Canadian Investment Review

Governance was key to turnaround at Newfoundland and Labrador Teachers’ Pension Plan

Written by Yaelle Gang on Wednesday, October 23rd, 2019 at 8:33 am

lynn-healeyLike many plans, the Newfoundland and Labrador Teachers’ Pension Plan came out of 2008 in rough shape.

So, the government started to discuss what should be done to deal with the plan’s unfunded liability.

In 2015, the agreement was made to turn the plan into a jointly sponsored pension plan, and the Teachers’ Pension Plan Corp. was established as the plan’s administrator and trustee.

In just a few short years, the plan saw a complete turnaround, with a fundamentally less-risky asset allocation and a funded status of 102 per cent as of year-end 2018.

A key part of how the rapid transition was possible can be tied to governance, said Lynn Healey, the fund’s chief investment officer, speaking at the Canadian Investment Review‘s 2019 Risk Management Conference.

To run the new plan, the sponsors wanted an expert board of directors, Healey noted. “And an expert board that was not jockeying in terms of ‘okay, this is the perspective from government’ versus ‘this is the perspective from teachers.’ It was very much ‘the board members have come together and [looked] at it in terms of what’s [in] the best interest of the membership and the plan.’ And that has been critical.”

The sponsors looked at what competencies they would want in a board and indicated they’d like pension administration experience, institutional investing experience, governance, legislative knowledge, finance and risk management. So, with that in mind, they looked across the country to find the best people to fill those roles reflecting those competencies, Healey said.

“In the early days, they rolled up their sleeves and I’d say, in some respects, perhaps didn’t know what they fully signed on for in August of 2016,” she noted. “They, at some points, were very operational. A couple of our board members, I would say, were almost pseudo-management at points in time.”

As the fund’s management team was built up, this allowed the expert board to step back and play a true governance role. “And that’s sometimes hard to do when you’re so ingrained in the operations. And so it’s a real testament, I think, to how effective that board really operates.”

The way the management of the fund has worked with other external partners has also evolved. Before the management team was in place, the investment consultant would essentially make recommendations directly to the investment committee, and then the investment committee would make recommendations to the board. Today, the relationship with the investment consultant rests with management.

The investment committee also has two non-board members who are experts in institutional investing, Healey said. “And that has been critical to give us the support to enable us to achieve what we’ve been able to achieve in the three short years.”

In addition to governance changes, there was a lot of focus on risk management throughout the process and keeping the asset-liability match in mind was key, Healey said.

Throughout the journey, the corporation has learned that significant change and transformation is possible  even from a small and lean team in the furthest northeast part of the country  through a rigorous focus on risk management, monitoring and accountability, Healey said. “With that kind of anchoring, you can achieve quite a bit.”

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