#1-1125 2.36 4502 2125 74.00 19.79 116 4502 95.02 +1125 D 02.36 78.21 58.34 02.36 01 102 140 158.00 9.401.00 56 213 12,674.40 197.41 69.72 4,106.49 0.02 436 D 8.14 N -5002 DN -5002 07 103 22.36 10.02 65 378.23 397.66 236 22.36 -25.32 -2532 SP 0 22.36 1 49519.79 604.88 177.72 08.28 113.92 91.7 144 12 241.68 179.77 247.49 301.21 17.879.22 221.49 211.27 166.13 139.72 151 37 175.88 158.17 155.21 181.75 10,730.91 30.55 101.18 1 50 68 56 67 79 62 66 3,927.28 932.77 413.06 420.23 24,944.01 DN NB-1475 D 195 02.15 5633 03.25 02.03 03.25 -0203 02.09 410 125.91 89.93 41.65 69.77 2,472.26 D 24.74 32.36 9 134.69 136.24 103.95 100.98 103.95 99.99 84.81 109 99.47 5.874.00 135.98 8,019.79 02.35 153 02.35 0235 131.82 129.9 83.48 Municipal Eligible Investment Reforms September 18, 2018 Ontario Presentation to: MFOA Investment Workshop Ministry of Municipal Affairs and Housing#21 MUNICIPAL INVESTMENTS: AN INCREASINGLY IMPORTANT REVENUE TOOL IN ONTARIO Year over Year Growth of Investments $25 B $20 B Combined Ontario municipal investment $15 B portfolio size $10 B Average annual growth 7.42% $5 B $0 B 2009 2010 2011 2012 2013 2014 2015 2016 Financial year#32 THE MUNICIPAL INVESTMENT LANDSCAPE 1000 Distribution of Investment Balances across the 222 Sector Half of Ontario municipalities are currently investing 25 municipalities have investments over $100 M Number of municipalities 100 10 10 75 75 47 19 19 1 No Investments X<$1M $1M <X<$10M $10M <X< $100M $100M <X< $1B Over $1B Municipal investment portfolio size Key Insights#43 MUNICIPAL ELIGIBLE INVESTMENTS FRAMEWORK IN ONTARIO Municipal Act, 2001* City of Toronto Act, 2006 * Legislation Regulations O. Reg. 438/97: Eligible Investments and Related Financial Agreements O. Reg. 610/06: Financial Activities Rules • Status Previous Eligible Investments Framework In general, municipalities invest funds not immediately needed in accordance with a prescribed list of securities as set out in regulation. Prescribed list includes: i. ii. Government issued or guaranteed debt (bonds, debentures, promissory notes, etc.) Bank and financial institution debt, deposit receipts and notes iii. Certain Canadian corporate shares iv. Certain corporate debt (i.e., bonds) V. Certain asset backed securities and corporate paper Credit rating requirements may apply. As of January 1, 2019 eligible municipalities will be able pass a by-law to invest in any security in accordance with the prudent investor standard. Additional amendments to the prescribed list are also in effect. Since January 1, 2018 regulatory amendments have enabled the City of Toronto to invest in any security in accordance with the prudent investor standard.#54 THE NEW MUNICIPAL ELIGIBLE INVESTMENTS FRAMEWORK SUMMARY Using the new rules, a municipality can invest under either (1) the prudent investor standard or (2) the existing prescribed list of investments. To be eligible to invest in any security under the prudent investor standard, a municipality would have to satisfy certain fiscal criteria and establish an investment board or enter into an agreement for another municipality's investment board to manage its investments. Municipalities that are ineligible to invest under the prudent investor standard (or choose not to invest under this new standard) will continue to invest under the existing list of prescribed securities.#65 THE PRUDENT INVESTOR STANDARD Section 418.1 of the Municipal Act was proclaimed in force as of March 1, 2018. Permits a municipality that meets certain requirements to invest money that it does not require immediately in any security in accordance with the prudent investor standard and the regulation. Requires a municipality investing money under this standard to exercise the care, skill, diligence and judgement that a prudent investor would exercise in making an investment. Enables an eligible municipality to pass a by-law to opt into prudent investing as of January 1, 2019. Provides that a by-law opting into prudent investing cannot be revoked. The municipality must consider the following criteria in planning investments: 1. General economic conditions. 