Pensions Seminar Presentation to 1818 Society

Staff Retirement Plan

– November 1, 2012 –

Highlights

2

Secure Benefits

Good Funding Position

Strong Performance

• Assets held in legal trust, contributions irrevocable, accrued entitlements protected by Plan Document

• Strong and committed sponsor

• PBO Funded Ratio – 89% (as of June 2012) despite historically low real interest rates

• Broadly composed Pension Finance Committee, with knowledgeable and experienced members

• Transparent reporting and extensive disclosure

• Long-term performance in excess of 3.5% real target

• Top quartile 1yr and 5yr performance vs. industry universe

Cost-effective Implementation

• Investment costs have fallen significantly in recent years

• Eliminated high cost/low value added activities

Robust Governance

Long-term performance

3

1.8

4.4

5.4

5.9

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 June

U.S

. $

U.S. CPI Traditional Portfolio Return (60/40 Stocks/Bonds) Actual Return (Net of Fees) Actual Return (Gross of Fees)

Cumulative Dollar Value Growth(1990-2012 June)

5 Years 10 Years 15 Years 20 Years

Nominal 3.3% 7.3% 6.3% 8.2%

Real 1.3% 4.7% 3.8% 5.6%

Rolling Investment Return (Annualized) over

Industry Performance References As of June 2012

4

*Hypothetical portfolio consisting of 60% Equity (50% MSCI World ex US - Unhedged and 50% Russell 3000) and 40% FI (Barclays Global Aggregate - Hedged)

** Based on Wilshire Associates Trust Universe Comparison Service (TUCS): Broad universe of corporate and public pension plans, foundations and university

endowments with more than 1 billion USD assets under management

*** Risk Efficiency – Return in excess of cash, per unit of risk (Sharpe Ratio). Higher numbers indicate a more efficient use of the risk taken

**** Data collected from the Annual Reports of the respective institutions

1Y 5Y 10Y 5Y 10Y

SRP Portfolio 4.5 3.3 7.3 0.34 0.79

Traditional 60/40 portfolio* -0.1 1.4 6.0 0.03 0.39

Industry** - Median 1.8 1.9 6.9

Top Quartile 3.9 3.0 7.6

Bottom Quartile 0.6 1.2 6.3

Pension Plans****

CalPERS 1.0 -0.1 6.2

CalSTRS 1.8 0.3 6.5

University Endowments****

Yale 4.7 1.8 10.6

Harvard -0.1 1.2 9.5

Univ. of Pennsylvania 1.6 2.0 7.1

Stanford 1.0 2.2 n.a.

As of Jun 2012Annual Return - (Absolute), % Risk Efficiency***

Highlights

5

Secure Benefits

Good Funding Position

Strong Performance

• Assets held in legal trust, contributions irrevocable, accrued entitlements protected by Plan Document

• Strong and committed sponsor

• PBO Funded Ratio – 89% (as of June 2012) despite historically low real interest rates

• Broadly composed Pension Finance Committee, with knowledgeable and experienced members

• Transparent reporting and extensive disclosure

• Long-term performance in excess of 3.5% real target

• Top quartile 1yr and 5yr performance vs. industry universe

Cost-effective Implementation

• Investment costs have fallen significantly in recent years

• Eliminated high cost/low value added activities

Robust Governance

Funding Position & Bank Contributions

As of June 30, the SRP PBO Funding Ratio was estimated to be 89%, as real interest rates reached secular lows

The PFC approved a pension contribution rate of 24.2% of net salaries for FY2013. Outlook is for the contribution rate to rise over the next year then stabilize around 27% of net salaries.

Source: Milliman 2011 Pension Funding Study and Public Fund Survey sponsored by the

National Association of State Retirement Administrators

(PBO Funding status estimated for public sector to provide consistent comparison)

6

0%

5%

10%

15%

20%

25%

30%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Fiscal Year ending June 30

Pension Contribution Rates - History and Projection

Staff Retirement Plan Tax Supplement Account Supplemental Staff Retirement Plan

Actual Projected

0

5

10

15

20

25

30

35

<30% 30%-40% 40%-50% 50%-60% 60%-70% 70%-80% 80%-90% 90%-100% >100%

Estimated Funding Ratio

Distribution of US Public Sector Pension Funding Ratios - December 2011

Average USPrivate Sector

79%

SRP - 90%

Governance – Recent developments

7

•Broadened participation on PFC. Many members have significant market knowledge and experience outside the Bank

•Facilitated interactions of PFC members with industry experts (IPC, ICPM)

•Treasurer formed Expert Advisory Council (EAC) . Several members have extensive multi-asset class experience

•PFC currently considering further external input

•Satisfactory outcome of IAD Review of Plan governance and management

•Staff continuously in contact with markets

• Increased engagement with the 1818 Society around the Annual Meeting

•Enhanced the Annual Report

•Work on-going to develop a Pension website

•Extensive disclosure with respect to funding methodology, funding ratio determination, investment strategy and cost structure

External Input

Communication &

Transparency

Risk Tolerance

Desired tradeoff between risk, investment returns and

contributions

Investment Beliefs

•Liabilities explicitly considered when defining investment policy

•Diversification improves risk/return profile

•Illiquidity risk is rewarded

• Strategy based on forward-looking assumptions

•SAA is a very important decision affecting long-term performance

Investment Policy

PFC – Responsible for Financial Management

Objective: Fund the benefits through a combination of investment returns and contributions

