Annual Reports
In June of each year, after it is reviewed and signed by the Auditor General of Alberta, we publish a report on the Plan which includes audited financial statements and highlights of the year's activities. To continue evolving to meet the needs of our members, starting with the 2021 Annual Report we've switched to a hybrid model that includes a shortened print version as well as additional online discussion and analysis.
The audited financial statements for each year, as well as the previous full-print versions of the annual reports, are available at the bottom of this page through the blue dropdown button.
Message from the Board Chair
As another year comes to a close and we all continue to navigate challenges brought on by COVID, I remain astounded by the dedication and resilience of the LAPP members who, as public sector workers, continue to serve us all through their jobs in health, education, and municipalities.
Message from the Board Chair
As we all seek to discover our new normal, Albertans continue to rely on our members to support their needs as we travel the path forward. On behalf of LAPP Corporation’s Board of Directors, I extend our heartfelt gratitude to our members for their amazing work.
2021 was a busy year for the Board as we reviewed the policy asset mix for LAPP’s fund, now totalling almost $62 billion. We made some important changes to the Statement of Investment Policies and Procedures, also known as the SIPP. This document sets the Board’s instructions for how the fund should be managed by Alberta Investment Management Corporation (AIMCo). The SIPP is reviewed by the Board on an annual basis and is key to ensuring we invest appropriately in a diversified portfolio that will cover the cost of the pension obligation to our members without assuming too much risk. Adjustments are made to the asset mix if an extensive analysis of the hundreds of different asset-liability scenarios indicate the mix can be better optimized.
Other important work in 2021 included the ongoing review and oversight of AIMCo and Alberta Pensions Services Corporation (APS), as we analyzed their performance and worked to measure their progress against a variety of benchmarks. Both Crown corporations do important work for LAPP Corporation, helping us to serve the needs of our members and their employers who make contributions to the Plan.
In co-operation with the Sponsor Board, the Corporation completes an actuarial valuation each year to set contribution rates for the following year. It was welcome news for many when, in September, the Sponsor Board recommended a decrease in contribution rates for 2022. The rate reduction is the Plan’s third in five years and will help to ease the financial burden of members and employers who have faced financial challenges resulting from disruptions caused by the pandemic.
In closing, I would like to say thanks to all my fellow Board members for their support of me as Chair over the past few years since we began our successful journey to a jointly-sponsored pension plan under new legislation. I now pass the baton to our new Board Chair, Terry Agoto, who has returned to the LAPP Board. It is time to rotate the chairmanship to the member side of the table and I am honoured to continue serving as Vice Chair as we carry on with our important work.
On behalf of both LAPP boards, I would like to pass our thanks to CEO Chris Brown and his dedicated staff at LAPP Corporation. Without their insight and efforts, LAPP would not be in the envied sustainable position it holds in the pension industry today.
Darren Sander
Chair, Board of Directors
LAPP Corporation
Message from the CEO
In 2021, as the world adjusted to new waves and variants of the global pandemic, we saw tens-of-thousands of LAPP members continuing to support Albertans as frontline workers in hospitals, health centres, community facilities, and classrooms throughout the province.
Management Discussion and Analysis
Despite a persistent pandemic and economic volatility around the globe, LAPP ended 2021 with an impressive 15% increase in net assets, earning $8.1 billion in investment returns and growing the LAPP fund to $61.6 billion. By any measure, it was a record-breaking year for LAPP, leaving the fund 124% funded on an accounting basis, and adding more paving stones in the sustainable path to a healthy future for generations to come.
APS Member Services Expenses
Alberta Pensions Services Corporation (APS) is responsible for benefit administration services to LAPP Corporation as outlined in a Pension Services Agreement signed between LAPP and APS.
In 2021, the pension services provided by Alberta Pensions Services Corporation (APS) on behalf of LAPP Corporation included:
- Benefit and contributions information as well as payouts to members;
- Data management and pension calculations; and
- IT, website, and cybersecurity support.
LAPP’s share of APS’ operating and plan-specific costs are based on cost allocation policies approved by the President of Treasury Board and Minister of Finance. LAPP’s share of APS’ costs was $38 million in 2021 or 72% of APS' total budget.