2. The possible effect of inflation or deflation. 3. The role that each investment or course of action plays within the municipality's portfolio of investments. 4. The expected total return from income and the appreciation of capital. 5. Needs for liquidity, regularity of income and preservation or appreciation of capital The municipality must diversify its investments to an extent that is appropriate to general economic and investment market conditions#76 PRUDENT INVESTOR RULES SUMMARY וווה םםם Eligibility Criteria Generally, to be eligible, municipalities would need to (i) individually or collectively achieve a minimum investment balance of $100 million or (ii) individually hold a position with a net financial assets balance of more than $50 million. Governance Framework A municipality must either establish or participate through an investment board, and delegate to it control and management of the municipality's investments (i.e. control of day-to-day investing). This framework is similar to the prudent investor framework for the City of Toronto. (1) A group of municipalities may collectively meet the $100 million threshold and together establish an investment board with control and charge of day-to-day municipal investments OR (2) A municipality may enter into an agreement to have an investment board of another municipality (or group of municipalities) already investing under the standard invest on its behalf. Joint Investment Scenarios#87 GOVERNANCE REQUIREMENTS The investment board is a municipal services board or joint services board under the Municipal Act, 2001. The municipality would delegate to the board control and management of the municipality's investments (i.e. control of day-to-day investing). An investment board cannot include members of council or municipal staff, with the exception of a municipal treasurer. Municipal council must develop an investment policy outlining the municipality's objectives for return on investment, risk tolerance, liquidity needs and other considerations. The investment board must adopt and maintain an investment plan that sets out how investments would be carried out. Each year, or more frequently as required by council, the investment board must prepare an annual report, which would include a statement by the treasurer as to whether investments are consistent with council's investment policy and the board's investment plan.#98 MUNICIPALITIES INDIVIDUALLY ELIGIBLE TO INVEST UNDER THE PRUDENT INVESTOR STANDARD (2016) # Municipality 1 Durham R Total Balance Net Assets 1,924,151,122 2 Halton R 1,765,881,957 3 Mississauga C 4 Hamilton C 883,868,413 790,720,269 5 London C 463,070,565 882,061,171 1,099,120,746 491,864,626 83,958,423 196,514,232 24 Essex Co # Municipality Total Balance 20 Cambridge C 21 Clarington M 22 Pickering C 23 Ajax T 72,632,342 Net Assets 97,654,165 55,768,350 55,046,267 49,423,158 114,844,670 40,801,450 113,388,413 34,876,841 77,430,400 25 Kenora C 32,825,228 72,344,711 6 Brampton C 355,388,120 453,375,585 26 Woodstock C 29,225,274 59,348,269 7 Richmond Hill T 330,801,789 274,373,367 27 Niagara Falls C 26,888,545 103,123,951 8 Oakville T 327,208,610 267,683,951 28 Whitby T 21,323,178 134,161,722 9 Greater Sudbury C 290,916,767 173,318,271 29 Vaughan C 19,847,806 343,301,204 10 Guelph C 227,313,124 74,614,042 30 Newmarket T 5,000,000 61,442,214 11 Markham C 197,742,752 12 Burlington C 186,124,594 430,096,225 174,611,608 31 Windsor C 138,643,000 32 Oxford Co 75,235,535 13 Brantford C 177,616,667 