Investment Goals and Objectives Policy 34-200 | Effective Date: March 27, 2024

Policy 

WorkSafeNB is an independent agency of the Government of New Brunswick and is accountable to the Minister responsible for the Workplace Health, Safety and Compensation Commission and Workers’ Compensation Appeals Tribunal Act.

WorkSafeNB administers a variety of benefit and services related to occupational health and safety and workers’ compensation to assist both injured workers and employers within the Province of New Brunswick.

As such, WorkSafeNB has raised over the years a Fund (The Accident Fund) to be used to pay long-term benefits awarded to injured workers and the cost of administering the system. The Fund has two investment portfolios: The Pension Fund Investment Portfolio and the Accident Fund Investment Portfolio.

It is recognized, however, that in most cases, benefits are defined independent of the value of the Fund assets. The Fund assets serve as security that awarded benefits will be met and are, in effect, held in trust for injured workers.

The board of directors has appointed a Finance and Investment Committee. It is responsible to ensure that the Fund is managed in accordance with this policy and in the related policies, directives and OCIO Agreement.

The roles and responsibilities of the board of directors, the Finance and investment Committee, staff and the OCIO with respect to the management of the Accident Fund are defined in Policy 34-205 – Statement of Investment Philosophy and Beliefs.

Any member of the Finance and Investment Committee who has a conflict of interest arising out of the investment activities of the Fund shall, at the first opportunity, disclose the existence and the nature of the conflict of interest to the chairperson of the board of directors and shall not participate in any discussion of, shall not influence or attempt to influence the outcome of, and shall not vote or otherwise participate in respect of the matter to which the conflict of interest relates. See Policy 41-013 Code of Conduct.

The policy set out in this statement will be reviewed by the Finance and Investment Committee every 12 months, or more frequently if deemed appropriate, to ensure that it remains reasonable.

Interpretation

Investment Policy for the Pension Fund Investment Portfolio

1. Regulation 82-210 under the Workers’ Compensation Act calls for the establishment of a pension fund investment portfolio for the payment of pensions in accordance with sections 38.22, 38.54 and 38.7 of the Act.
2. The Pension Fund Investment Portfolio shall be invested in the same asset mix and with the same investment policy as the Accident Fund Investment Portfolio.

Investment Policy for the Accident Fund Investment Portfolio

The Policy Asset Mix

3. The board of directors’ policy asset mix is it’s long-term allocation to various broadly defined classes of investments (i.e., bonds, equities, real estate, etc.). The policy asset mix is a significant determinant of the future return and risk of the Fund. There is no one correct policy for all investment funds. Differences in missions, liability profile, risk tolerances, and financial positions all affect the asset mix decision

4. It is the board’s policy to rely on periodic asset liability studies performed by external consultants to ensure that WorkSafeNB’s assets are structured properly in light of the related liabilities. In the asset liability study, the consultant will help the board to assess:

• The nature of the liabilities;
• WorkSafeNB’s financial position;
• The board’s risk tolerance; and
• The estimated future returns, volatilities and correlations for the asset classes being considered.

5. Given all this information, the consultant will help the board determine an acceptable long-term policy asset mix and funding policy that reflects the board’s return objectives and risk tolerance.

6. The asset liability study will be conducted via meetings of the Finance and Investment Committee, with participation and input from all members of the board of directors permitted and encouraged. The asset liability study typically results in changes to, or confirmation of, the policy asset mix and the funding policy, which are made through a recommendation by the Finance and Investment Committee to the board of directors. The board has authority for the asset allocation and funding policy decisions and will decide on the recommendations presented by the Committee.

7. The board of directors hired Morneau Shepell to conduct an asset liability study in 2019. After the study, the board adopted the new target policy asset mix described below, with a plan to transition to this target mix over the following few years.

8. It is expected that funding the increase in Infrastructure will take multiple years as the infrastructure managers draw down the allocated capital.  Until then, staff will source cash withdrawals from other parts of the portfolio, which should increase the Infrastructure weight relative to the other asset classes.

9. The current policy asset mix and the new target asset mix are listed below:
   

    

   Policy Asset Mix
   Asset Class	Current Policy Asset Mix	New Target Policy Asset Mix
   Fixed Income	16%	16%
   Cash	2%	2%
   Equities
   Canadian Equities	15%	15%
   U.S. Equities	14%	14%
   International (EAFE) Equities	14%	14%
   Emerging Markets Equities	4%	4%
   Liability-hedged Investments
   Real Estate	15%	15%
   Real Return Bonds	1%	0%
   Infrastructure	9%	10%
   Absolute Return Investments
   Opportunistic	10%	10%
   	100%	100%

   
   
   
10. When the transition to a new target policy asset mix occurs, the benchmark portfolio will adjust to the actual allocations to each asset class at the time that they are made, rounded to the nearest full percentage point. The benchmark portfolio will be adjusted at the beginning of the first full month after the reallocation has been executed.