LAPP Corporation costs of $5 million include remuneration to a small staff and the Board members. In 2021, LAPP’s average service expense per member is $158, which includes APS’ operating costs, LAPP Corporation operating costs, and GST.
AIMCo Investment Administration Expenses
Alberta Investment Management Corporation (AIMCo) is responsible for investment management services under the direction of an investment policy set by the LAPP Board and under an Investment Management Agreement signed between LAPP and AIMCo.
AIMCo's expenses to manage the Plan's funds, including external managers, were $542 million in 2021, up from $281 million in 2020. The average investment cost per per member was $1,923, up from $1,018 per member in 2020.
The main reason for a significant increase in annual investment costs is that in a year of very high returns (14% in 2021) the fees paid to AIMCo increase because bonuses are paid based on investment performance. Thus, the more money we make, the higher the cost will be.
In addition, there have been increased costs at AIMCo related to the recent addition of other pension and trust fund clients, which has increased AIMCo’s assets under management.
Alberta Investment Management Corporation (AIMCo) had a banner year for investments, resulting from daily due-diligence and outstanding security selections. Combine that with a change in asset-mix approved by the LAPP Board early in 2021, and LAPP was well-poised to reap the rewards of strong results in public and private equities. More detailed information on investment summaries is included in the Investment Summary section of this Annual Report.
The Plan’s membership also continued to grow in 2021, despite uncertain funding in the private sector and speculation over a declining workforce to come. With 282,000 members, LAPP membership has grown by 2% in the past year, averaging growth between 2-3% per year for the last several years. Alberta Pensions Services Corporation (APS) continued to provide excellent customer service to our members and employers through a second year of working remotely through the challenges brought on by the pandemic.
Contribution Rates
In 2021, LAPP filed an actuarial valuation for the period ending December 31, 2020, which set a contribution rate reduction for members and employers beginning January 1, 2022. The new contributions are equal to an average 1% less for members and another 1% less for employers, which is the third rate reduction for LAPP in the last five years. The total combined (aggregate) contribution rate (paid by employers and employees) is 18.16 per cent of pensionable salary. For LAPP benefits, employers have always matched employee contributions and paid an extra 1%.
Through effective risk management and prudent planning, LAPP was able to reduce contribution rates in 2018 and 2019 by the same 1% for members and 1% for employers in each year. Contribution rates held steady for 2020 and 2021. Contributions are targeted to cover current service costs, which is the estimated costs of paying future pensions to members currently contributing to the Plan.
Contribution Rate Structure (aggregate rate by year):
Plan Amendment Process
Now that LAPP is an independent, jointly-sponsored pension plan with the ability to make plan rule amendments without required approval from government, the Sponsor Board established a Plan rule amendment process that was launched in 2021. The process allows members, employers, or sponsor organizations representing either, to request Board consideration of any plan rule amendment, including a change in benefits.
The single request received in 2021 was from the Alberta Fire Fighters Association (AFFA) asking if LAPP would offer public safety workers, as defined in the Income Tax Act, the ability to be covered by the maximum pension allowed under the Act. The public safety workers’ entitlement would require a higher pension formula and a differentiated contribution from the normal LAPP pension, which is currently the same for everyone in LAPP.
The Board agreed to hear the request and study whether it would be feasible for LAPP to administer the increased pension benefit. However, the Board put off studying the request until the potential change could be considered as part of a larger possible project to grow membership in the Plan. To clarify, LAPP is only considering whether it is feasible to offer this expanded benefit. Fire fighters, or any public safety worker, would still have to negotiate the benefit entitlement as part of contract settlements with their employers.
Communications and Member Engagement
2021 was a great year for member engagement according to the results of our online members survey and annual website contest. Each year LAPP encourages members to learn more about their Plan and why it is important to be “Always a LAPP Ahead” when it comes making the most of their pension.
One of our goals at LAPP is to make sure members are learning early in their career that retirement planning is not something to be left to the last minute. We are constantly adding information, videos checklists and useful automated tools to the member website, doing everything we can to make sure our members can access what they need to plan for the retirement they want.
