COMMUNITY GROWTH AND SUSTAINABILITY: CREATING … · The Trustees 5 Trustees: 1 Corporate Trustee...

COMMUNITY GROWTH AND SUSTAINABILITY: CREATING SOVEREIGN

WEALTH

Oliver MacLaren, Olthuis Kleer Townshend LLP and Jack Jamieson, T.E. Wealth

October 3, 2017

Olthuis Kleer Townshend LLP and T.E. Wealth 1

Background

Olthuis Kleer Townshend LLP and T.E. Wealth

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Era of New Wealth

Growing acceptance of ‘Impact Benefit Agreements’ and Equity Participation over the last 20 years has meant unprecedented wealth to many indigenous communities

IBAs/Equity Participation now viewed as part of a consent framework – Recognition by a company of the impacts on Aboriginal and Treaty Rights as a result of development

Spectrum of benefits are provided in return for approval from community for development to proceed

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Era of New Wealth

With some notable exceptions, Reserve lands have not traditionally be the site of intense economic activity

Conversely, a large base of wealth for many first nations continues to be geographically based: Historic Land Claims

Impact Benefit Agreements to address impacts to aboriginal and treaty rights from mining projects

Equity ownership in Projects occurring in First Nation traditional territories

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Era of New Wealth - Grand Bend Wind Project

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Era of New Wealth

Historic Land Claims get settled Ability to settle also depends on the attitude of

governments/courts of the day

Resource Projects operate for a finite amount of time

Dependence on one or two projects as a sole basis for wealth means exposure to cyclical trends in resource prices and limited exposure to opportunities in the wider economy

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Era of New Wealth

An approach to wealth generation that is dependent on a consultation and accommodation / consent framework will only bear fruit for so long as the geography offers a commodity for sale

While this new era has in many cases brought unprecedented wealth, in order to preserve the gains made, a sustainable approach is needed.

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The Athabasca Community Trust


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Collaboration Agreement

Black Lake

Fond du Lac

Hatchet Lake

Camsell Portage

Stony Rapids

Uranium City

Wollaston Lake

Cameco Corporation

AREVA

Athabasca First Nations

Athabasca PermanentResident Organization

Companies


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Why Set up the Trust?

Trusts are tools for good governance.

Trusts enable communities to establish binding rules for how revenues can be used over the short and long-term.

Trusts are generally Creditor Proof.

The Athabasca Community Trust is a tool to manage some of the revenue from IBAs and successful business ventures to meet the needs of the present while ensuring that there is money put aside for future generations.

Separate Trust funds from each Athabasca First Nation and Communities’ operating budgets, enabling long-term planning for future community needs.

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Athabasca Community Trust: Mission Statement

“To promote and enhance the environmental, social,cultural and economic health and well-being of theBeneficiaries for present and future generations”.

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Parties to the Trust12

• The people who run the Trust,who make day-to-day decisionsabout how the Trust money isinvested and managed

Trustees

• The people who are entitled toreceive funding from the TrustBeneficiaries


Bene

fici

ari

esBene

fici

ari

es

First NationsFirst Nations MembershipMembership

Permanent Resident Organization

Permanent Resident Organization

Permanent Long Term ResidentsPermanent Long Term Residents


The Beneficiaries13

The Trustees

5 Trustees:

1 Corporate Trustee (The Canada Trust Company):

Manages funds and ensures Trust is administered in accordance with the terms of the Trust.

Does not make decisions on proposals to distribute income other than to confirm that proposal is for a Permitted Purpose.

4 Community Trustees:

Each FN appoints 1 original trustee.

Permanent Resident Organization (“PRO”) will appoint 1original trustee.

Terms are staggered and each community trustee is able to serve more than one term

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Trust IncomeTrust IncomeFunds from IBA and

investments

Long Term Fund (40%)Long Term

Fund (40%)Saved for future

Short Term Fund

(60%)

Short Term Fund

(60%)Expended annually

Trust Structure

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Trust capital is invested

Generates a fixed amount of

income per yearthat could be used for programs and services without touching capital

Generates a fixed amount of

income per yearthat could be used for programs and services without touching capital

(Interest earned)

Long Term Fund for the Future: Ultimate Objective


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Short Term Fund

Trustees make annual distributions from the short-term fund after Trust and IBA Implementation Expenses are covered. These distributions will be made as follows:

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Annual Community Distributions

Annual Community Distributions

50%50%

Fixed % for each

community

Fixed % for each

community

50%50%

Proposals based on fixed %

Proposals based on fixed %

A fixed % is distributed to each Athabasca First Nation and PRO (for each Athabasca Community) for programs and services.

To fund proposals received from Athabasca First Nations & Members, Athabasca Communities & Permanent Long Term Residents, or designated community organizations for permitted programs and services. Each Athabasca First Nation and Community is eligible to receive a fixed percentagefor proposals.

