8.1 Permissible investment categories:
Each investmentmanager will be expected to diversify its investments by type of security, industry, maturity date and company, to minimize the risk of large losses, unless prevailing circumstances suggest diversification would be imprudent. The assets of the ELCIC Pension Plan may be invested in any of the following investment categories, subject to the limits specified by the regulatory agencies, and in accordance with the guidelines outlined in this Statement. An investment not specifically permitted by this Statement shall not be made until the written permission of the Administrator is obtained. Once written permission has been obtained, this Statement will be updated with the new or revised asset class.
a. Cash and equivalents: cash on hand, demand deposits, treasury bills issues by federal or provincial governments including their agencies, commercial paper, short‑term notes, bankers’ acceptances, term deposits and guaranteed investment certificates of less than or equal to a one year term.
b. Fixed income: bonds, debentures, or other debt instruments of governments, government agencies, or guaranteed by governments, or corporations, notes, mortgage‑backed securities, and asset‑backed securities of greater than one year.
c. Equity: common and preferred shares, warrants, rights, income trust units, and securities convertible into common shares traded on the major recognized global stock exchanges.
d. Real estate and mortgages: investment in real estate and mortgages will only be made through pooled fund units which must be redeemable.
8.2 Limitations and restrictions:
8.2.1 Each manager is to manage its portfolio in accordance with all applicable legislation and regulations including the Pension Benefits Standard Act of Canada, the Ontario Pensions Benefits Act, and the Income Tax Act of Canada. All investments must be in accordance with any constraints that may be imposed by the Administrator. In addition, no investments in foreign property shall be made so as to cause the ELCIC Pension Plan to be liable for penalty taxes under the Income Tax Act, Canada.
8.2.2 All investments will be made in accordance with the Code of Ethics and the Standards of Professional Conduct of the CFA Institute. These standards require that investment managers, when taking an investment action for a specific portfolio or client, consider its appropriateness and suitability for that portfolio.
8.2.3 Lending of Cash and Securites
The ELCIC Pension Plan may not enter into cash or securities lending agreements, although any pooled funds held in the ELCIC Pension Plan may do so if their policies so permit.
8.3 Cash, cash equivalents and fixed income investments:
8.3.1 The investments in the securities of one issuer will not be more than 5% of the total market value of the portfolio unless the issue is guaranteed by the Government of Canada or one of the provinces of Canada with a minimum A rating,or for companies rated AA or higher where the limit will be 8% of the total.
8.3.2 Quality Constraints:
A manager may invest in the permitted investment categories listed in this Statement subject to the following quality constraints:
a. The purchase of cash equivalents issued by corporations and financial institutions is generally restricted to those which have a minimum rating of A1 or R1 by a recognized rating agency, or the equivalent at the time of purchase. An investment in a lower rated security shall only be made after advising the Administrator of the rationale for making the investment;
b. The purchase of fixed income instruments is generally restricted to those which have a minimum ratingof A or equivalent at the time of purchase, except that up to 25% of the fixed income portfolio may be held in BBB rated securities. In case of a split rating the weaker of the ratings will apply;
c. Investments in non‑Canadian cash equivalents and fixed income securities will be restricted to securities which meet local rating service criteria equivalent to those for similar Canadian securities.
8.3.3 If an investment meets the above quality requirements at the time of investment but is downgraded at a subsequent date, the decrease in the rating below the above requirements should not result in the automatic or immediate sale ofthe security unless in the judgement of the manager the investment is no longer of sound quality.
8.4.1 Investment constraints related to equities are as follows:
a. The market value of any single equity investment as a percentage of the total market value of all equity investments held shall not exceed the lesser of:
i) S&P/TSX Composite Capped Index weight plus 5%, and
b. The ELCIC Pension Plan shall not own more than 30% of the voting shares of any one corporation.
c. The proportion of the total market value of the Canadian equity portfolio invested by a manager shall not exceed 40% in the case of the financials sector and shall not exceed 35% in the case of the energy sector.
d. For the remaining sectors, the proportion of the total market value of the Canadian equity portfolio invested in a single sector of the S&P/TSX Composite Capped Index shall be the lesser of four times that sector’s Index weight or 25%.
e. In order to achieve a reasonable degree of diversification, there should be at least 20 equity holdings in an equity portfolio, and should be dispersed among at least six of the 10 sectors.
f. For foreign equities, an investment in the shares of any single company should not exceed 5% of the market value of all foreign equities held, and no more than 10% of foreign equities may be held in companies from developing countries (defined as other than OECD countries plus Hong Kong).
8.5 Other restrictions are as follows:
a. No writing of options on securities held, no short selling, and no investing in commodities or commodities futures contracts.
b. No investing in assets which are not readily marketable.
c. No entering into a commission recapture or directed commission program except as approved by the Administrator in a documented soft dollar policy statement.
d. No securities shall be purchased through other than normal public market facilities, unless the purchase price approximates the prevailing market price and is negotiated on an arm’s length basis.
8.6 Investments outside of prescribed limits:
8.6.1 It is recognized that the above limits are guidelines which should generally be adhered to, but should the performance of certain sections of the equity market or the investment markets in general be such that they cause the above limits to be violated, the managers must manage the assets to ensure maximum benefit to the beneficiaries of the ELCIC Pension Plan.
8.6.2 If any occasion should arise where an investment or group of investments does not conform with the limitations stipulated in this Statement, the manager in consultation with the Administrator shall exercise its best judgement concerning the action required to correct the situation. If it is apparent that the situation can be corrected within a short period of time through the allocation of cash flow, the manager may elect not to liquidate the temporarily non‑conforming investments. Irrespective of the above, the Administrator must be informed in a timely fashion of any deviations from the above guidelines and the actions that are being taken by the manager.
8.7 Liquidity requirements:
The Executive Director will inform the investment managersabout any ongoing cash requirements, as well as any changes or unusual needs.
8.8 Socially responsible investing:
8.8.1 The Administrator has a fiduciary responsibility to all ELCIC Pension Plan stakeholders to strive for superior investment performance by hiring professional investment managers, with institutional investing expertise, charged with meeting broadly defined objectives. ESG factors shall be considered by the Administrator in the selection and retention of investments across asset classes through an ongoing assessment of the extent to which investment managers analyse and integrate these factors into their investment process.
8.8.2 Investment managers should consider all relevant, material environmental, social and governance (“ESG”) factors in selecting investments. In the Fund’s fixed income and global equity portfolios, ESG factors are an explicit component of the investment decision-making process.
8.8.3 Investments in certain companies may be determined by the Administrator to be inappropriate on the basis of
a. ethical considerations that are believed to be supported by most members; and
b. an expectation that excluding such investments should not reduce the ELCIC Pension Plan’s longer run rate of return.
The portfolio will be reviewed periodically to identify any such inappropriate investments that are held directly by the ELCIC Pension Plan (as opposed to through pooled funds) and the portfolio managers will be instructed to divest these investments in a prudent yet expeditious manner.
8.8.4 Consideration is given to the specific investment mandate as well as identified best practices for the incorporation of ESG factors when assessing the investment managers.
8.8.5 If requested by the Administrator, the managers must be willing to sell any of the investments(not held in a pooled fund) viewed by the Administrator to be unethical or inappropriate investments for the ELCIC PensionPlan. If such a request were made, amanager would be given a chance to defend the holding of the investment. If, after discussion, the Administrator still feels that the assets should be sold, the manager must agree to comply with this wish within 90 days of the original notice.