Our late summer contest drew more than 19,360 members in 2021 who explored the website and entered a survey to win some cool prizes. Members give us valuable feedback on how to make things better and improve access and information. More than 96% promised to come back to the website soon and gave high marks on the pension estimators, videos, and access to personal information they found on their visit to the site in search of LAPP’s pension mascot, Ben E. Fit, also known as Benny, who held the clue to the prize of an Apple Watch, won by Edmonton nurse (now retired) Kimberly Jenson.
Improved Online Access for Members
Based on the great feedback from our members and thanks to the work of our Pension partners at APS, late in October LAPP launched improved access to private online services for members. The secure area of LAPP.ca, called Your Pension Profile (YPP), used to be difficult to access as members struggled to remember a 10-number identifier and/or a long-forgotten password.
Now, with the recent update to the login and password recovery process, more members are finding it easy to get into their secure area and send secure messages and update private information. If you are one of the 137,000 members and retirees who have registered for YPP you are now able to access annual statements, a pension estimator pre-loaded with your credited service, and a message centre to send and receive secure messages.
Virtual Connections Continue
Much like other business and industry personnel world-over, LAPP staff and Board members, and most of their corporate colleagues at AIMCo and APS, continued to work from home through 2021, connecting virtually by means of video conference software and digital messaging. Adapting well to the “new normal” of business communication, meetings continued as planned, schedules and deadlines continued to be met and performance measures were captured and recorded as per usual.
APS continued to meet the needs of members through thousands of calls to the member services centre every month while retirement and buyback applications were received and processed as per usual. The virtual experience was met with positive feedback from members who responded very positively to satisfaction surveys reporting they were getting the services they needed.
AIMCo continued to provide monthly reporting and quarterly performance reports on the status of the fund and investments in all asset areas. AIMCo staff continued to meet virtually on a regular basis with LAPP Corporation staff, managing and reporting on risk and attending Board meetings when requested. Further development of Responsible Investing policies and practices provided virtual opportunities for alignment between the corporations on environmental, social and governance (ESG) factors.
SIPP Review and Revisions
Recognizing the ever-growing importance of Responsible Investment (RI) in managing LAPP funds, the Board of Directors made changes to the Statement of Investment Policies & Procedures (SIPP) beyond a change in asset mix this year. Although AIMCo has long been dedicated to the Responsible Investments both in principle and in action while managing LAPP investments, the Board thought it should support this work by including an explanation of RI goals and rationale within the SIPP narrative.
The changes acknowledge the risks brought on by climate change and its impact on the Plan, including reporting on the carbon footprint and intensity of LAPP investments. LAPP has a duty on behalf of members to provide oversight of AIMCO’s RI activities, their measurements, and their reporting.
ORTEC
Asset-liability management (ALM) software was implemented by LAPP in 2021 which expands our in-house analytical capabilities to proactively monitor risks and opportunities that may impact the future funding of LAPP. This ALM software will inform LAPP’s strategic decision-making process and be used to 1) understand liquidity requirements; 2) highlight exposure to key asset and liability risks; and 3) set informed policies for funding, benefit design, and asset portfolio optimization.
Prior to the implementation of this ALM software, an ALM study was performed by an external consultant every 4 to 5 years, without too much ability to do rigorous testing in the years between. With the ORTEC software, we can test changing scenarios on a regular, ongoing basis, while continuing to do the major ALM study as per usual. A new module will be added in 2022 which will allow us to evaluate risks on a member-by-member basis and analyze changes in the demographic makeup of our members.
Risk Management
Funding and investment risk management activities are an integral part of the Corporation’s objectives and day to day business. However, to meet our objective of being “an industry leader in pension risk management”, a risk lens is needed in all aspects of managing pensions for our members. Robust risk management practices support and improve decision-making, planning and prioritization processes, which ensures appropriate action is taken to continually respond to all risks facing LAPP.
A key development in risk management activities in 2021 included the introduction of collaborative risk management techniques to identify, assess and respond to risks LAPP is exposed to through our partnership with outside operations like AIMCo and APS. The focus on this strategic partner risk will help LAPP understand how to mitigate risks outside of LAPP’s risk tolerance while holding our strategic partners accountable.
