Toronto Community Housing Corporation Investment Policy … 27, 20… · Toronto Community Housing...
Transcript of Toronto Community Housing Corporation Investment Policy … 27, 20… · Toronto Community Housing...
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Attachment 1
Toronto Community Housing Corporation
Investment Policy Statement
Revised: July 18, 2017
Toronto Community Housing Corporation Investment Policy Statement
Revised – July 18, 2017
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Table of Contents Section I Introduction ............................................................................................................................... 3
Section II Governance and Administration .......................................................................................... 3
Section III Fund Overview ....................................................................................................................... 5
Section IV Return / Risk Considerations ................................................................................................ 6
Section V Permitted Categories of Investments .................................................................................... 6
Section VI Investment Strategy ............................................................................................................ 8
Section VII Diversification and Quality Constraints ........................................................................... 9
Section VIII Loans and Borrowing ......................................................................................................... 11
Section IX Valuation of Investments .................................................................................................. 11
Section X Voting Rights ........................................................................................................................... 11
Section XI Conflicts of Interest ............................................................................................................... 12
Section XII Monitoring ............................................................................................................................. 12
Section XIII Policy Review ...................................................................................................................... 13
APPENDIX A: Description and purpose of each fund, strategic fund asset allocation, fund target
/ objectives and investment return benchmarks .................................................................................. 13
SCHEDULE A: Form of Compliance Certificate .................................................................................. 17
SCHEDULE B: Form of Pooled Fund Compliance Checklist ............................................................ 18
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Section I Introduction
1.1 This statement of investment policy (the "Policy") applies to the assets (the "Fund") set
aside and accumulated by the Toronto Community Housing Corporation (“TCHC”) for the
purposes of meeting its various capital, financial and other contingency obligations.
These include the Funds as per Appendix A that may be changed from time to time by
TCHC.
1.2 The purpose of this Policy is to establish investment principles and guidelines appropri-
ate for the purposes for which the Fund is maintained.
1.3 Any external Investment Manager (the "Manager") or other agent or advisor providing
services in connection with the investment of the Fund shall accept and adhere to this
Policy.
1.4 Appendix A will also stipulate the following:
(a) Fundamental purpose of each fund;
(b) Strategic asset classification for each fund;
(c) Funding target / objective of each fund so as to be able to continuously monitor
and assess the Fund performance; and
(d) Relevant benchmarks for each fund so as to assess investment performance.
Section II Governance and Administration
2.1 The Board of Directors of TCHC has responsibility to ensure that the Fund is managed
and administered in a prudent fashion.
2.2 As noted in Section 1.1 of the Policy, the Fund has been established for the purposes of
meeting its various capital, financial and other contingencies. As such, the prudent oper-
ation of the Fund is the responsibility of the TCHC Board of Directors, supported by such
bodies and individuals as they may nominate for the purpose. Specifically, the Board of
Directors of TCHC will delegate the oversight of the design, implementation and report-
ing of the Fund to its Building Investment, Finance and Audit Committee, whom in turn
delegates to an Investment Advisory Committee and supporting staff.
2.3 TCHC generally prohibits certain investments made in issuers which may be deemed to
present undue environmental, social or governance (ESG) risks for all asset classes in
its investment portfolio. It is our belief that responsible corporate behaviour with respect
to ESG factors can generally have a positive influence on the long-term financial perfor-
mance of our investments as well as the society as a whole. TCHC abides by the Princi-
ples for Responsible Investments (PRI) and PRI’s Mission which states that: “We believe
that an economically efficient, sustainable global financial system is a necessity for long-
term value creation. Such a system will reward long-term, responsible investment and
benefit the environment and society as a whole.”
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2.4 Governance Functions
Role of the Board
In addition to the general responsibility for the prudent management of the Fund, the
TCHC Board of Directors is charged with specific functions to discharge in the opera-
tion of the Fund. These functions include:
Establishes terms of reference for the Building Investment, Finance and Au-
dit Committee.
