Risk Management

We are committed to providing secure pensions to our members by investing in a broad range of assets in a manner that strives to earn superior returns without taking undue risk. Our goal is to ensure that the value of the Fund is sufficient to meet the value of all pension benefits (the “liabilities”), promised to members of the Plan, on a sustained basis.

Our ability to meet this obligation is affected by two factors:

• fluctuations in the value of the investment portfolio, which are driven by changes in investment markets (primarily market and credit risk), and
• changes in the value of the Plan’s actuarial liabilities, which are driven by both economic and demographic factors.

Risk management is an essential part of our corporate and investment strategy by helping the Fund generate the investment returns needed to keep the pension promise without incurring substantial risk of loss. We continually strive to improve our approach which is enterprise-wide and involves our AC Board, management and employees within each line of business. Risk management is supported by our system of internal controls, procedures and corporate policies including our Code of Conduct, Conflict of Interest and Statement of Investment Policies and Procedures. Management and employees are required to adhere to policies, procedures and standards that a prudent person would reasonably exercise when managing the assets of others.

The value of the Plan’s actuarial liabilities is sensitive to movements in interest rates and inflation rates similar to changes in the value of a portfolio consisting of real return bonds and nominal bonds. However the Fund invests in a combination of equities, infrastructure, real estate and a broad range of interest bearing instruments. While this investment strategy diversifies the investment portfolio and assists in maintaining stable and cost effective contribution rates, it produces a mismatch between the characteristics of the actuarial liabilities and the characteristics of the assets. This exposes the Plan to various risks that must be closely monitored and managed.

Risks Affecting the Plan

The Enterprise Risk Management program has identified four categories of risks that could potentially have an adverse effect on the Plan.

• First, there are investment risks (market and credit) that are an inherent part of investing in capital markets;
• Second, there is an array of operational risks that we face as a business operation;
• Third, there are strategic risks inherent in the execution of our longer-term plan; and
• Finally, there are legal and compliance risks that we deal with in the management and administration of the Plan and the RCA under the laws of Canada as well as laws and regulations of the various countries where we invest.