Managing Risk is Managing Investments
One of the reasons Ontario Teachers' is considered an innovative leader among pension funds is our approach to understanding and measuring risk and actively managing funding and investment risk together. This work is guided by the Strategy & Risk group, which reports directly to the CEO.
We proactively manage risk by:
- operating in a manner consistent with our board-approved risk appetite and Statement of Investment Policies and Procedures
- modelling our assets and liabilities to better understand long-term dynamics for investment planning purposes
- measuring risk against the plan's liabilities and benchmarks, including the measurement of potential loss within each portfolio and series of portfolios, across departments, across asset classes and at the total-fund level
- establishing risk budgets annually, spreading risk across asset classes to generate superior returns on a risk-adjusted basis
- monitoring and reporting the observed risk values against our budgets on a daily basis through our risk systems
- using sophisticated tools and processes that enable us to manage risk on a holistic basis to ensure we don't duplicate risks across asset groups
- championing risk awareness and accountability across our investment teams
Overall, we are limited in terms of how much risk we can take to generate returns and are as concerned about the potential for loss from an investment as we are with how much might be earned.
Fully Committed to Risk Management
We allocate significant resources to understanding, measuring and mitigating risks at all levels of the organization, from our Board through to our investment groups. In fact, we seek to remain at the forefront of risk management best practices worldwide.
Ontario Teachers' dedicated Strategy & Risk team plays a leading role in researching and assessing new products for possible integration into the investment strategy, as well as overseeing the development of the annual active management risk budget, economic analysis, benchmarks, investment guidelines and the design of the internal enterprise-wide risk system.
The Investment Committee of the board reviews and approves our risk budget annually, monitors overall investment risk exposure and reviews and approves risk management policies that affect the total portfolio, as well as new investment programs that introduce incremental risk.
Within Ontario Teachers', we operate two management committees to provide the dedicated and segregated focus we need to understand plan funding risks and to manage investments within appropriate risk tolerances. The Investment Risk Committee comprises investment, economics, finance and legal professionals, and our Investment Committee comprises senior investment executives only. This segregated approach facilitates better portfolio construction and improved risk management across assets, enhanced assessment of asset-mix decisions and on going management of liquidity.
Our daily risk management is aided by sophisticated tools and processes that we have developed and advanced for almost two decades. Our integrated systems allow us to better manage data, more fully report total fund risk, strengthen risk modelling and provide investment managers with rich reports to aid in their decision making. In recent years, we have enhanced our ability to capture the terms and conditions relating to the complex financial products in which we invest and have made this and other vital information readily accessible to our analysts and portfolio managers through electronic "dashboards."