82,124,812 33 Sault Ste. Marie C 59,617,723 14 Waterloo C 148,854,104 126,754,766 34 York R 15 Kitchener C 139,030,212 206,623,776 35 Peel R 2,318,411,139 1,468,103,288 1,438,122,970 147,035,207 16 Haldimand County 137,676,262 66,588,213 36 Ottawa C 1,387,643,332 1,676,685,624 17 Milton T 106,423,550 89,276,539 37 Niagara R 402,792,313 69,117,584 18 Peterborough C 94,488,006 81,853,383 38 Waterloo R 162,072,560 568,631,111 19 Aurora T 83,950,425 53,346,916 39 Kingston C 128,890,480 168,774,329#109 KEY TAKEAWAYS As of January 1, 2019 municipalities will have access to broader investment authorities, including the ability to pass a by-law to invest using the prudent investor standard. Municipalities need to satisfy criteria for investing using the prudent investor standard either individually or collectively. Governance requirements will involve delegating day to day responsibilities for investments to a board. Councils maintain responsibility for developing investment policies.#11USEFUL LINKS E-Laws link to Municipal Act (See 418.1) : https://www.ontario.ca/laws/statute/01m25 E-laws link to O. Reg. 438/97 : Eligible Investments, Related Financial Agreem https://www.ontario.ca/laws/regulation/97043#12CONTACT Oliver Jerschow Director, Municipal Finance Policy Branch [email protected] 416.585.6951#13TORONTO City of Toronto Prudent Investor Experience Presentation for MFOA Annual Conference September 18, 2018#14Agenda ⚫ Background - New Regulations & the Portfolio Structure . Prudent Investor Transition - Four Step Process: 1. Establish Investment Board 2. 3. 4. • Q&A Council Approved Investment Policy Investment Plan Hire "Agents" (Investment Managers) bi TORONTO 14#15Background - New Regulations & the Portfolio Structure TORONTO#16Background • • • • Amended Financial Activities (O.Reg. 360/15) regulation becomes effective on January 1, 2018. The City's investments will no longer be required to comply with a prescribed list of investments. New rules based upon the Prudent Investor Standard. Prudent Investor Standard requires a trustee to act prudently and with caution, discretion, loyalty, and care, but does not restrict the assets in which a trustee can invest. The trustee must evaluate the risk/reward trade-off. Consideration will now be given to all asset classes including equities. Toronto is the first Ontario municipality to be permitted to utilize the Prudent Investor Standard. bTORONTO 16#17Background bTORONTO Four Step Process Affecting Approximately $5 Billion in Financial Assets Before January 1, 2018 1. Council Establishes Investment Board 2. Council Adopts Investment Policy 3. Investment Board Develops Investment Plan 4. Investment Board Hires Agents 17#18Overview of Portfolio Structure bd TORONTO Short Term Fund (Working Capital) Long Term Fund Sinking Fund Managed by CFO (City Staff) Managed by Investment Board "Funds not immediately required" 18#19Long Term Fund: Reserve and Reserve Funds 4,019 3,440 3,540 3,705 2,712 2,645 2,947 2,451 2,439 2,159 1,189 1,315 1,398 1,538 1,698 893 1,030 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 The budgeted balance for 2017 is $3.9 billion. The balance is forecasted to slowly decline to approx. $3.6 billion by 2020. b) TORONTO 19#20Sinking Fund: Debt Maturities 1,200,000,000 1,000,000,000 800,000,000 Maturity Schedule Summary As of December 31, 2017 600,000,000 400,000,000 200,000,000 b) TORONTO ... H 2018 2019 2021 2023 2024 2025 2026 2027 2035 2036 2040 2041 2042 2044 2046 20 20#21Guiding Principals Peter Wallace, City Manager: "We need to invest as if we were to provide a lifetime of income for a disabled child" Rob Rossini, DCM & CFO: "Crawl, Walk, Run" Commitment to "Best Practices" ● . b) TORONTO 21 21#22Step 1: Establish an Investment Board TORONTO#23Establish an Investment Board - How? . . How