Approves Investment Policy.
Approves agreements and mandates with external investment managers.
Receives reports of the Building Investment, Finance and Audit Committee
regarding the design, implementation and reporting of the Policy, investment
strategies and initiatives related to the Fund.
Role of the Building Investment, Finance and Audit Committee (“BIFAC”)
The BIFAC is established as a Committee of the Board. One of the responsibilities of
this Committee is to assist the Board in fulfilling the responsibilities relating to capital
funds and investments with an Investment Advisory Committee if needed. In that role,
BIFAC oversees the design, implementation and reporting of investment policies, strat-
egies and initiatives by Management for capital reserves and reporting and making rec-
ommendations to the Board on such matters. The BIFAC may retain external advisors
as deemed necessary.
Role of Investment Advisory Committee (“IAC”)
The IAC is established as an advisory committee to the BIFAC. The purpose of the
Committee is to assist the BIFAC in fulfilling its responsibilities in respect of capital
funds, investments and other finance related matters. Responsibilities of the IAC in-
clude the following:
Provide strategic advice with respect to the investment policy and strat-
egy for capital reserves, including the investment of funds allocated for
the purposes of the State of Good Repair Fund and/or other capital re-
serve funds;
Monitor investment performance and report on implementation of the in-
vestment policy and compliance to the BIFAC;
Periodically review performance reports generated by the fund man-
ager(s) and report regularly to the BIFAC with respect to the performance
of all invested funds;
Conduct periodic asset allocation/manager structure review;
Generate recommendations for engagement/termination of external advi-
sors;
Formulate changes, updates, revisions to Investment Policy as needed
for review and approval by the BIFAC and the Board
Review and recommend Investment Mandates and agreements with ex-
ternal advisors; and
Approve and oversees the rebalancing of investments.
Role of Internal TCHC Staff and External Advisors
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As required and permitted by the Terms of Reference, the IAC may make use of other
individuals or groups to provide specific support functions to the IAC as required. Such
individuals or groups may be internal staff of TCHC or they may be external advisors
such as investment Managers, Investment Advisors or Custodians.
Roles of Internal TCHC Staff
Recordkeeping of all statements, reports, agreements and policies;
Scheduling of IAC meetings including drafting of meeting minutes;
Execution of contributions and withdrawals to the funds, in accordance
with the purpose of the fund or the IPS;
Propose rebalancing or restructuring of the portfolio as appropriate; and
Reconciliation of all statements and cash flows.
Role of External Advisors
Keeping of all transaction records/ forwarding of transaction reports (Cus-
todian).
The Fund’s Custodian will provide monthly statements detailing all trans-
actions in the Fund.
Day to day portfolio management and preparation of performance report-
ing (Investment Managers). External Investment Managers will provide
quarterly performance statements detailing the portfolio’s past perfor-
mance, prospects for future performance and a description of the strategy
being followed in the investment of the Fund’s assets and other infor-
mation as may be required.
Preparation of third party performance monitoring and assistance with projects as needed (Investment Advisor). External Investment Advisor will provide quarterly and annual third party performance monitoring of all investment managers, including an analysis of all of the Fund’s portfolios, potential sources of risk and return, and an assessment of progress to-wards achieving the overall goals of the Fund.
Section III Fund Overview
3.1 It is TCHC's responsibility to ensure that sufficient financial resources exist to properly
service and maintain its financial obligations and contingencies. Significant funds have
been accumulated, most of which are restricted to particular uses.
3.2 TCHC operates on a non-profit basis and, as such, none of the investment income on
the Fund is subject to tax of any kind.
3.3 Each of the funds has a different expectation for contributions and payments. Neverthe-
less, it may be in the best interests of TCHC to commingle the assets for investment pur-
poses of funds with similar risk and return objectives, and timelines for the following rea-
sons:
(a) they have the same broad investment objective;
(b) commingling will provide greater opportunity of investment and diversification; and
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(c) commingling will provide for better cost-effective management of the assets.
