2017 Review

HEPP Investment Returns

The Healthcare Employees’ Pension Plan’s (HEPP) investments achieved a solid 10.0% return in 2017; an increase over last year’s return of 7.3%. All of our core portfolios had positive results, with returns of 13.8% in equities, 8.7% in real estate, and 3.3% in fixed income. Since its inception, HEPP has had positive returns in 18 of 21 years.

Our annualized five-year return is 10.3%. Currently a return of 6.15% is required to fund the Plan’s obligations. The Plan’s exposure to equity-type investments has generated strong returns over this period. Interest rates remain at historically low levels, and over the long term, equity type investments are expected to outperform fixed-income investments but equity returns are more volatile. As a result, the Plan’s investment policy has an exposure biased toward equity markets and real estate, as well as an allocation to infrastructure investments.

HEPP Investments Returns - Annual

2017 Annual Investment Returns

HEPP Investment Returns - Annualized

2017 Annualized Investment Returns

Major Market Returns

All the major markets that we invest in produced positive returns in 2017.

Emerging and international equity markets were the best performing in 2017, returning 28.7% and 17.4%, respectively. The Canadian equity market returned 9.1% in 2017 following a very strong return of 21.1% in 2016. The US equity market was up 13.8% in 2017 following an 8.1% return in 2016.

With Government of Canada bond yields remaining low, we expect the returns in our fixed-income portfolio will not meet the discount rate required to fund the Plan’s obligations. The 2017 return for the Canadian bond market was 2.5% as compared to a 1.7% return in 2016. The annualized five-year return for the Canadian bond market is 3.0%.

The real estate market in Canada returned 6.7% in 2017. Signs of weakness remain evident in certain sectors of Alberta, with the balance of Canadian properties exhibiting stable growth.

Major Market Returns

HEPP Asset Mix

Our overall equity exposure is unchanged at the end of 2017 compared to the prior year. Our weights in US and International equities, as well as infrastructure, increased at the expense of Canadian equities and fixed income. We are actively monitoring our exposure to equities and our regional allocations to Canadian, US and International equity markets as part of our risk management framework. These allocations will change over time, reflecting fluctuating return expectations and risk profiles.

The Plan has been invested in Canadian real estate since its inception, and we continue to seek opportunities outside of Canada that can provide expected returns that may compensate us for risks inherent in global real estate investments.

We continue to commit funds for our global infrastructure investment program, which is being funded from our fixed-income assets.

Asset Mix

Pension Plan Holdings as of December 31, 2017

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