Inflation
Since the end of 2021, Russia’s invasion of Ukraine has led to economic uncertainty as price spikes in oil, natural gas, and other commodities as well as supply chain disruptions are adding to inflationary pressures around the world. The Bank of Canada raised its key interest rate target by 25 basis points on March 2nd and another 50 basis points on April 13th to curb inflationary pressures.
The Bank of Canada has communicated that it intends to bring the target inflation rate back the 2% target through future increases to interest rates and is now forecasting 6% inflation in the first half of 2022 with annual inflation forecasted to be well above 3% in 2022 and then dropping to 2.5% by the second half of 2023. After 2023, the Bank of Canada is expecting annual inflation to return to the target rate of 2%. The Bank of Canada’s short-term inflation expectations are not expected to have a material impact on LAPP’s financial position as of December 31, 2021, which assumes future inflation of 2% per annum.
Benefit Administration
LAPP is registered under the Alberta Employment Pension Plans Act (EPPA), and is governed by provincial legislation. Amendments to the Joint Governance of Public Sector Pension Plans Act stipulate that LAPP Corporation use two crown corporations of government to provide investment and benefit administration.
Investment Summary – Plan Performance
At December 31, 2021, the fair value of the Plan’s net assets increased by 15.1% (or $8.1 billion) to $61.7 billion. The total pension obligation increased by 2.4% (or $1.2 billion) to $49.8 billion. The excess of Plan net assets over the pension obligation increased in the year, resulting in an accounting surplus of $11.9 billion (2020: $5.0 billion) according to the audited financial statements.
Results
Fair Value of Net Assets versus Pension Obligation
At December 31, 2021, the fair value of the Plan's net assets increased by 15.1% (or $8.1 billion) to $61.7 billion. The total pension obligation increased by 2.4% (or $1.2 billion) to $49.8 billion. The excess of Plan net assets over the pension obligation increased in the year, resulting in an accounting surplus of $11.9 billion (2020: $5.0 billion) according to the audited financial statements.
| Fair Value of Net Assets | $61.715 Billion |
|---|---|
| Pension Obligation | $49.793 Billion |
| Accounting Surplus | $11.922 Billion |
As shown in the chart below, 124% of the total pension obligation was supported by net assets at the end of 2021, the increase was attributed to strong returns in Public Equities, Private Equities, and Inflation Sensitive & Alternative assets during volatile markets.
Percent of pension obligation supported by net assets (by year, per audited financial statements):
In 2021, inflows from investment income and contributions totalling $10.6 billion were over four times larger than the total of all the Plan’s outflows for benefit payments and expenses equal to $2.5 billion.
LAPP inflows and outflows (by year in millions, per audited financial statements):
The chart below compares the growth in the total pension obligation to the growth in net assets. The total pension obligation is based on the estimated net present value of future pension benefits paid to employees when they retire. Retirement benefits earned by employees provide a lifetime pension for each year of pensionable service based on a specified percentage applied to the average salary for the five highest consecutive years, subject to the maximum benefit limit allowed under the Canadian Income Tax Act. The estimated pension obligation increases annually for each additional year of pensionable service earned by employees.
The pension obligation is an estimate because it is based on various assumptions used by the Plan’s actuary. For example, an estimated discount rate is used to determine the present value of future retirement payments. A lower estimated discount rate will increase the total pension obligation. Similarly, a higher estimated life expectancy will increase the pension obligation. Net assets increase when there is positive overall investment returns and when employee and employer contributions exceed pension benefits paid. Net assets decrease when there are investment losses.
Net assets compared to total pension obligation (per year in millions, per audited financial statements):
In 2021, net assets increased by 15.1% while pension obligation grew by 2.4%, a reversal of directions to what the Plan experienced in 2020. The turnaround was attributable to solid asset returns due to accommodative monetary policy, strong corporate earnings, the mass introduction of COVID-19 vaccines, and the reopening of global markets.
Percent change in net assets and pension obligation (by year, per audited financial statements):
Investment Management Structure
LAPP Corporation establishes the Plan’s investment policy documented in the Statement of Investment Policies and Procedures (SIPP). The LAPP Corporation Board of Directors reviews the SIPP at least annually. Alberta Investment Management Corporation (AIMCo), a Crown corporation formed on January 1, 2008, provides day-to-day investment services for LAPP’s entire investment portfolio. AIMCo manages the majority of the Plan’s investments within internally managed pooled investment funds. However, for reasons such as greater diversification, access to outside expertise and specialized knowledge, and reduced operational complexity, AIMCo uses external managers for some investment strategies.
