Item - 2021.EX28.4

The Executive Committee recommends that:

1. City Council receive the report (November 16, 2021) from the Chief Financial Officer and Treasurer for information.

The purpose of this report is to provide the following information:

1.  Performance of the Funds for the six month period ending June 30, 2021

2.  General Market Update and Benchmark Performance

3.  City of Toronto Investment Policy and Procedures

Short-term volatility due to the pandemic and the economic outlook did create a reversal of some above average results experienced in 2020, especially those with exposures to interest rates.  However, investors with a longer term view and investment horizon, like the City of Toronto, have solid returns over the combined 2-year period ending June 30, 2021.  This 2-year period also marks the anniversary of a majority of the external investment managers that were funded under the purview of the Toronto Investment Board.  Performance of these managers are viewed on a rolling 4-year annualized basis in accordance with the Council adopted Investment Policy.

The City's General Group of Funds ("General Fund") holds the City's working capital and amounts designated for the City's reserves and reserve funds.  The Long Term Fund portion of this portfolio managed by external managers returned 5.4% on an annualized basis for the two year period ending on June 30, 2021.  Overall, including the Short Term Fund, the fund had a total return of 0.4 percent for the six month period ending June 30, 2021, and a 2.7 percent total return on a 4-year annualized return basis. These results outperformed the weighted market benchmark by 0.4 percent and 0.3 percent respectively. When the unrealized gains and losses are excluded from the total return, the book return for the General Fund was 1.2 percent (earned $46.4 million) for the six month period ending June 30, 2021. 

The City's Sinking Fund portfolio, which holds the investment funds for future debt repayments, saw external investment managers have a 4.1% annualized total return for the two year period ending June 30, 2021.   On a shorter term basis, the fund had a total return of -2.4 percent for the six month period ending June 30, 2021, underperforming the weighted market benchmark by 0.2 percent. When excluding the unrealized market gains and losses, the City's Sinking Fund portfolio earned 1.2% (earned $15.0 million) for the six month period ending June 30, 2021 on an earned income basis.  The customized benchmark index used for this portfolio as required by the Investment Policy does not yet have enough history for the 4-year measurement. 

Since January 1, 2018, the City's long-term investments have been managed by the Toronto Investment Board ("Board") under a new Council adopted Investment Policy which is based on the prudent investor standard. The investment portfolios have been progressively phased in to use of the broader range of investments that have become available. Although the overall portfolio risk has been reduced through asset mix diversification, the potential for volatility in total returns over the short term investment horizon still exist while the risk-adjusted total returns over the long term investment horizon are expected to be higher.

The Toronto Investment Board completed an asset mix review during the first six months of 2021 given the impact of the pandemic.  The Board decided that neither the asset mix nor changes to the Investment Policy would be required at this time.  It is a legislative requirement that the Investment Policy be provided to City Council, at least annually, for their review.  A copy of the current Investment Policy is included as Attachment 1 to this report which was last adopted by Council in June 2020. 

In total, there are now four fixed income managers and four global equity managers engaged in managing the long-term investments under the Toronto Investment Board. Both fixed income and equity investment classes are fully funded in accordance with the target asset mix in the Investment Policy with 70 percent allocated to fixed income and 20 percent to global equities.  As at June 30, 2021, approximately 90 percent of both the Sinking Fund and the Long Term Fund were managed by external fund managers with the remaining 10 percent to be allocated to real assets.  The Board continues to evaluate opportunities in the real asset category.

The City's auditor, KPMG LLP, found no exceptions with the compliance to the City's Investment Policy for 2020.   For the first six months of 2021, all funds managed are compliant with the Investment Policy.

The Toronto Investment Board is in the process of hiring a third-party data provider in order to monitor and report on whether or not external investment firms hired are compliant with the terms of the Investment Policy governing Environmental, Social, and Governance Factors.  While this process has taken longer than expected due to the pandemic and other unforeseen issues, contract negotiations are currently underway with a vendor for these services.  It is expected this information and data regarding climate change risk from these reviews be available for the next investment report in mid-2022 and will continue to be reported to City Council on a semi-annual basis.