3.4 In respect of investment reserves pertaining to capital reserves, this Policy shall adhere
to the Housing Services Act (“HSA”), Shareholder Direction, the Operating Agreement
with the City of Toronto (“City”) as amended and as applicable.
3.5 The primary objectives in the design of the Policy are:
(a) Earning a reasonable rate of return given investment objectives; and
(b) Ensuring assets are available as and when required.
3.6 From time to time, TCHC may have investments that are in trust of external parties, but
for which it has the benefit of. TCHC will continue to monitor these investments, and in-
corporate the same principles as in this policy in how such investments are invested,
where it is in a position to do so.
Section IV Return / Risk Considerations
4.1 The return achieved on the Funds will be an important component in TCHC's ability to
ensure the sufficiency of the assets. This is more important currently than in the past
because of the presently lower interest rate environment and the likelihood of reduced
government subsidies and grants. Both of these conditions are expected to continue for
the foreseeable future. Given the above, and subject to the objectives outlined in Sec-
tion 3.5, the return objectives are as reflected in Appendix A.
4.2 This Policy is designed to maximize the likelihood of attaining the Fund’s objective with-
out undue risk.
4.3 Risk and volatility should be minimized while still supporting the return requirement by
maintaining diversification of securities within the Fund.
Section V Permitted Categories of Investments
Debt Securities (Applicable for Group 1 and 2 Funds. Refer to Appendix A)
5.1 Short term debt securities are those denominated in Canadian dollars with terms less
than one year and include the following:
(a) cash including deposits with OSFI regulated Canadian Schedule I banks;
(b) Government of Canada treasury bills and other notes guaranteed by the Govern-
ment of Canada;
(c) Provincial T-Bills and notes guaranteed by a Province;
(d) banker’s acceptances (BA’s) and bank deposit notes (BDN’s);
(e) commercial paper;
(f) fixed rate guaranteed investment certificates and term deposits;
(g) debt instruments (as described in 5.2) with terms less than one year; and
(h) other instruments exhibiting similar characteristics as (a) to (g) above.
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5.2 The Funds may only be invested in Canadian dollar-denominated debt instruments
meeting the following criteria:
(a) nominal bonds issued or guaranteed by governments and government related
entities (including mortgage backed securities with government guarantees);
(b) real return bonds issued or guaranteed by governments and government related
entities;
(c) publicly-traded debt securities issued by a corporation or trust;
(d) fixed rate guaranteed investment certificates and term deposits with terms
greater than one year;
(e) Asset Backed Securities (“ABS”) with a minimum short term credit rating of A-
1(+) by S&P, R-1(high) by DBRS or P-1 by Moody’s backed by actual consumer
receivables such as residential mortgages, credit card receivables and auto
loans up to 5% of the total Group 1 and 2 investment market value.
For purposes of the Policy, "governments" includes Canadian and non-Canadian
governments, provided they meet the credit rating guidelines in Section VII and
their related government agencies provided that the securities of such govern-
ment agencies are guaranteed by the respective governments and meet the
credit rating guidelines.
Equity Securities (applicable for Group 3 Funds. Refer to Appendix A)
5.3 Equity securities (“Permitted Equity Securities”) shall be limited to the following:
(a) Common shares included in S&P/TSX Composite Total Return Index or MSCI All
Country World Index and preferred shares that are convertible into shares in-
cluded in those indices(“Eligible Shares”)
(b) Debentures convertible into Eligible Shares provided such instruments are
traded or expect to trade on a recognized public exchange or through established
investment dealers;
(c) Rights, warrants, and special warrants exchangeable into Eligible Shares pro-
vided such instruments are traded or expect to trade on a recognized public ex-
change or through established investment dealers;;
(d) Units of income trusts included in the respective indices and domiciled in jurisdic-
tions that provide limited liability protection to unit holders; and
(e) Units of limited partnerships listed on a recognized public stock exchange.