Fund Performance Review
After a strong market rally in 2021, the Plan posted a positive absolute return on the investment portfolio supported by loosened restrictions on economic activities due to rising vaccinations and strong corporate earnings. In the first half of the year, the LAPP fund earned 7.0% on rising equity markets and positive real asset revaluations. The fund’s value managed to maintain positive momentum over the second half of 2021, even when faced with supply chain issues, the Omicron variant, and inflationary pressures in the economy. Overall, as of year-end, the LAPP investment portfolio earned 14.3%, outperforming the policy benchmark return of 7.6% by 670 basis points. The value added by the investment manager, AIMCo, was the largest since the organization was established in 2008.
| Investments | $61.7 Billion |
|---|---|
| Return on Investments | 14.3% |
| Change in Net Assets | $8.1 Billion |
All of the major asset classes held by the Plan, with the exception of fixed income, generated strong absolute returns in 2021. As of December 31, 2021, LAPP’s Public Equities investments gained 22.6% for the year, compared to a gain of 4.6% on the same portfolio in 2020. Private Equities investments gained an exceptional 72.5% for the year, compared to a gain of 18.0% in 2020. For illiquid assets, such as Real Estate, Infrastructure and Timberland, they all earned a combined 16.6% in 2021 versus a negative return of 8.4% a year earlier. As for Fixed Income, the asset class gained a negative return of 2.36% for the year, compared to a gain of 11% in 2020.
The Plan’s investments’ net asset value has increased from $53.5 billion at the beginning of the year to $61.7 billion as of December 31, 2021. The net increase of $8.1 billion comprised $7.7 billion of net investment income after investment expenses and $433 million from excess contributions over pension benefits paid, net transfers, and administration expenses.
Market value – investments (in billions):
The chart below summarizes the Plan’s investments by currency at December 31, 2021. Approximately 37.1% (2020: 35.4%) of the Plan’s investments were denominated in foreign currencies.
LAPP Investments by currency (as at December 31, 2021):
The fair value of investments held in a foreign currency is sensitive to changes in exchange rates. As the Canadian dollar strengthens against a foreign currency, as was the case with the Canadian dollar versus both the US dollar and the Euro in the year, the market value of investments held in that currency will decrease. At December 31, 2021, it cost $1.26 Canadian (2020: $1.28 Canadian) to purchase one US dollar, and $1.44 Canadian (2020: $1.56 Canadian) to purchase one Euro. In accordance with the SIPP, AIMCo has the discretion to hedge any non-Canadian currency exposure in the Private Equity, Fixed Income, and Infrastructure asset classes at either the pool or security level, while Public Equities and Foreign Real Estate remain unhedged. In addition, AIMCo has the discretion to hedge any unintended currency exposure within each asset class.
Asset Mix
LAPP’s Board sets the asset mix policy for the Plan which includes Fixed Income, Public Equities, Private Equities, and Inflation Sensitive and Alternative investments.