do you establish a "local board"? What is the process to do this? Who is involved in this process? • Who will "champion" this process? • Roles and Responsibilities - Staff vs. Board · • "Directional" versus "Operational" bd TORONTO 23 33#24Establish an Investment Board - Other . . Establish a Steering Committee Direction from Council • ● . How many members on the Investment Board? Qualifications of members Compensation? (Fiduciary not Advisory) Budget bd TORONTO 24 24#25Establish an Investment Board - Members . Recruitment (Clerk's Office) Selection Criteria & Evaluation Nominating Panel (3 Councillors) • Use of Consultants (RFP Process) . . Survey of Investment Boards • Investment Policy bi TORONTO 25#26Step 2: Council Approved Investment Policy TORONTO#27Investment Policy Considerations (1) Investment Beliefs & Objectives • Roles and Responsibilities (Council, Staff, . . Board) Asset Mix Nature of the Funds (Time Horizon) • Asset classes (Fixed Income, Equities, Real Assets) . . Risk/Return b) TORONTO 27 27#28Investment Policy Considerations (2) . Environmental, Social, and Governance (ESG) Annual Review (Semi-annual?) Compliance Custodian • Interaction between short and long funds. b) TORONTO 28#29Investment Policy bTORONTO A discussion on what asset classes to include in the study took place and it was determined to invest conservatively initially Volatility Dampening Return Seeking Degree Law/None Moderate High Asset Class Strategy Domestic Equity US International Emerging Markets Hedge Funds Private Equity Mortgages Alternative Credit Bonds Distressed Debt Government Provincial/ Municipal Corporate Real Estate Real Assets Municipal Usage Public Pension Plan Usage Suggested for Consideration Infrastructure Commodities Sample municipalities include: Vancouver, Calgary, Edmonton, Montreal, and Halifax. Sample public pension plans include: BC TPP, HOOP, Metropolitan Toronto Pension Fund, Metropolitan Toronto Police Benefit Fund, Municipal BC Pension Plan, OMERS, OPSEU, OTPP, and PSP Investments, MORNEAU SHEPELL 29 29#30Investment Policy b) TORONTO Different theoretical asset mixes were considered and ultimately, an allocation of 30% to diversified, non-fixed income asset classes was determined to be efficient Asset Class Current Baseline AAM 1A AAM 1B AAM 1C AAM 2A AAM 2B AAM 2C Bond portfolio 100.0% 71.5% 73.3% 76.1% 70.0% 77.0% 79.7% 78.4% Practical 70% Canadian Equity 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4% US Equity 0.0% 4.4% 6.8% 5.0% 8.5% 6.2% 4.3% 5.2% 10% International Equity 0.0% 0.5% 3.8% 4.7% 5.8% 6.4% 7.2% 6.8% 3% Emerging Market Equity 0.0% 3.6% 6.1% 4.3% 5.7% 5.5% 3.7% 4.6% 3% Total Equity 0.0% 8.5% 16.7% 13.9% 20.0% 18.1% 15.3% 16.6% 20% Canadian real estate 0.0% 10.0% 10.0% 5.0% 5.0% 5.0% 0.0% 2.5% 10% Global infrastructure 0.0% 10.0% 0.0% 5.0% 5.0% 0.0% 5.0% 2.5% 0% Total real assets Total 0.0% 20.0% 10.0% 10.0% 10.0% 5.0% 5.0% 5.0% 10% 100.0% 100.0% 100% 100.0% 100.0% 100% 100% 100% 100% A - Expected return 1.9% 3.3% 3.3% 3.1% 3.5% 3.1% 3.0% 3.0% 3.4% B - Expected volatility 7.0% 5.4% 5.7% 5.7% 5.8% 5.9% 6.0% 6.0% 5.8% Ratio of A over B 0.27 0.61 0.58 0.54 0.60 0.53 0.50 0.50 0.59 30#31Step 3: Investment Plan TORONTO#32Investment Plan - Goals • Take the broader guidelines of the Investment Policy and provide a detailed Investment Plan (Execution) • RFP for Investment Consultant . ● Investment Plan Manager Search Longer term contract to work with the Board Monitor Performance of Investment Managers b1 TORONTO 32 32#33Investment Plan - Scope Expansion . . Check the work completed for the Policy Suggestions to Change Investment Policy . ● Real Assets - Education Equities - Global benchmark versus Breakdown Fixed Income - Average Credit Rating Transition - How to Convert and Fund? bd TORONTO 33 33#34Step 4: Hire "Agents" (Investment