Implementation of the equity allocation will be made through Pooled Funds to seek in-
vestment diversification objectives. The investment approach employed by an Invest-
ment Manager will focus on capital preservation and lower than index volatility. Such vol-
atility will be measured and reported upon by considering the market beta of the pooled
fund, as referred to in section 5.4, as compared to a well-diversified market index. As
well, such measures as “upside” and “downside” market capture will also be considered.
As such, it will be subject to Section 5.4.
5.4 Investment of assets made through Pooled Funds are governed by the provisions of the
Pooled Funds’ own investment policy, prospectus or offering memorandum (“Invest-
ment Policy”) and, unless the Pooled Fund is designed exclusively for TCHC, may not
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comply with each provision of this Policy, but may nonetheless be substantially or suffi-
ciently similar in policy to be suitable to TCHC's investment needs. TCHC must, how-
ever, seek to satisfy itself of the appropriateness of investments in the Pooled Funds
through means including: (a) Obtaining from the investment manager and/or dealer a
written confirmation that the Pooled Fund is suitable for TCHC's investment needs; and
(b) Obtain a checklist or other similar statements from the investment manager or
dealer, which outlines the material differences between the Pooled Funds’ Investment
Policy and TCHC's Policy and enable TCHC to monitor these differences on an ongoing
basis. A sample checklist is included in Schedule B for reference.
5.5 Subject to the following rules, futures, forwards, options, share purchase warrants,
share rights and other derivatives of otherwise permissible securities may be used in
Pooled Funds, only when they are regularly traded upon a recognized public exchange
or issued by a recognized financial institution. Use of derivatives instruments outside of
Pooled Funds is not permitted other than the Permitted Alternative Investments in Sec-
tion 5.7.
5.6 Futures and forwards contracts, options and other derivatives may only be used to:
(a) create an asset mix position that does not leverage the Pooled Fund;
(b) replicate the performance of a capital market index;
(c) reduce risk as part of a hedging strategy.
5.7 Alternative investments (“Permitted Alternative Investments”) shall be limited to invest-
ments in funds explicitly and individually approved by the Investment Advisory Commit-
tee after due consideration of such characteristics as fee structure, manager track rec-
ord, redemption restrictions, minimum subscription levels, upfront and future funding
commitments, the nature of targeted investments and other relevant considerations, and
shall be limited to investment in the following:
(a) Infrastructure;
(b) Real Estate;
(c) Private Equity; and
(d) Private Debt
5.8 Unless specifically approved elsewhere in this Policy, the Fund may not be invested in
categories of assets excluded from Section V.
Section VI Investment Strategy
6.1 The following outlines the allocation of the Permitted Categories of Investment (Section V):
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6.2 The investment strategy and allocation of each Group of funds shall be reviewed annu-
ally and rebalanced as appropriate as per Appendix A. Tactical asset allocations that
deviate from the strategic asset allocation ranges during the course of a year may be
considered by the IAC on a temporary basis, due to significant events in the investment
markets, or other factors that may arise.
6.3 The investment strategy will follow an investment approach that addresses capital
preservation. In this respect, the realization of portfolio investment losses on securities
from time to time will only be executed under exceptional circumstances in order to min-
imize further investment losses as recommended by the external Investment Manager.
For greater clarity, it is the intention for all fixed income securities included in Group 1
and 2 funds to be held to maturity, unless there is a capital gain opportunity that can be
realized or there is a deemed significant risk of default prior to maturity that is not yet
fully reflected in the prevailing market value of the securities. Furthermore, due to the
long-term nature of the Group 3 and 4 funds, to the extent that equity securities and
Permitted Alternative Investments are held directly and not within a pooled fund, it is in-
tended that equity securities and / or Permitted Alternative Investments will be held and
not sold if it is in a capital loss position unless approved for sale by the TCHC Board.