(As at December 31, 2021)
| Asset Mix | Policy Weight | Policy Minimum | Policy Maximum | Actual 2021 | Actual 2020 |
|---|---|---|---|---|---|
| Fixed Income | 26.5% | 20.0% | 40.0% | 30.6% | 31.8% |
| Short-Term and Cash Long-Term Long-Term Bonds Universe Bonds Mortgages Private Debt & Loan |
- 5.0% - - - |
10.0% 20.0% 15.0% 6.0% 6.0% |
0.2% 9.0% 11.9% 3.3% 4.8% |
0.7% 14.2% 9.7% 3.9% 3.1% |
|
| Public Equities | 34.5% | 25.0% | 55.0% | 39.1% | 40.0% |
| Total Canadian Equity Total Global Developed Equity Total Emerging Markets Equity Small Cap Equity |
- 5.0% - 0 |
15.0% 40.0% 10.0% 10.0% |
7.0% 22.0% 4.9% 5.2% |
8.2% 20.8% 5.8% 5.2% |
|
| Private Equity | 6.0% | 3.0% | 9.0% | 6.5% | 4.6% |
| Inflation Sensitive & Alternatives | 33.0% | 20.0% | 50.0% | 23.4% | 23.4% |
| Real Estate Canadian Real Estate Foreign Real Estate Infrastructure Renewable Resources |
10.0% - - 10.0% - |
25.0% 13.0% 10.0% 25.0% 6.0% |
12.9% 7.8% 5.1% 9.0% 1.5% |
12.3% 7.9% 4.5% 9.5% 1.6% |
|
| Strategic Opportunities, Tactical Allocations, and Currency Hedges |
- | - | 0.2% | 0.3% | |
| Total | 100% | 100% | 100% |
Proxy Voting
The LAPP Board recognizes proxy voting is a key element of prudent investing and believes that thoughtful voting contributes to optimizing the long-term value of investments. The Board delegates the proxy voting function to AIMCo. AIMCo proxy voting processes integrate the use of an independent adviser that specializes in providing proxy-related services to institutional investors. While AIMCo may review and utilize the recommendations of the service provider in making proxy voting decisions, they are in no way obligated to follow such recommendations.
Investment Risk Management
LAPP recognizes that it needs to assume investment risk in its portfolio to meet the ultimate objectives of the Plan. As such, investment risk management forms an integral component of LAPP’s wider Enterprise Risk Management (ERM) program and is managed through various avenues including the guidance from LAPP’s Funding Policy, periodic asset-liability management (ALM) studies, annual reviews of the SIPP and asset mix, and oversight of the SIPP’s implementation by AIMCo.
During 2021, there were several milestones of note concerning the investment risk management of the Plan’s fund.
- First, the LAPP Corporation Board of Directors approved changes to the Statement of Investment Policies & Procedures (SIPP) on two separate occasions. In Q1 of 2021, the periodic asset-liability study resulted in an updated long term asset mix for the Plan. Among several asset mix changes the most notable were a decreased allocation to long term bonds and an increased allocation to the Alternative and Inflation Sensitive asset class category, and particular, to Infrastructure and Renewable Resources.
In the second part of the year, the Responsible Investment (RI) sections of the SIPP were significantly overhauled. It has been clarified that to the extent material environmental, social, and corporate governance (ESG) factors impact the value of, and risk environment surrounding the Plan’s investments, consideration of such factors is prudent in the execution of the Corporation’s fiduciary duty to ensure that material risks are appropriately managed. Climate change risk, in particular, has been identified as a priority ESG risk for analysis and new expectations have been placed on AIMCo to calculate and report on the carbon footprint of the Plan’s assets. Furthermore, the role of AIMCo in RI and the Corporation’s oversight of AIMCo’s RI activities have been further clarified.
Other important changes to the LAPP SIPP’s risk section were amendments of the volatility expectations and risk measures. The policy readjusted its Portfolio Value-at-Risk (VaR) limits and introduced two new metrics: Active Value-at-Risk (aVaR) and a new tail risk metric, called a conditional value-at-risk or Expected Tail Loss (ETL).
- Second, LAPP Corporation successfully procured and implemented sophisticated internal asset-liability modelling software. The new quantitative model capacity of LAPP Corporation will facilitate analyses of different dynamics and factors that impact the future funding of the Plan and allow for enhanced risk-scenario analysis and stress testing.
- Third, LAPP Corporation continued the development of an enhanced Scorecard process that improves existing on-going Board’s assessments of the alignment between LAPP and its investment manager, AIMCo.
Due to the aftermath of an internal volatility trading strategy in 2020, AIMCo presented a list of recommendations that focused on improving in its internal risk management culture and processes in 2021, while experiencing significant turnover in various departments. AIMCo is in the process of addressing these recommendations. In addition, AIMCo successfully implemented its new risk management platform, FactSet in late December. LAPP will continue to closely monitor the new risk management initiatives as a part of its oversight of AIMCo.
Long-term Investment Return Expectation
For funding purposes, in 2021, the expected future long-term investment return was 6.2% per annum. By comparison, LAPP’s actual annualized return over the past twenty years was 7.4%. However, in the past, the fund’s return expectations were higher due to higher bond yields and expected returns on individual asset classes.