Asset Mix

11. The Finance and Investment Committee will ensure that the total asset mix for the Fund is maintained within accepted ranges of variance of the board’s policy asset mix, as described below in accordance with Directive 34-205.05 Investment Portfolio Rebalancing Guidelines.

12. WorkSafeNB believes in a disciplined policy of re-balancing the fund’s various asset classes to their targets as expressed in the policy asset mix. The methodology for rebalancing the portfolio at the asset class level and at the individual manager level is described in Directive 34-205.05 Investment Portfolio Rebalancing Guidelines.

13. For all asset classes except real estate and infrastructure, the OCIO will rebalance to the policy asset mix when the market value allocations fall outside the minimum or maximum allowable ranges expressed herein. Because real estate and infrastructure can be illiquid and may require some time to buy or sell, these asset classes are permitted to be outside the target range identified above for periods of time, and may be rebalanced at staff discretion. When real estate or infrastructure have breached their allowable ranges and are not being rebalanced, the Finance and Investment Committee shall be informed and staff shall provide a plan for completing the rebalancing.

14. For the 2% allocation to cash, the allowable range will be 1.7% to 2.3%.

15. The opportunistic mandate has the ability to invest in a wide variety of asset classes and strategies with minimal constraints. The alllocations within this strategy should not be added to the other asset class weights when determining the actual weight, but shall be reported separately under the “opportunistic” mandate, and rebalanced accordingly.

Foreign Currency Exposure

16. The Policy Asset Mix contains a significant allocation to securities that are denominated in foreign currencies (U.S. Equities, International (EAFE) Equities, Emerging Markets Equities, some of the Infrastructure allocation, some of the Real Estate allocation, and some of the Opportunistic allocation). By holding securities denominated in foreign currencies, the fund is exposed to the risk of exchange rate fluctuations relative to the Canadian dollar for those currencies. These fluctuations impact the value of any gains or losses in foreign investments. This volatility in returns from non-Canadian securities can have an impact on WorkSafeNB’s funded ratio or assessment rate.

17. Consequently, the board has adopted a dynamic currency hedging program that uses a value approach to hedge the foreign currency exposure of the Accident Fund and the Pension Fund. For each of the various currency exposures in these Funds, the manager will have the discretion to adopt a hedge ratio of between 0% and 100%, depending on their view on the relative attractiveness of that currency. The benchmark or equilibrium position for developed market currency exposures will be  50% hedged. At the managers discretion, some currencies may not be hedged due to the size of the exposure (too small to have a meaningful impact) and/or due to the expense of hedging outweighing the estimated benefit.

18. It is expected that this dynamic, value-based approach should increase performance and reduce risk over the long term, relative to an unhedged portfolio and to a passive 50% hedging policy.

19. Additional guidance on the implementation of the currency hedging policy is provided in Directive 34-205.10 Currency Hedging. 

20. Active managers of foreign currency denominated assets may hedge the currency exposure they assume through their specific mandates, at their discretion.

Constraints

21. Guidelines pertaining to each individual manager are contained in the specific manager mandates.

i. No investment in private placement bond or equity issues, venture capital or other securities not publicly traded (other than real estate or infrastructure), will be permitted without prior approval of the board of directors.

ii. No ownership of options or futures contracts will be permitted without prior approval of the board of directors. The board has approved the use of forward contracts as described in Directive 34-205.10 Currency Hedging. The board has approved the use of options, swaps, forwards and futures contracts within the opportunistic, equity and fixed income mandates.

iii. To ensure a prudent level of diversification, no more than 5% of the market value of the Fund shall be invested in the aggregate securities of any one entity. This limitation does not apply to those securities issued or guaranteed by the Government of Canada or the Treasury of the United States, or to securities issued by one of Canada’s major chartered banks, or to pooled funds.

iv. Individual managers will not normally be allocated more than 20% (no restriction in the case of passive specialty managers or passive pooled funds) of the entire portfolio.

Investment Management Structure

22. The Finance and Investment Committee is responsible for the strategic management of the portfolio, which includes the following items:

• Recommending policy for the board’s approval, including setting the policy asset mix and performance objectives;
• Performance evaluation; and
• Currency hedging policy for the investment portfolio.