The decline in value of these securities must be deemed to be irreversible and the loss
must not be material relative to the overall equity portfolio.
Section VII Diversification and Quality Constraints
7.1 With respect to the mandates in which the Funds are invested, an Investment Manager
will ensure that there is a prudent level of diversification within each asset class subject
to the following limits which are based on market value.
7.2 TCHC shall ensure that the diversification requirements in each Investment Manager’s
mandate, in combination with the amount of assets allocated to each Manager or
Pooled Fund, are consistent with the limits in this Policy and within the restrictions of
application legislation
Categories Permitted Investments per Section V Duration Minimum Maximum
Group 1Cash, Money Market, and/or other Fixed
Income Debt Securities
Average maturities less
than 1 year5% 60%
Group 2
Fixed Income Debt Securities such as
Government and/or Large Cap Corporate
Bonds
Average maturities of
more than 1 year but less
than 5 years
5% 60%
Group 3Equity Securities including Canadian, US
and/or Global Equity Pooled Funds
Expected to be held for 5
years or more5% 40%
Group 4 Alternative InvestmentsExpected to be held for 5
years or more5% 10%
Percentage of
Portfolio at Market
Value
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7.3 Canadian Dollar Denominated Debt
In respect of the total debt content of the Fund:
(a) not more than 5% shall be invested in the debt of a single issuer other than in
debt issues of, or fully guaranteed by a government having a debt rating of at
least "A". However, higher concentration in securities of a single issuer will be
permitted for a period of not more than 60 days, to allow for transition of the port-
folios.
(b) the quality standards for fixed income investments shall be as follows:
Debt Rating Maximum % of Fixed Income Port-
folio
Lower than BBB / Baa 0%
BBB / Baa 30%
A or lower 80%
AA / Aa or higher no limit
(c) all short-term debt shall be rated at least A-1 (low) or equivalent
(d) not more than 5% shall be invested in mortgage-backed securities.
(e) the term maximum and duration limits for Group 1, 2, 3 and 4 Funds shall be
specified within the Investment Manager’s mandate.
7.4 Equity (applicable for Group 3 Funds only)
In respect of the total equity content of the Fund:
(a) individual security holdings shall not be more than 10% of any equity portfolio.
(b) not more than 10% of the pooled fund shall be invested in stocks that have a
market capitalization of less than Canadian $ 1 billion.
(c) if held in a pooled fund, a minimum of 90% of the invested assets should qualify
as cash or Permitted Equity Securities.
These conditions will be assessed on a continuous and marked-to-market basis, and
any deviations from these conditions will be addressed within a reasonable period of
time for compliance purposes.
7.6 For purposes of the limitations set forth in Sections 7.3, the debt ratings shall be the
DBRS, S&P, Moody’s debt ratings or equivalent at the time the debt is purchased and
where such equivalent ratings differ, the lowest rating provided by any one of those
agencies. In the event the rating of a debt security is downgraded to a level at which it
would no longer be eligible for purchase because of such limitations, an Investment
Manager does not need to immediately sell such debt security if he or she believes
such action would not be in the best interests of the Fund. An Investment Manager
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shall notify TCHC of the non-compliance, in any event no later than two business days
upon the occurrence of a breach.
Section VIII Loans and Borrowing
8.1 No part of the Funds shall be loaned to any person, including corporations (with the ex-
ception of debt instruments highlighted in 5.2).
8.2 The Investment Manager(s) responsible for investment decisions shall assess the sol-
vency of borrowers and adequacy of collateral for loans by reference to published credit
ratings and by their own analysis. The Investment Manager's analysis should include all
material factors relevant to assess the ability of the borrower to repay the loan, to dis-
charge interest obligations on the specified payment dates and to survive periods of fi-
nancial adversity. New investments may not be made in debt obligations which are in
default of principal or interest.