Permitted Purposes

Annual Distributions can only be used to: enhance community planning;

promote health/well-being of Members and Permanent Long Term Residents;

address community housing needs;

improve community infrastructure;

preserve or protect the language, culture and traditional land use of an Athabasca First Nation;

carry out community-based environmental projects or otherwise advance the environmental priorities of an Athabasca First Nation or Community;

support community events and gatherings;

provide educational and economic opportunities for Members and Permanent Long Term Residents (including scholarship/grant programs, trade apprenticeships, and internship programs); and

support community business development and capacity building for Members and Permanent Long Term Residents .

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Funding for Proposals


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Application Process for Proposals

A portion of the Trust funds for proposals will be available twice a year.

Community Trustees evaluate proposals in accordance with the Trust and criteria set out in the Deed.

Projects can only be funded if they support a ‘Permitted Purpose’ under the Trust.

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Who Can Submit Applications?

Eligible applicants:

Athabasca First Nation

Athabasca Community

Member of an Athabasca First Nation

Permanent Long Term Resident of an Athabasca Community

Organization representing an Athabasca First Nation or Community

Joint proposals by eligible applicants

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Determining the Investment Strategy to

Achieve Long Term Sustainable Growth…

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How Do We Best Achieve a Goal of Sustainable Wealth?

which strives to:

“Meet the needs of the present without compromising the ability

of future generations to meet their own needs.”

Trust and Community Priorities Can Be Numerous…

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Housing?

Education?

Health Care?

Economic Development?

Culture & Language?

Infrastructure?

… But What about Investment for Future

Generations?

Requires a Commitment – given the many prioritiesthat can exist today, there is often a need to“Prioritize the Priorities”

Creating Sustainable Wealth No Amount of Wealth is Unlimited!

Growth & Sustainabil i ty

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Requires Time, Consultation and Buy-In from thebeneficiaries to achieve a common vision

Requires Balance – to live within the sustainability andaffordability of current resources in order to balance theneeds of today with that of future generations…

… Achieving Community Growth & Sustainability is

much more than finding a good investment manager!

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Growth & Sustainability26

Achieving Growth & SustainabilityThings to Consider…

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Community Priorities?

Required Return on Investment?

Investment Asset Mix?

How to Minimize Risk/Volatilitythrough Portfolio Structure?

Required Return on Investment (RROI)Necessary To Meet Trust Priorities?

Housing

Post Secondary Education?

Trust Expenses

Preserve the Financial Stability of the First Nation for Future Generations?

Funding Needed to Meet Trust PrioritiesTrust Value / $40 million

PurposeAnnual Income Requirement ($)

% of Total Assets

Housing $800,000 2.00%

Post Secondary $400,000 1.00%

Trust Management and Expenses

$200,000 0.50%

Total Annual Requirement

$1,400,000 3.50%

Inflation $ 800,000 2.00%*

Total Annual Required Return

$2,200,000 5.50%

Sample Priorities

(28)

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Looking Back… Portfolio Sustainability Given Various Withdrawal Rates

0

10

20

30

40

50

1926

1928

1930

1932

1934

1936

1938

1940

1942

1944

1946

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

50/50 ALLOCATION, YEAR END PORTFOLIO WITHDRAWALS BEGINNING FROM 1926-1976

5% 4% 3%

Source: William P. Bengen, “Determining Withdrawal Rates Using Historical Data” http://www.retailinvestor.org/pdf/Bengen1.pdf Oct 1994

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# o

f Y

ea

rs P

ort

folio

Ass

ets

Las

t

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30

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The Investment Policy’sTarget Return To Meet Investment Objectives

3.50% Return Target to Meet Sustainable Annual Payment

2.00% To Meet Estimated Inflation

5.50% Estimated Required Return on Investment

to meet Trust Objectives

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What Should We Invest In?No investment is the best all the time !

Determining the Asset Mix that is appropriate in meeting the Required Return?

Sample Portfolio

Return Contribution

50% in Equities (@ 8.0%) = (4.00%)

50% in Bonds (@ 3.0%) = (1.50%)

* An Active investment Manager can be expected to add value over and above the market return

5.50%*

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Not Meeting Trust Objectives Can Be Considered the Biggest Risk Of All

Risk Management

“The process of analyzing a portfolio’s exposure to risk and determining how to best handle such exposure”...

This involves managing the portfolio with a goal of decreasing the probability or likelihood of an undesirable event occurring and/or reducing the impact such an event will have on the portfolio.