Managers) TORONTO#35Hire External Investment Managers . RFP versus Consultant • Evaluation Process . Will the Staff be involved? . Will the Investment Board be involved? "Pooled" versus "Segregated" Documentation bd TORONTO 35#36Questions? TORONTO#37Appendix (Links) . Establishment of an Investment Board • https://www.toronto.ca/legdocs/mmis/2017/ex/bgrd/back groundfile-101438.pdf • Investment Policy (June 2018) https://www.toronto.ca/legdocs/mmis/2018/ex/bgrd/back groundfile-116242.pdf • Toronto Investment Board Meetings & Agendas • http://app.toronto.ca/tmmis/decision BodyProfile.do?func tion=doPrepare&meetingId=14098#Meeting-2017.IB1 blTORONTO 37 37#38ONE INVESTMENT ONE INVESTMENT New Investment Options: ONE's Response to New Investment Powers MFOA Annual Conference September 18, 2018 38 38#39ONE INVESTMENT AGENDA • Why invest? ● • • • Investments today Can investments make a difference? New investment rules: a brief recap What ONE is doing What you should be doing. 39#40ONE INVESTMENT ONE INVESTMENT Why Invest? 40 40#41ONE INVESTMENT WHY INVEST? • Better returns on funds is always helpful • Short-term funds or long-term • Real benefits of new investment powers come from higher returns from asset classes with longer investment horizons. In short, to help with capital. • We have lots of assets • We are underinvesting in assets • We have huge expenditure pressures • Limited and sensitive tax sources 41#42ONE INVESTMENT THE SHIFT IN ASSET OWNERSHIP 1961 Federal Provincial Local 31% 31% 38% 10% 22% 67% Federal Provincial Local Source: Stats Can, From Roads to Rinks, Table 1-A, Sept. 2007 It is expected that municipalities provide, own, operate and maintain their assets governments • Asset ownership has shifted from senior governments to local municipal . This trend is likely to continue 42 42#43ONE INVESTMENT GOVERNMENT REVENUES ■Municipalities have 9% of revenues 67% of assets Sales of Goods and Services、 8% Other Taxes 4% Social Security Plans. 6% Health Premiums 1% Consumption Taxes 21% Investment Income 8% Other Own Source Revenue 2% Property Related 9% Income Taxes 41% Municipal spending responsibilities and revenues don't align! 43#44ONE INVESTMENT INFRASTRUCTURE INVESTMENT Lower Target | Upper Target Current Infrastructure Reinvestment| Reinvestment | Reinvestment Rate Rate Rate Potable Water (linear) 1.0% 1.5% 0.9% Potable Water (non-linear) 1.7% 2.5% 1.1% Wastewater (linear) 1.0% 1.3% 0.7% Wastewater (non-linear) 1.7% 2.5% 1.4% Stormwater (linear) 1.0% 1.3% 0.3% Stormwater (non-linear) 1.7% 2.0% 1.3% Roads and Sidewalks 2.0% 3.0% 1.1% Bridges 1.0% 1.5% 0.8% Buildings 1.7% 2.5% 1.7% Sport and Recreation 1.7% 2.5% 1.3% 2016 Canadian Infrastructure Report Card, p. 11 44#45ONE INVESTMENT ONE INVESTMENT Investing Today 45#46ONE INVESTMENT INVESTING TODAY Legal list as amended from time to time About $29 B in investments in 2016, about $16 B if GBE are netted off (2016 FIR) • About $26 B in all types of reserves and reserve funds • No clear idea of how it is invested (short vs long) ONE Equity about $340 M (one indicator of long-term funds) 46#47ONE INVESTMENT NOT A MAJOR SOURCE OF REVENUE Statement of Operations: Revenue (2016) Investment 1% Other municipalities. 1% Other 10% Fines and penalties 1% Licences and permits. 3% User Fees 21% Grants 21% Taxation 42% 47#48ONE INVESTMENT "NOT A MAJOR SOURCE OF CAPITAL FINANCING SOURCES OF TCA FINANCING 2014 2015 2016 2017 Debt 15.5% 14.1% 15.8% 19.0% Levy 5.8% 4.1% 4.3% 4.0% Reserves 41.3% 41.0% 42.2% 41.4% Grants 20.5% 21.2% 20.1% 16.1% User Fees 1.8% 1.0% 1.3% 1.5% DCS 12.7% 13.0% 13.2% 14.6% Investment 0.1% 0.1% 0.0% 0.0% Other 2.4% 5.5% 3.1% 3.4% Total 100.0% 100.0% 100.0% 100.0% 48#49ONE INVESTMENT ONE INVESTMENT Can Investments Make a Difference? 