23. Day-to-day administration is delegated to staff and the OCIO.

24. The management structure of the Fund will be constructed in accordance with Directive 34-205.04 Investment Portfolio Management Structure or the OCIO Agreement. 

25. In addition, the OCIO adheres to its Agreement and has full discretionary authority when hiring, monitoring and terminating investment managers, while WorkSafeNB’s Chief Investment Officer - Alternatives follows the directives noted in the reference section of this policy. 

26. WorkSafeNB has two options for the investment of its assets: active management or passive management. Active strategies try to add value by outperforming the market portfolio, while passive strategies simply try and replicate the performance of the market (or an index which represents the market).

27. The board of directors believes that markets are not perfectly efficient all the time, and they endorse the use of active management to enhance the returns generated by the policy asset mix. The board recognizes that adding value through active management is difficult, and there is no guarantee that it will be successful, but the board believes the potential rewards justify an active approach.

Performance Evaluation

28. Although there are numerous methods to measure the success of this approach, the following sets out the parameters that the board of directors has adopted.

Real Return Objective

29. The policy asset mix, as denoted above, reflects the board of directors’ desire to maximize returns at an acceptable level of risk.

30. The board believes, based on the most recent asset liability study, that the policy asset mix should generate a long-term rate of return of at least 3.75% in excess of the increase in the Consumer Price Index (CPI) as published by Statistics Canada. This return objective equals the actuarially assumed liability growth rate, or funding  discount rate. This objective will be measured on a four (4) year moving average basis.

31. The purpose of this objective is to show the impact of investment performance on the funded position of WorkSafeNB. If the real return on the Accident Fund is greater than the 3.75% objective, holding all other things equal, the funded status should increase.

32. The board recognizes that with the current policy asset mix there will be significant volatility in investment returns, particularly over shorter time periods. It is expected that from time to time, the rolling 4-year and even the rolling 10-year (and longer) real returns will not meet the 3.75% real return objective. However, historically, over longer time frames (rolling 40-year periods), the current policy asset mix has been successful at achieving this objective.

33. This objective is measured on a rolling four year basis, even though the board recognizes there will be four year (and longer) periods when the objective is not met. The four year measurement period will keep the board aware of recent performance and its impact on the funded position of WorkSafeNB. It will also require staff to explain the reasons why the objective has or has not been met over the most recent four year period.

Benchmark Portfolio Objective (Active Management)

34. The board of directors, in adopting an active management approach to the Fund’s investments, has the following objective for the total Fund:

• To exceed, on a four-year moving average basis, the return generated by the benchmark portfolio by 0.20% on a net of fee basis.

35. The benchmark portfolio return is the return that the Fund would have earned if it was passively managed with the asset mix maintained at the policy targets.

36. The benchmark portfolio constitutes a “neutral position”, and represents the portfolio that would be used if the fund were to be passively managed (i.e., no active short term asset mix movement, with each asset class managed to achieve the return of its respective broad market index). Such a fund could be managed at a low cost, and the returns generated would be those of the invested asset class indices, less the aforementioned management costs.

37. The purpose of this performance objective is to show the value added (or lost) through active management.

38. The rate of return for the benchmark portfolio will be calculated in accordance with the following parameters: (The weights will change as the policy targets change towards the new target asset mix.)

Asset Class - Target Percentage - Benchmark Index

• Cash and short-term investments – 2% - FTSE Canada 30-day T-bill Index
• Canadian Fixed Income – 10% - FTSE Canada Universe Bond Index.
• Global Bond Fund – 3% - Bloomberg Global Aggregate Index Total Return (CAD).
• US High Yield Bond Fund – 3% - ICE BofAML US High Yield Constrained Index.
• Canadian Equities – 15% - S&P TSX Capped Composite Index.
• US Equities – 14% - S&P 500 Total Return Index.
• International Equities – 14% - MSCI EAFE Index (NET).
• Emerging Market Equities – 4% - MSCI Emerging Markets Index (Net) (CAD)
• Canadian Real Estate – 5% - Canadian CPI +3.75%.
• European Real Estate – 5% - Canadian CPI +3.75%.
• US Real Estate – 5% - Canadian CPI +3.75%.
• Real Return Bonds – 0% - FTSE Canada Real Return Bond Index.
• Infrastructure – 10% - Canadian CPI +3.75%.
• Opportunistic – 10% -Canadian CPI +3.75%.
• When the transition to a new target policy asset mix or target sub-asset class weight (e.g. US real estate) occurs, the benchmark portfolio will adjust to the actual allocations to each asset class or sub-asset class at the time that they are made, rounded to the nearest full percentage point. The benchmark portfolio will be adjusted at the beginning of the first full month after the reallocation has been executed.