8.3 Lending of the securities of the Fund will be permitted through a recognized custodial
entity and under reasonable circumstances so as to allow the Fund to earn revenues
from such security lending. Collateral shall be maintained at 105% and is limited to
physical securities. Any such lending will be reported to the IAC. Any other forms of
material lending would require approval of the TCHC Board through recommendations
of the IAC and the BIFAC.
8.4 No individual shall borrow on behalf of the Fund.
8.5 The Investment Manager(s) shall not borrow money, pledge or otherwise encumber any
of the Fund's assets, except to the extent that temporary overdrafts occur in the normal
course of day-to-day portfolio management.
Section IX Valuation of Investments
9.1 Investments in publicly traded securities shall be valued daily at their market value.
9.2 Pooled Funds shall be valued according to the unit values published daily by the rele-
vant and appropriate third party methods.
9.3 Pooled Funds that are invested in shall be required to provide year end audited state-
ments, and such audited statements must be provided by the Investment Manager to
TCHC within 30 days of final issuance.
9.4 Permitted Alternative Investments shall be validated through a third party external ap-
praisal process other than the appointed TCHC investment manager prior to TCHC in-
vesting in the Permitted Alternative Investments and on an ongoing basis at least once
every calendar year.
Section X Voting Rights
10.1 The responsibility of exercising and directing voting rights acquired through Pooled Fund
investments shall be delegated to the Investment Manager, who shall at all times act
prudently and in the best interests of the Fund. The Investment Manager shall ensure
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that the TCHC is provided with an up to date voting rights policy along with a record of
how the Investment Manager voted the TCHC’s proxies.
10.2 The Investment Manager shall provide annually a certificate of compliance with the In-
vestment Manager’s voting rights policy, a list of votes not in compliance with these poli-
cies.
Section XI Conflicts of Interest
11.1 A conflict of interest, whether actual or potential, is defined for the purposes of this Pol-
icy as any event in which TCHC, an employee of the TCHC, any member of the IAC,
the BIFAC or the Board, any Investment Manager, Investment Custodian, any Invest-
ment Advisor, or any person or company directly related to any of the foregoing, may
benefit materially from knowledge of, participation in, or by virtue of, an investment deci-
sion, holding or safekeeping of the Fund.
11.2 Should a conflict of interest arise, the party in the actual or potential conflict, or any per-
son who becomes aware of a conflict of interest situation, shall immediately disclose the
conflict to the Chair of the IAC. The Chair of the IAC will immediately advise all mem-
bers of the IAC of the details relating to the conflict and report the conflict to the Chair of
the TCHC Board. Any such party will thereafter abstain from decision-making with re-
spect to the area of conflict, and a written record of the conflict shall be maintained by
the Chair of the IAC.
11.3 TCHC and the IAC, BIFAC, Board, internal TCHC staff and external advisors shall also
abide by TCHC’s conflict of interest policy.
11.4 At a minimum, the Code of Ethics and Standards of Professional Conduct adopted by
the CFA Institute shall be expected to apply to the Investment Manager, Investment
Custodian, and Investment Advisors.
Section XII Monitoring
12.1 The IAC shall normally meet at intervals of not less than once every quarter, to:
(a) review progress towards funding reserve obligations
(b) monitor each Investment Manager's compliance with the Policy. A sample Com-
pliance Certificate form is included in Schedule A for reference only;
(c) review the current economic outlook and investment plans of each Investment
Manager;
(d) review the Fund strategy and take any action necessary to ensure compliance
with this Policy;
(e) evaluate the investment performance of the Funds and each Investment Manager
against industry statistics;
(f) review the value of the Fund.
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12.2 The rate of return objective for each asset class component of the Fund for investment
performance measurement purposes is reflected in Appendix A.
Section XIII Policy Review
13.1 This Policy shall be reviewed at least annually during a regularly scheduled quarterly In-
vestment Advisory Committee meeting, but otherwise whenever a major change is nec-
essary. