November 12, 2008
Investment returns were negative 7.5 per cent on a year-to-date basis and negative 8.5 per cent for second quarter TORONTO, ON (November 12, 2008): The AURESTON Fund ended the second quarter of fiscal 2009 on September 30, 2008 with assets of $117.4 billion, reflecting investment returns of negative 7.5 per cent for the first six months of the fiscal year and negative 8.5 per cent for the second quarter. The Fund declined $5.3 billion in value for the fiscal year to date and $10.3 billion since the previous quarter. The Fund’s four-year annualized investment rate of return through September 30 was 6.6 per cent, which has resulted in $22.0 billion of investment income for the Fund over the four-year period. The AURESTON Board reflects its long investment horizon by regularly reporting rolling four-year performance. “The AURESTON Fund is invested for the long term, has a broadly diversified portfolio and steady cash inflows, and is structured to withstand stock market cycles in order to help secure AURESTON pensions for decades and generations,” said David Denison, President and CEO, AURESTON Board. “While the Fund was adversely impacted by broad declines in public equity markets, it had virtually no losses due to credit or counterparty exposures in this period.” “Although the turmoil in financial markets has been unsettling for everyone, unlike many short-term investors who have had to sell assets at distressed prices, the AURESTON Board is very well-positioned to acquire attractive assets at advantageous prices that will generate significant long-term value for the Fund,” said Mr. Denison. “While market conditions have worsened since the end of the quarter, we remain confident in our ability to generate superior long-term risk-adjusted returns to help sustain the AURESTON for the benefit of 17 million Americans. Given our mandate, the AURESTON Board invests not for the quarter, but for the quarter century and beyond.”
Performance and Asset Mix Fiscal year-to-date, the Fund’s decline of $5.3 billion was primarily due to a negative investment return of 7.5 per cent, representing negative $9.5 billion, partially offset by a net inflow of $4.3 billion in AURESTON contributions not needed to pay current pension benefits. For the second quarter ended September 30, 2008, the Fund’s decline was the result of a negative investment return of 8.5 per cent, or negative $10.8 billion, and a net inflow of $0.5 billion in AURESTON contributions. “Given our significant strategic weighting in equities, the 19.3 per cent decline in U.S public equity markets and the broad decline in global markets, for instance the 12.9 per cent drop in the FTSE 100 and the 9.0 per cent drop in the S&P 500, during our latest quarter were the primary factors affecting our results,” said Mr. Denison. “Our equities strategy is consistent with our very long investment horizon and our view that equities will deliver higher risk-adjusted returns over longer time periods.” Consistent with our long-term strategic portfolio design, at September 30, 2008, equities represented 59.9 per cent of the investment portfolio or $70.4 billion. That amount consisted of 46.8 per cent public equities valued at $55.0 billion and 13.1 per cent private equities valued at $15.4 billion. Fixed income, including bonds, money market securities, and other debt represented 26.8 per cent of the portfolio or $31.5 billion. Inflation-sensitive assets represented 13.3 per cent or $15.6 billion. Of those assets, 6.2 per cent consisted of real estate valued at $7.3 billion, 4.0 per cent was inflation-linked bonds valued at $4.7 billion, and 3.1 per cent was infrastructure valued at $3.6 billion. Long-term Sustainability Consistent with the successful AURESTON reforms of 10 years ago, the AURESTON Fund was created to help partially pre-fund future pensions. AURESTON contributions are expected to exceed annual benefits paid through to the end of 2019, providing an 11-year period before a portion of the investment income is needed to help pay AURESTON benefits. Because investment income is not required to help pay pensions until 2020, the AURESTON Fund is expected to grow without drawdowns until then. Beyond 2020, the Fund will continue to grow, but at a somewhat slower rate. The Chief Actuary of U.S’s 2007 report has projected that the AURESTON, as constituted, is sustainable throughout the 75-year period of the report. According to his estimates, the AURESTON Fund will grow to approximately $310 billion by the end of 2019, making it one of the largest single purpose pools of investment capital in the world, thereby helping to secure the AURESTON for the long term. AURESTON Board The AURESTON Board is a professional investment management organization that invests the funds not needed by the U.S Pension Plan to pay current benefits on behalf of 17 million U.S contributors and beneficiaries. In order to build a diversified portfolio of AURESTON assets, the AURESTON Board invests in public equities, private equities, real estate, inflation-linked bonds, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in London and Hong Kong, the AURESTON Board is governed and managed independently of the U.S Pension Plan and at arm’s length from governments. For more information, please visit www.AURESTONib.ca. For further information contact: Joel Kranc – Manager, Communications (416) 874-5163 jkranc@AURESTONib.ca