39. The benchmark indices will be rebalanced quarterly.

40.  There is no investible passive alternative for real estate, infrastructure and opportunistic mandates, therefore there is no value-added objective. The manager's performance is expected to exceed the real return target of Canadian CPI +3.75% over the long-term.  

41. For the purpose of measuring rates of return of the investments, the returns of segregated mandates, and pool funds and partnerships will be reported on net of fee basis. All manager mandates will be evaluated over rolling four-year periods. All index returns shall be total returns.

42. Attribution analysis shall be prepared each calendar quarter to evaluate the respective contributions of asset mix and security selection decisions to overall returns. The returns on individual asset classes will be compared to the relevant index. Furthermore, individual investment managers will be evaluated relative to the appropriate asset class index return, as well as other criteria as may be contained in the applicable manager mandates. Additional information on metrics to be measured and reported to the Finance and Investment Committee are described in Directive 34-205.07 Guidelines for Reporting to the Finance and Investment  Committee, and in Directive 34-205.06 Manager Monitoring or per the OCIO Agreement.

43. Performance will also be compared with the median return of a recognized universe, both at the individual manager level and at the asset class and total Fund level, where available. WorkSafeNB recognizes that its asset mix is significantly different than that of the typical investment portfolio, whose returns are reflected in the median performance of most publicly available universes. Consequently, WorkSafeNB places less emphasis on the median return of a recognized universe comparison at the total Fund level. On the other hand, WorkSafeNB believes that comparisons of returns with those of various universes represent a valuable performance management tool at the asset class and active management level, but only if truly comparable universes are available

Risk Management

44. The board of directors defines risk as it relates to the Accident Fund as the likelihood of a permanent loss of capital. The primary risk management tool that the board employs to reduce this risk is the disciplined approach to the management of the Accident Fund that is described in the policies and directives governing investments and the OCIO Agreement.

45. These policies and directives include things like establishing an effective governance structure, hiring qualified, experienced staff, maintaining adequate segregation of duties, following a disciplined approach in setting the long-term policy asset mix, disciplined rebalancing, reducing volatility through diversification, disciplined manager selection, termination and monitoring, measuring performance and reporting, education, adherence to a code of ethical conduct and adhering to the discipline, once established.

46. In addition to the disciplined approach described above, the board will monitor the standard deviation of returns as a proxy for risk. Standard deviation is a commonly used statistical measure of the dispersion of returns around the mean. Finance theory suggests that the greater the historical volatility of returns, the greater the risk.

47. Standard deviation will be used to measure total portfolio variability and individual manager variability against their respective benchmarks and other portfolios in an external universe of plan sponsors or managers. This analysis will be performed quarterly. 

48. In considering risk, the board, Finance and Investment Committee and staff will weigh other factors besides the statistical measures of risk, such as valuation, liquidity, counterparty risk and leverage.

49. The board of directors believes that the volatility of returns can be minimized through prudent and thoughtful diversification. This approach minimizes the impact of poor returns in any single asset class by investing in a variety of assets that behave differently in various economic environments.  Diversification is achieved by investing in different asset classes and by diversifying by investment style, geographically, and by sector. In addition, bond portfolios are diversified into various issuers and by term to maturity.

50. It is intended that any new allocation to an asset class (cash, equity, fixed income, real estate or alternative investment), and any allocation by manager type or style, should improve the risk/return profile of the total portfolio.

51. The method of monitoring and reporting compliance with the policies and directives governing the Fund, and of monitoring the volatility of the investment portfolio is described in Directive 34-205.07 Guidelines for Reporting to the Finance and Investment Committee, in Directive 34-205.06 Monitoring of Investment Managers and the OCIO Agreement.

Proxy Voting

52. The board of directors views the voting of proxies as an important part of the investment decision-making process. Therefore, the board delegates the voting of all proxies to its investment managers.

Related Party Transactions

53. Purchase of debt securities or other marketable securities issued by the Province of New Brunswick or the Province of Prince Edward Island, which are directed by WorkSafeNB’s external investment managers are permitted.

54. Other related party transactions must be approved in advance by the Finance and Investment Committee.

Previous versions

• Policy 34-200 Investment Goals and Objectives, release 17, effective June 1, 2023
• Policy 34-200 Investment Goals and Objectives, release 16, effective August 10, 2022 December 9, 2021
• Policy 34-200 Investment Goals and Objectives, release 15, effective December 9, 2021