As reported in the last FPP Update newsletter and in the Plan’s 2021 Annual Report, changes are being made to the strategic asset mix for the UBC FPP Balanced Fund to increase real assets (i.e. real estate and infrastructure). The new asset mix provides a slight reduction in the overall risk level while increasing the potential expected return for the Fund. The Figure 1 below illustrates the current versus new asset mix for the UBC FPP Balanced Fund.
Figure 1: Balanced Fund Asset Mix – Current versus New
It will take time to implement all the changes; however, the movement of assets is already underway.
In 2021 and early 2022, assets were moved to the UBS Global Core Real Estate Fund. Two new global infrastructure managers were also added – Brookfield Super Core Infrastructure Fund and CBRE Infrastructure Fund. Our full commitment to Brookfield was just called and assets will be moved on July 1, 2022. Assets committed to the CBRE Infrastructure Fund are expected to be moved within six to nine months.
In addition, the UBC FPP Balanced Fund’s bond component was reviewed in early 2022. This has resulted in changes that will affect both the UBC FPP Balanced and Bond Funds. The reshaping of the Plan’s fixed income investments involves termination of two current strategies (managed by BlackRock and AllianceBernstein) and an introduction of three new ones: one managed by our current manager (PIMCO) and two managed by firms previously not utilized by the Plan (PH&N and RPIA). As with any investment, there may be periods over which the new fixed income program will perform more poorly than the broad bond market. Nonetheless, the changes have the potential to lower overall portfolio risk and increase expected return over a full business cycle. The changes are illustrated below in Figure 2 (fixed income component of the UBC FPP Balanced Fund) and Figure 3 (UBC FPP Bond Fund).
Figure 2: Fixed Income Strategies in the Balanced Fund – Current versus New
Figure 3: Bond Fund – Current versus New
As a reminder, once the transitions have been completed, the investment management fees of the Balanced and Bond Funds are expected to increase. While fees matter, it is the investment return net of all fees that is important and these changes are being made to improve the expected future net returns of the Balanced and Bond Funds. For current fee information, sign in to your member account at mysunlife.ca/ubcfpp and select Accounts > Account fees.