INVESTMENT PERFORMANCE

The Plan’s assets are invested in accordance with the Statement of Investment Policies, which outlines the requirement to manage the Fund in a manner that recognizes the interdependency of the Plan’s liabilities and expected cash flows for the base benefits and ancillary benefits, the closed group funded ratio, the Funding Policy, the risk management goals and the application of the risk management procedures.

The investment objectives are as follows:

• In the long term, to preserve the capital value of the Pension Trust, and to provide the best possible long-term real return on investments while continuing to achieve the risk management goals as set out in the Funding Policy. The target asset mix (policy portfolio) may experience uneven returns from year-to-year consistent with general economic and investment cycles, but a diversified portfolio of long-term assets will partially mitigate the variability of the returns.

• Over shorter time periods, to achieve competitive rates of return on each major asset class while avoiding undue investment risk and excessive market volatility.

• Over the medium term, to provide moving average rates of return in excess of the policy benchmark returns. A value-added contribution of 0.5% per year, after deducting all investment management costs, is the four-year target.

Asset Mix

The actual asset mix and the permitted deviations as at December 31, 2022, based on the NBTPP Board of Trustees’ review and amendments approved on September 27, 2022, are shown in the table below. As a result of the Board’s annual review of the Statement of Investment Policies, the Plan’s investments are being transitioned to a new target asset mix and both the current Target asset mix and Prior Target asset mix are shown in the table below for comparison:

A transition plan is in place because of a change in the Plan’s investment policy. While the Plan’s investments are being transitioned from the Prior Target to the Target asset mix, larger deviations are expected between the Target and Actual weights for certain investments. Additionally, there are slight deviations of the asset class weights between the Actual and Target asset mixes that are due to Market Price Movements. In other words, as asset prices change, weights naturally change as well. Vestcor is authorized to allow weights for asset classes to slightly deviate from policy weights to minimize transaction costs; however, weights are rebalanced to policy weights once deviations go beyond an allowable range.

Long-Term Returns

The chart below illustrates the gross nominal return compared to the benchmark return for the one-year period, the four-year period, and the twenty-five year period that Vestcor has managed the pension fund. The investment strategy of the Plan has been developed to meet a long-term actuarial return requirement that will maintain the provision of future pension benefits. While global financial markets can have short-term periods of low or even negative returns, the long-term sustainability of the Plan is very dependent on the long-term investment returns achieved over time.

Investment Performance as at December 31, 2022

Gross Nominal Return

The investment program achieved a nominal investment return of -3.83% which was the first time since the plan’s conversion to the NBTPP that the fund earned a negative return for a calendar year. The defensive positioning of invested assets provided significant protection against broader declines and the fund exceeded the policy benchmark of -6.58% in 2022. This resulted in approximately $270 million in investment losses, which, along with active member contributions, resulted in total funds declining by $460 million after Plan expenses and retiree benefit payments. More importantly, both the longer term four-year annualized return of 6.12%, and the return since the inception of Vestcor’s* mandate in 1996 of 6.92%, remain in excess of the discount rate previously set by the independent actuary.

The overall nominal return in excess of the portfolio benchmark resulted in 2.75% of gross value added for the year. After deducting investment management costs of 0.15%, the net value added to the pension fund for the year was 2.60%. The longerterm four-year gross value added was 1.39% with both the one year and four-year periods well in excess of the long-term target value added of 0.5%.

*Formerly the NB Investment Management Corporation; since 1996.

The one-year gross nominal returns by asset class compared to their respective benchmark returns are shown in the table below:

2022 Returns by Asset Class

For general commentary regarding investment performance, market events and the behaviour of asset classes, please visit vestcor.org/marketupdate Information is added on a quarterly basis.

The audited financial statements for the NBTPP are available on page 23, and provide detailed information on the Plan’s performance for the year ended December 31, 2022.