49 49#50ONE INVESTMENT WHAT'S CHANGED? • • Emphasis on asset management and supporting financial plans . Provincial asset management regulation. • Federal gas tax requirements Major financial challenges Expanded range of investment options and services 50#51ONE INVESTMENT PENSION ANALOGY • A career is about 30 years • Shorter time frame than many of our assets • We put money aside (along with our employer) to OMERS The plan invests the money we contribute At the end of 30 years, we receive benefits that are a combination of direct member/employer contributions and investment returns 51#52ONE INVESTMENT PENSIONS AND INVESTMENT RETURNS You will receive approximately 10 times more in pension benefits than you contributed. About 70% of the pension benefits is from investment returns and the rest from contributions. OMERS 2016 returns are: Return Asset Allocation These are not money Fixed Income 4.3% 29% market rates of return Public Equity 14.7% 34% Private Equity 11.1% 12% Infrastructure 12.3% 16% Real Estate 11.4% 14% Total 11.5% 105% Source: 2017 OMERS Annual Report 52#53ONE INVESTMENT LONG TERM CAPITAL SAVING PLANS • An Example... Have a project of $1.5 million How much to put aside under different rates of return to do the project in 10 years? 20 years? ● Select rates of return shown below for 10 and 20 years Product 10 Year 20 Year Money Market 2.01% 2.91% ONE Bond 4.26% 5.08% TSX Equity 9.67% 9.60% 53#54ONE INVESTMENT 10 YEAR AND 20 YEARS COMPARED Thousands Using Investments to Finance Capital Works 1,600 1,400 158 316 405 1,200 628 644 998 1,000 800 1,342 600 1,184 1,095 872 400 856 502 200 10 Yr 10 Yr 10 Yr 20 Yr 20 Yr 20 Yr MM Corp Bond TSX MM Corp Bond TSX Tax Investment 54#55ONE INVESTMENT Accumulation Function: Portion from investment returns vs cash contributions Interest Years Rate 5 10 15 20 25 30 2.50% 4.9% 10.7% 16.4% 21.7% 26.8% 31.7% 2.75% 5.4% 11.8% 17.9% 23.7% 29.2% 34.3% 3.00% 5.8% 12.8% 19.4% 25.6% 31.4% 36.9% 3.25% 6.3% 13.8% 20.8% 27.4% 33.7% 39.5% 3.50% 6.8% 14.8% 22.3% 29.3% 35.8% 41.9% 3.75% 7.2% 15.7% 23.7% 31.1% 37.9% 44.2% 4.00% 7.7% 16.7% 25.1% 32.8% 40.0% 46.5% 4.25% 8.1% 17.7% 26.5% 34.6% 42.0% 48.7% 4.50% 8.6% 18.6% 27.8% 36.2% 43.9% 50.8% 4.75% 9.1% 19.6% 29.2% 37.9% 45.8% 52.9% 5.00% 9.5% 20.5% 30.5% 39.5% 47.6% 54.8% 5.25% 10.0% 21.4% 31.8% 41.1% 49.4% 56.7% 5.50% 10.4% 22.3% 33.1% 42.6% 51.1% 58.6% 5.75% 10.9% 23.2% 34.3% 44.2% 52.8% 60.4% 6.00% 11.3% 24.1% 35.6% 45.6% 54.4% 62.1% 6.25% 11.7% 25.0% 36.8% 47.1% 56.0% 63.7% 6.50% 12.2% 25.9% 38.0% 48.5% 57.5% 65.3% 6.75% 12.6% 26.8% 39.1% 49.9% 59.0% 66.8% 7.00% 13.1% 27.6% 40.3% 51.2% 60.5% 68.2% 7.25% 13.5% 28.5% 41.4% 52.5% 61.9% 69.6% 7.50% 13.9% 29.3% 42.6% 53.8% 63.2% 71.0% 7.75% 14.3% 30.1% 43.7% 55.1% 64.5% 72.3% 8.00% 14.8% 31.0% 44.8% 56.3% 65.8% 73.5% 8.25% 15.2% 31.8% 45.8% 57.5% 67.0% 74.7% 8.50% 15.6% 32.6% 46.9% 58.7% 68.2% 75.8% 8.75% 16.0% 33.4% 47.9% 59.8% 69.4% 76.9% 9.00% 16.5% 34.2% 48.9% 60.9% 70.5% 78.0% 9.25% 16.9% 35.0% 49.9% 62.0% 71.6% 79.0% Equal amounts invested each year at various interest rates and time periods 55#56ONE INVESTMENT RETHINKING INVESTMENTS Why can investment income be a significant source of financing? . • Time Compounding • Returns . Risk controlled investments 56#57ONE INVESTMENT ONE INVESTMENT New Investment Rules 57#58ONE INVESTMENT PRUDENT INVESTOR STANDARD ELIGIBILITY ● Municipalities eligible to invest under the Pl standard are those with: • 02 $100 million in money and investments that they do not require immediately, or $50 million in net financial assets • These conditions can be met by a single municipality or by municipalities investing in a pooled arrangement • 44 municipalities of 443 qualify on their own (FIR 2016) 58#59ONE INVESTMENT WHAT CAN MUNICIPALITIES DO? • A Municipality can: • Continue to restrict its investments to the Legal List; or • Move to the PI