Investment Framework

The asset allocation and the

associated cost structure is the

result of a series of

interconnected decisions taken

at different steps in the process

Decisions on Risk Tolerance and

Investment Beliefs have

significant downstream

implications for:

The Asset-Liability

Management framework

The range of asset classes

The risk profile of the Plan

8

Funding Policy

Asset Allocation Implementation Cost Structure

Asset Allocation

Diversified asset allocation with exposure to assets that are expected to perform in different economic environments

Large allocation to liability hedging assets (US TIPS) and nominal bonds results in a lower risk profile for the SRP compared to many other institutions

Significant allocation to alternatives (e.g. private equity, real assets, absolute return)

9

Target Strategic Asset Allocation Current Asset Allocation Cash, 2%

Nominal Bonds, 9%

US TIPS, 20%

Developed Equities,

16%EM Equities, 11%

Private Equity, 15%

Real Assets, 12%

Absolute Return, 15%

Cash, 2%

Nominal Bonds, 12%

US TIPS, 20%

Developed Equities,

15%

EM Equities,

9%

Private Equity, 20%

Real Assets, 12%

Absolute Return,

10%

• Staffing and the resulting cost structure dependent on the SAA, the allocation to alternatives and on implementation choices (e.g. active vs. passive mandates, internal vs. external management)

• Extensive deliberations with the PFC during the mid-term and annual budget exercise.

Investment Management Costs

10

• Fees continued to decline over the last four years as a result of management’s focus on implementation efficiency

• Extensive efforts to report all investment management fees paid to managers vs. many organizations who report only direct management fees which are substantially less than total management fees

Plan Cost Structure Driven by Decisions Made Upstream

Sharp Focus on Measuring All Investment Costs

SRP Investment Management Fees Have Dropped in Recent

Years

• The number of investment staff per $1 billion of assets under management is in line with industry

• Staff costs related to financial management are about 5 basis points (0.05%) of Plan assets

Staffing Levels in Line with Industry Averages

The PFC seeks value not just cost minimization

Investment Management Costs (2)

Investment management costs have declined in recent years in dollars terms and basis points, due to targeted management decisions such as:

Eliminated high-cost, low value-add activities

Negotiated fee reductions in both public and private asset classes

Kept allocation to hedge funds below target as portfolio is restructured

Introduced passive mandates in some portfolios as appropriate

11

Evolution of Investment Management Fees

134

126

119

115

109

92

82

76

20

40

60

80

100

120

100

110

120

130

140

150

2009 2010 2011 2012*B

asis

po

ints

(b

ps)

Mln

. U

SD

Year

Management Fees (mln.USD) - LHS

Management Fees (bps) - RHS

• 2012 Management Fees represents a proxy estimated based on 2012 YTD actual fees in public asset classes annualized and 2011 actual fees for private asset classes.

• Basis points figures derived based on average net AUM for each year.

Going Forward

Market environment

Still navigating through a low growth and low inflation environment in many

countries

Interest rates at secular lows in developed world raises significant concerns for the

outlook for fixed income returns

Market preference is continuing to change rapidly between risk-seeking and risk-

aversion, depending on actions by global monetary authorities

Portfolio Management/Actions

Continuing to maintain the allocation to Private Equity by committing significant resources and assets each year

Broadening and growing investments in Real Assets

Actively looking at investment alternatives for parts of the fixed income portfolio

Undertaking a restructuring process of the Absolute Return portfolio

Introducing passive mandates in different portfolios as appropriate 12

Summary

13

Secure Benefits

Good Funding Position

Strong Performance

• Assets held in legal trust, contributions irrevocable, accrued entitlements protected by Plan Document

• Strong and committed sponsor

• PBO Funded Ratio – 89% (as of June 2012) despite historically low real interest rates

• Broadly composed Pension Finance Committee, with knowledgeable and experienced members

• Transparent reporting and extensive disclosure

• Long-term performance in excess of 3.5% real target

• Top quartile 1yr and 5yr performance vs. industry universe

Cost-effective Implementation

• Investment costs have fallen significantly in recent years

• Eliminated high cost/low value added activities

Robust Governance

Industry Performance References As of December 2011

15

*Hypothetical portfolio consisting of 60% Equity (50% MSCI World ex US - Unhedged and 50% Russell 3000) and 40% FI (Barclays Global Aggregate - Hedged)

** Based on Wilshire Associates Trust Universe Comparison Service (TUCS): Broad universe of corporate and public pension plans, foundations and university

endowments with more than 1 billion USD assets under management

*** Risk Efficiency – Return in excess of cash, per unit of risk (Sharpe Ratio). Higher numbers indicate a more efficient use of the risk taken

**** Source: Charles Skorina Report from September 2012

1Y 5Y 10Y 5Y 10Y

WB SRP Portfolio 4.6 3.7 6.3 0.37 0.65

Traditional 60/40 portfolio* -0.9 1.5 5.1 0.00 0.31

Industry** - Median 1.6 2.1 5.8

Top Quartile 3.9 3.2 6.5

Bottom Quartile 0.3 1.5 5.1

Pension Plans****

Boeing 6.3 0.41

AT&T 5.4 0.39

Ontario Teachers Pension Plan 4.2 0.22

IBM 3.8 0.22

Exxon Mobil 2.6 0.07

Verizon 2.5 0.07

Public Employee Retirement Syst of Ohio 1.6 0.01

Bank of America 1.1 -0.01

Caisse de Depot Montreal 0.6 -0.05

CalPERS 0.5 -0.05

GE 0.4 -0.05

Annual Return - (Absolute), % Risk Efficiency***As of Dec 2011