Interim Chief Financial Officer.

This report was written to comply with the Council-approved Investment Policy and provides the following information:

1.  Performance of the Funds – for the year of 2017 and for the first quarter of 2018

2.  General Market Update and Benchmark Performance

3.  Recommendations for Investment Policy Changes

During 2017, the City's investment portfolio that holds the City's working capital and the amounts designated for the City's reserves and reserve funds earned $130.9 million in 2017 and $36.5 million in the first quarter of 2018 (2.6 percent and 3.2 percent annualized respectively). 

The City's sinking funds portfolio that holds funds for future debt repayments earned $59.7 million in 2017 and $13.5 million in the first quarter of 2018 (3.8 percent and 3.2 percent annualized respectively).  

Effective January 1, 2018, the City's investments are now managed under a new City Council adopted Investment Policy which is based on the prudent investor standard. Minor changes to the Investment Policy are recommended in order to improve the efficiency and effectiveness of the Toronto Investment Board's (the Board) Investment Plan. 

This report also responds to City Council direction to report on the selected investment manager's Environmental, Social and Governance (ESG) polices, and other developments related to Environmental Social and Governance factors. Environmental Social and Governance policies are an important part of the investment manager selection process currently underway. The City will recommend only those prospective fund managers who are United Nations Principles of Responsible Investing signatories, or equivalent, and use these principles in their investment decision process.