future
focus.

The Provident10 investment team oversees the investment strategy as set out in the Statement of Investment Policies and Procedures (SIP&P^{Addresses key matters including the Fund governance, investment objectives and beliefs, philosophy, asset mix policy, risk management, permitted types of investments, and the responsible investing strategy.}) with the goal of producing a well-diversified portfolio of investments, which will ultimately support future member benefits. The most important aspect of Provident10’s investment portfolio is strategically selecting the appropriate mix of assets to invest in.

The current mix includes four key areas: equities (stocks), fixed income (bonds), absolute return (hedge funds), and real assets (real estate and infrastructure). This mix is reassessed every three to five years to ensure it remains aligned with the Plan’s funding policy and investment goals.

The Fund’s portfolio performance is measured by two key metrics:

Generating long-term returns on invested assets in excess of the Funding Policy’s 6% discount rate

Exceeding the return of the Policy benchmark on a 4-year annualized basis.

For the year ending December 31, 2021, the Fund achieved both performance targets. In terms of the primary target, the 10-year net annualized return of 10.3% is well ahead of the Plan’s 6% discount rate. On a four-year net annualized basis, the Fund achieved a return of 9.3% versus a policy benchmark of 7.7%, producing 1.6% of annual value added and exceeding the secondary target.

This outperformance, or “added value,” allows for the evaluation of the effectiveness of the investment strategy and its implementation at the total Fund level. Benchmarks are valuable tools Provident10 uses to measure performance of individual asset classes and the managers who invest in them on Provident10’s behalf.

Provident10 uses a thorough and rigourous risk-controlled approach by choosing an optimized risk level within a multi-year framework and by selecting and weighting asset classes to achieve a target return. By identifying an acceptable risk threshold, Provident10 can determine the mix of assets with the best chance to achieve its goal.

The Fund earned a net 2021 return of 11.2% compared to the benchmark policy return of 9.0%, producing 2.2% of added value. On an absolute basis, Canadian, global, and private equites primarily contributed to the Plan’s overall return for 2021. Value added was largely attributed to the Plan’s private assets and mainly via the Plan’s private equity allocation.

Public Equities

Canadian and global equites performed well on an absolute basis, generating returns of 24.1% and 14.6% respectively. Overall value added for public equities was negative for the year, largely attributed to growth style managers which struggled to keep up with benchmarks in the wake of a broader reopening of the economy. 2021 saw a general reversal of the impressive returns generated in 2020 in the wake of pandemic oriented technology disruptors. In contrast, value managers exceeded benchmarks year-on-year in 2021, in comparison to under-par performance in 2020. Overall, the Plan has benefitted from the diversification of offsetting growth and value styles over a total market cycle. Despite a challenging year, the Plan’s public equity value add remains strong over a four-year horizon and beyond.

Fixed Income

The Plan’s Canadian and global public fixed income generated negative returns driven mainly by rising yields. Canadian fixed income returned -1.7% and global credit generated -0.3% on an absolute basis. On a relative basis, both asset classes exceeded benchmark with Canadian managers achieving 0.8% of value added and global managers contributing 0.7% of value added. Relative to benchmarks, the Plan benefited from managers’ active security selection and harvesting of credit premia. Commercial mortgages generated satisfactory absolute returns of 3.1% and superior value added of 4.2%, benefiting from an overall lower duration profile in the wake of rising yields and active harvesting of illiquidity premiums.

Private Equity

The Plan’s most impressive returns in 2021 were contributed by private equity. On an absolute basis, private equity generated returns of 52.0% and value added of 32.5%. These extraordinary results – which are not expected to set a precedent for the upcoming year - are a function of the stage of life of the program. After a patient 5 years of progressively investing along what is known as the “J-Curve,” the Plan’s program is approaching a maturity phase where various buyout and growth-oriented programs have achieved their business plan and valuation objectives. This has led to significant exits or realized distributions and unrealized gains to the Plan. Private equity valuations, in general, remain anchored by strong investor demand for the asset class.

FIGURE 4: TOTAL NET OF FEES CAD $ RETURNS

	Fund Level	Benchmark	Value Added
Total Plan	11.24%	9.03%	2.21%
Canadian Equity	24.05%	25.09%	-1.04%
Global Equity	14.59%	17.53%	-2.94%
Private Equity	52.02%	19.53%	32.49%
Fixed Income	-1.72%	-2.54%	0.82%
Global Credit	-0.31%	-0.97%	0.66%
Commercial Mortgages	3.05%	-1.13%	4.18%
Listed InfrastructureWeighted approximation return calculation	16.29%	14.47%	1.82%
Private Infrastructure	15.06%	9.72%	5.34%
Real Estate	16.83%	8.72%	8.11%

Key Figures

Net Investment return for 2021 11.2%

Contributions $364.5 million vs Benefits $666.4 million paid

Net Assets Available for Benefits $11.7 billion

Real Assets

Real assets have provided strong absolute returns and impressive value add in 2021. Real estate was a strong contributor, earning 16.8% on an absolute basis and 8.1% of value add relative to benchmark. The Plan’s core Canadian held portfolio has benefited largely from investments in the industrial sector, based on strong logistical demands of the economy. Paired with lagging supply, industrial properties have experienced strong rental growth and investor demand which have moved property valuations significantly higher in 2021.

Similarly, the Plan’s infrastructure program produced strong returns of 15.1% and value add of 5.4%. Within the infrastructure program, the Plan has benefited from strong investor and economic demand for digital infrastructure assets—such as data centers—a need which has been further catalyzed by lasting structural consumer demands of the pandemic. In addition, strong investor demand for energy transition assets such as wind, solar and smart monitoring technology has furthered the Plan’s gains in the asset class. Similar to private equity, overall institutional demand and commitment to the asset class has, in general, been increasing and has maintained strong returns in the asset class in most categories.

During the first quarter of 2021, institutional investors digested rising bond yields, strong consumer demand, and concerning inflation indicators in the face of pandemically disrupted supply chains. By the second quarter, initial market worries subsided, as inflationary pressures were deemed manageable and “transitory” in nature. Fears however resurfaced later in the year and despite a continued economic recovery, the supply - demand inflation narrative continued, with global central banks acknowledging the issue and signalling a potential reversal of decades – long accommodative monetary policies.

Equity markets fared well during the year, with the MSCI All Country World Index and S&P 500 Index netting double digit returns, as institutional investors celebrated a strong economic recovery and discounted any persistent inflation concerns. Value styles outperformed growth stocks as institutional investors rotated away from the virtual economy back to a more fulsome pre-pandemic economy.

Canada and the S&P TSX Composite Index performed equally well. Notable returns stemmed from the energy sector, which benefitted from a global supply imbalance, alongside significant demand resulting from the global economic rebound.

Most fixed income indices around the world earned negative rates of return during 2021. Both the FTSE Canada Bond Universe Index and Bloomberg Global Bond Aggregate Index produced moderately negative returns, following a general rise in bond yields during the year. In Canada, with the exception of High Yield and Real Return bonds, all other categories - not including T-Bills - had total negative returns. The Canadian versus US Dollar value was flat over the period.

Figure 6: Market Index Table

	Q1	Q2	Q3	Q4	Total
SP TSX Composite	8.1%	8.5%	0.2%	6.5%	25.0%
S&P 500 (CAD$)	4.7%	6.9%	2.9%	10.7%	27.6%
MSCI AC World Index (CAD$)	3.2%	5.8%	1.2%	6.4%	17.5%
FTSE Canada Bond Universe Index	-5.0%	1.7%	-0.5%	1.5%	-2.5%
Bloomberg Global Bond Aggregate Index (CAD $ Unhedged)	-5.7%	-0.2%	1.4%	-1.0%	-5.5

• Worsening geopolitical issues are raising the overall level of volatility of many asset classes.
• Central Banks are withdrawing their asset purchases and limiting the upside potential of markets.
• Actual inflation results are significantly higher than anticipated.
• The recurrence of a COVID-19 epidemic as opposed to the forecasted endemic scenario has shaken markets.