Investment Results
To evaluate performance and measure the value returned by AIMCo from its active investment decisions such as security selection, the Plan compares actual investment results to its investment policy benchmark return. The benchmark return represents what the Plan could reasonably expect to earn without active management if it invested in the respective market indices in proportion to the policy asset mix approved by the Board. AIMCo strives to achieve more than market returns by over or underweighting specific investments in relation to the indices. Note, that some asset classes can only be implemented by the application of the active management style because of the lack of the viable passive product alternatives in the market.
LAPP currently expects AIMCo to deliver a return of 50 basis points or 0.50% per annum, net of fees, in excess of the policy benchmark return over a four-year time horizon. The value-added target has been recently adjusted down due to stricter active risk limits established for the Plan.
The table below compares the market-based policy benchmark return to the Plan’s actual return. In 2021, AIMCo’s returned positive 6.7% relative to the market-based policy benchmark of 7.6%. Last year’s negative relative return weighed heavily on the long-term value-add results of the investment manager, but the strong rally in 2021 offset the negative relative return. Over a four-year period, the annualized value-add return from AIMCo was positive 0.5%. Over the longer terms of 10 and 20 years, the investment manager’s value-add return was 0.5% and negative 0.2%, respectively.
| Investment Returns | Annual Returns | Annualized Returns | ||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | 2018 | 4 Years | 10 Years | 20 Years | ||
| Market Return (Policy Benchmark) | 7.6% | 9.5% | 12.5% | 1.0% | 7.5% | 8.5% | 7.2% | |
| Value Added (Lost) by Investment Manager | 6.7% | (4.3%) | (0.6%) | 1.0% | 0.7% | 0.5% | 0.2% | |
| Total Fund Return | 14.3% | 5.2% | 11.9% | 2.0% | 8.2% | 9.0% | 7.4% | |
Note: the above returns have been adjusted for illiquid assets and audited versus on-line published returns in LAPP’s Quarterly Investment Updates.
Actual annualized returns by year (%):
The investments of LAPP are diversified across many industries and asset categories. The returns of each asset category contribute to the overall return of the Plan. The table below outlines the fair value, percent of total investments, and annual returns of the different asset categories held, compared to the annual returns over the last three years, as well as the returns of the relevant benchmark index.
Table of Investment Returns (December 31, 2021):
| Asset/Sub-asset category Benchmark |
Fair Value | Asset Mix | Annual Returns | Compound Annualized Return 4-Year |
|||
|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | 2018 | ||||
| Fund 1 Policy CPI |
$61,616.7M - - |
100.0% - - |
14.3% 7.6% 4.7% |
5.2% 9.5% 1.0% |
11.9% 12.5% 2.2% |
2.0% 1.0% 1.7% |
8.2% 7.5% 2.4% |
| Fixed Income 2 Fixed Income Index |
$18,046.8M - |
29.3% - |
(2.4%) (3.6%) |
10.9% 10.2% |
9.6% 9.2% |
1.8% 1.0% |
4.8% 4.0% |
| Short Term and Cash FTSE Canada 91-Day T-Bill Index Universe Bonds FTSE Canada Universe Bond Index Private Mortgages Private Mortgages Benchmark (3)(4) Private Debt and Loan Private Debt & Loan Benchmark (4) Long Bonds FTSE Canada Long-Term Government Bond Index |