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The Importance of Limiting Losses

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1% 5% 11%

25%

43%

67%

100%

150%

233%

-1%-5% -10% -20%

-30%-40%

-50%-60%

-70%

-100%

-50%

0%

50%

100%

150%

200%

250%

Required Gain

Loss

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Annual Cumulative Annual CumulativeYR 1 13.0% 13.0% 5.4% 5.4%YR 2 2.0% 15.3% 5.4% 11.2%YR 3 - 5.0% 9.5% 5.4% 17.2%YR 4 8.0% 18.3% 5.4% 23.6%YR 5 19.0% 40.7% 5.4% 30.3%YR 6 6.0% 49.2% 5.4% 37.4%YR 7 11.0% 65.6% 5.4% 44.8%YR 8 7.5% 78.0% 5.4% 52.7%YR 9 -12.0% 56.6% 5.4% 61.0%YR 10 - 5.0% 48.8% 5.4% 69.8%YR 11 9.5% 62.9% 5.4% 79.0%YR 12 2.1% 66.4% 5.4% 88.7%YR 13 12.0% 86.3% 5.4% 99.0%YR 14 6.5% 98.4% 5.4% 109.8%YR 15 -18.0% 62.7% 5.4% 121.2%YR 16 25.0% 103.4% 5.4% 133.2%YR 17 8.0% 119.7% 5.4% 145.9%YR 18 5.4% 131.5% 5.4% 159.3%YR 19 8.3% 150.7% 5.4% 173.3%YR20 5.4% 164.3% 5.4% 188.2%

Simple Avg 5.4%` 5.4%Std Deviation 9.8% 0.0%Compound Avg 5.0% 5.4%

Impact of Reduced Volatility on Returns

Managing R i sk & Vo la t i l i tyPort fo l io S t ruc ture Cons idera t ions…

Managing Risk & Volatility“Balanced” Managers versus “Specialists”

“Balanced” Manager

An investment manager that manages multiple asset classes for the investorand is viewed as being proficient in all asset classes. This is in contrast to a“Specialist” Manager who just manages one asset class.

Benefits: Tactical Asset Allocation - The manager can overweight/underweight

certain asset classes based on their outlook on the markets

Rebalancing is performed by the manager-generally more timely .

Overall Costs are generally less expensive as any given manager has more of the portfolio.

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Growth & Sus ta inabi l i tyPor t fo l io S t r uc ture Cons iderat ions

Reducing Volatility through Multi-Investment Style Portfolio Structure

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Impact of Mul t i -Manager Solut ion on Overal l Costs (Sample)

Single Manager Solution

Impact of splitting $10,000,000 between two Investment Managers

Illustration: Impact on Overall Costs of a Multi-Manager Solution

Portfolio SizeFee (%)(2) – (1) above Fee (S)

Impact on Overall Costs $10,000,000

0.50% - 0.42%= + 0.08% = + $7,500

Firm Portfolio Size Fee (%) Fee (S)

Manager A –Value Mgr. $10,000,000 0.42% (1) $42,500

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Commun i ty Growth & Sus ta inabi l i ty Por t fo l io S t r uc ture Cons iderat ions

Source: RBC Capital Markets Quantitative ResearchDecember 1986 – September 2016

Income Driven Investment Strategy

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Growth & SustainabilityImpact of Ignoring the Future!...

Scenarios Year 5 Year 10 Year 20 Year 40 Year 50

Cumulative Dollars (4.5%) Transferred to Community $22,500,000 $45,000,000 $90,000,000 $180,000,000 225,000,000

Portfolio Value $100,000,000 $100,000,000 $100,000,000 $100,000,000 $100,000,000

Purchasing Power Adjusted by Inflation (2%) $90,573,081 82,034,829.99 $67,297,133 $45,289,042 $37,152,788

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Growth & Sustainabil i tyBuilding Today and for the Future!

Scenarios Year 5 Year 10 Year 20 Year 40 Year 50

Cumulative Dollars (2.5%)Transferred to Community $13,687,969 $28,699,005 $63,214,186 $154,646,807 214,686,723

Portfolio Value $109,665,912 $120,266,122 $144,639,402 $209,205,565 251,603,420

Purchasing Power Adjusted by Inflation (2%) $100,000,000 $100,000,000 $100,000,000 $100,000,000 100,000,000

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Growth & Sustainabil i ty

In Summary “Prioritize Community Priorities”

Growth and Sustainability Requires an Ability to Balance the Needs of Today with those of the Future Generations and to live within the a sustainable withdrawal rate based on the Resources that are Available

Volatility Reduction Can Increase Future Growth & Sustainability Asset Class Diversification Multi-Manager / Multi-Style Investment Structure Recognize the Benefits of Income Models on Risk and Return

Growth and Sustainability Means Incorporating Inflation Protection

Build for Today and Save for the Future!

COMMUNITY GROWTH AND SUSTAINABILITY: CREATING … · The Trustees 5 Trustees: 1 Corporate Trustee...

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Transcript of COMMUNITY GROWTH AND SUSTAINABILITY: CREATING … · The Trustees 5 Trustees: 1 Corporate Trustee...