The organization received over 14,000 calls. At the end of each call, members are invited to stay on the line to complete a short three-question survey on their experience and the service they received. Over 2,000 members took the time to provide their feedback on the experience and the results of the inquiries show high levels of satisfaction with the service and support they received.

On average, in 2021, Provident10 exceeded the targeted service standards. The team prioritizes retirement pensions and survivor benefits — ensuring members and their families can transition as seamlessly as possible to receiving pension benefits. Provident10 will continue to look for ways to enhance processes for targets that were not fully attained in 2021.

Notably, 2021 saw a 54% increase in the volume of membership terminations compared to 2020. Subsequently the organization did not meet the service target. It is premature to predict if this will be a new normal or if it is a result of the current shift in mass resignations due to the pandemic, however, in response to the increase in volume, the organization is prioritizing operational improvements that will enhance terminations and other similar processes, with the addition of team members to support these requests and a new fulsome case management solution that will be fully operational in 2022.

For each inquiry and transaction, Provident10 strives to uphold the following service standards:

Figure 8: Member Life Events

Process	Number of cases in 2021
1st Retirement Pensions	837
Terminations/Refunds	1,549
Process Plan Member Termination Election	422
Survivor Benefits	238
Purchase of Service	1,853
Total	4,899

Figure 9: Interactions with Members

Interactions
Phone Call Volume	14,410
Phone Responses (Voicemail)	341
Written Responses	17,554
Total	32,305

Figure 10: Service Standards Achievement

Process	Target (100%)	Achievement
1st Retirement Pensions	90% income continuance from submitted payment date	98.7%
Terminations / Refunds	90% within 30 days	74.1%
Process Plan Member Termination Election	90% within 30 days	95.8%
Purchase of Service	90% within 90 days	91.1%
Survivor Benefits	95% within 30 days	98.7%
Phone Answer Rate	90%	95.5%
Phone Responses	95% within 2 business days	96.2%
Written Responses	95% within 5 business days	94.0%

The establishment of an Internal Control Framework (ICF) is the foundation of that culture and has been an early priority for Provident10 that will continue to shape the future. An ICF enables an organization to assess its internal controls and provide reasonable assurance that they are working as intended. The ICF strengthens Provident10’s ability to ensure the risks related to the stewardship of the Plan and its resources are adequately managed.The ICF is integral in the progression of Provident10’s Enterprise-wide Risk Management Framework (ERM), which informs the risk exposure and risk assessment of the organization. Both frameworks will remain closely linked as the organization continues to evolve.

In 2021, Provident10 developed a systematic risk-based internal audit planning process, which informed the development of the first approved risk-based internal audit plan for execution in 2022.

The organization also advanced the maturity level of its internal control and risk management frameworks with the addition of key resources and risk training and awareness, including risk impact and likelihood assessment, evaluation of inherent and residual risk, and identification of risk mitigation strategies. This past year, Provident10 welcomed a new Director of Risk and Compliance and a new Internal Auditor.

The Total Reward Program is comprised of base salary, variable compensation driven by the Short-Term Incentive Program (STIP)^{The Short-Term Incentive Program (STIP) has been designed to promote a shared understanding of the priorities, expectations, and performance delivery for participants. It further aligns with the Strategic and Business Plan priorities and offers reward opportunity for successful achievement. The STIP program has Corporate and Individual targets assessed for 0%–150% attainment with minimum, target, and excellence performance metrics. The maximum total reward is capped. The variable pay STIP is assessed and paid annually. Employees re-earn payments each year by successfully achieving annually defined individual and corporate objectives.}, a group insurance program, and membership in the PSPP, and is consistently applied at all levels of the organization.

The program was developed by reviewing the compensation programs of comparable organizations according to various factors such as industry, size, assets under management, regional demographics, and the ability to attract, retain, and reward talent.

The Board of Directors approves the compensation principles and philosophy for the organization as well as the salary and variable compensation of the CEO.

Annually, the Board of Directors is presented with the Corporate Objectives Performance Report in support of the organization’s Short-Term Incentive (STI) Program. The Program is designed to ensure alignment of priorities between the organization and Board of Directors and provides the Board with the opportunity to assess corporate performance metrics.