standard by: . • Establishing its own investment board (IB) or, with one or more other municipalities, establishing their own joint investment board (JIB) Investing through an existing IB or an existing JIB • Move from the Legal List to the PI standard if it meets the requirements. However, a municipality cannot move back to the Legal List without a regulation OPTION A OPTION B 59#60ONE INVESTMENT TWO APPROACHES TO MUNICIPAL INVESTING • Two approaches to municipal investment: . ⚫ The Legal List - under Section 418 of the Municipal Act The Prudent Investor (PI) Standard - Under Section 418.1 of the Municipal Act MA 2001 S 418 S 418.1 NOTE: City of Toronto is covered under a separate Act and regulations. Under its own Act and regulations, since January 1, 2018, the City has been subject to the Pl standard. Legal list ΡΙ Existing ONE program IB & new products 60#61ONE INVESTMENT ONE INVESTMENT What ONE is Doing 61#62ONE INVESTMENT LEGAL LIST PRODCUTS WILL CONTINUE Millions 400 ONE Balances by Portfolio 350 300 242 250 200 150 100 50 35 237 351 MM Bond UCB Equity In addition HISA balances of $1.1 B TOTAL with HISA = $2.0 B As of Sept 13,2018 62 62#63ONE INVESTMENT LEGAL LIST (CON'T) . • ONE has a current pooled investment program • These products are structured to be in full compliance with O. Reg. 438/97 • These products will continue for municipal investors who remain on the legal list • Working on some ideas to bring some diversification to this group of products, but not until 2019 Issue: With Pl as an option, how much attention will future changes to the legal list receive? 63#64ONE INVESTMENT • • WHAT IS ONE DOING? Helping the sector understand and possibly transition to the new investment option through education and use of best practices including: . Series of newsletters on new legislation and prudent investor standard Building a new business model to permit access to the prudent investor standard in pooled arrangements for small, rural and northern municipalities. • Assembling a team of experts to provide investors advice on: • Investments and portfolio structure Building investments into a capital financing strategy Working on the mechanics next. Major area of interest from potential investors. 64 59#65ONE INVESTMENT ONE INVESTMENT What You Should Be Doing 65#66ONE INVESTMENT TUNING UP YOUR INVESTMENTS • Establish investment objectives • Cash flow analysis • Reserve adequacy analysis • . Review your investment policy (especially if there is regulatory change) Enhance your long-term asset management plan through long-term financial planning 99 66#67ONE INVESTMENT WHAT SHOULD YOU DO ON YOUR ASSET MANAGEMENT PLAN? • . . Sustainability requires long-term plans. It doesn't just happen. Asset Management Plans (AMP) and financing strategies are critical. • Continue to refine and modify your AMP and financing strategy. Be open to making financial decisions differently and consider investment income as a potential source of financing for your AMP. • Recognize the power of compound interest. 67 65#68ONE INVESTMENT ONE INVESTMENT Conclusion 68#69ONE INVESTMENT SUMMARY • In light of new investment opportunities, munciipalities should review their investment objectives, investment policies, etc. . • ONE will provide greater assistance in the future re: investing · and using investments to finance capital works. ONE will be providing access to broader investment powers. (prudent investor) to municipalities that would not be eligible on their own. Significant potential for investment returns to substitute for tax dollars in financing asset management plans. • Stay tuned to your associations (AMO and MFOA) for ongoing information on the investment regulation. 69#70ONE INVESTMENT QUESTIONS? Dan Cowin Executive Director MFOA [email protected] 416.362.9001 × 223 70 70