$144.3M |
0.3% - 11.9% - 3.3% - 4.8% - 9.0% |
0.1% 0.2% (2.4%) (2.5%) 1.1% (1.1%) 8.5% (0.9%) (4.8%) (5.1%) |
1.4% 0.9% 9.9% 8.7% 9.4% 8.7% 5.9% 8.7% 13.0% 12.1% |
2.0% 1.6% 7.8% 6.9% 6.0% 6.9% 4.4% 6.9% 12.8% 12.2% |
1.6% 1.4% 1.9% 1.4% 4.7% 1.4% 4.0% 1.4% 0.9% 0.5% |
1.3% 1.0% 4.2% 3.5% 5.3% 3.9% 5.7% 3.9% 5.2% 4.7% |
| Inflation Sensitive and Alternatives Inflation Sensitive and Alternative Index |
$14,421.5M - |
23.5% |
16.6% 7.5% |
(8.4%) 1.6% |
6.0% 5.3% |
12.9% 8.1% |
6.3% 5.6% |
| Real Estate Combined Real Estate Benchmark (5) Infrastructure CPI + 4.5% (5-year rolling average) (6) Renewable Resources CPI + 4.5% (5-year rolling average) (7) |
$7,949.7M - $5,553.8M - $918.0M - |
13.0% - 9.0% - 1.5% |
14.5% 8.0% 20.5% 6.8% 11.3% 6.8% |
(13.1%) |
3.8% 4.6% 7.7% 6.2% 14.2% 6.2% |
12.4% 9.5% 13.8% 6.2% 12.4% 6.2% |
3.8% 4.9% 9.6% 6.3% 7.8% 6.3% |
| Public Equities 2 Public Equities Index |
$25,027.3M - |
40.6% - |
22.6% 17.7% |
4.6% 13.0% |
18.6% 20.2% |
(4.8%) (3.6%) |
9.7% 11.4% |
| Canadian Equity S&P/TSX Capped Composite Index Global Equity MSCI World Index ($C) Emerging Markets Equity MSCI Emerging Markets Index Small Cap Equity MSCI World Small Cap Index |
$4,522.8M - $14,102.6M - $3,173.1M - $3,228.8M - |
7.3% - 23.0% - 5.1% - 5.2% - |
30.5% 25.1% 25.2% 20.8% 1.0% (3.4%) 22.7% 14.8% |
(3.4%) 5.6% 6.1% 13.9% 7.0% 16.2% 4.8% 13.9% |
20.8% 22.9% 20.3% 21.2% 10.6% 12.4% 17.2% 19.8% |
(10.1%) (8.9%) (1.7%) (0.5%) (8.2%) (6.9%) (7.2%) (6.1%) |
8.2% 10.3% 12.0% 13.5% 2.3% 4.1% 8.7% 10.1% |
| Private Equity 1 CPI + 6.5% (5-year rolling average) (8) |
$4,017.4M - |
6.5% - |
49.7% 8.8% |
36.0% 8.1% |
4.1% 8.2% |
11.7% 8.2% |
24.0% 8.3% |
| Strategic Opportunities, Tactical Allocations, and Currency Hedges MSCI World Index ($C) |
$103.7M - |
0.1% - |
(8.4%) 20.8% |
4.8% 13.9% |
17.0% 21.2% |
4.6% (0.5%) |
4.1% 13.5% |
| Strategic Opportunities Tactical Asset Allocations Currency Hedges |
$80.6M $20.4M $2.7M |
0.1% 0.0% 0.0% |
(2.7%) (29.7%) n/a |
(2.0%) 104.5% n/a |
20.3% (60.9%) n/a |
(2.2%) 60.6% n/a |
2.9% (2.5%) n/a |
1 Private Equity and Total Fund returns for 2021 and 4-year annualized have been revised for the valuation adjustment in 2020.
2 Notional adjustments for Fixed Income and Public Equities are not included in the asset class Fair Value.
3 Combined benchmark is 60% FTSE Canada Short)term Overall Bond Index & 40% FTSE Canada Midterm Overall Bond.
4 Prior to January 1st, 2021, asset class benchmark was FTSE Canada Universe Bond Index.
5 Combined benchmark is 2/3 IPD Large Institutional All Property Index and 1/3 MSCI Global Region IPD Quarterly Property Index. Prior to January 9, 2018, benchmark was IPD Large Institutional All Property Index.
6 Prior to August 1, 2015, benchmark was S&P Global Infrastructure hedged +1%.
7 Prior to August 1, 2015, benchmark was 50% MSCI World, 50% Real Return Bond Index.
8 Prior to January 1, 2016, benchmark was MSCI World Hedged +3%.
Investment Summary – Performance By Asset Class
At December 31, 2021, fixed income holdings comprise 29.3% of the Plan’s total investments or $18.0 billion compared to 31.6% or $16.9 billion at December 31, 2020.
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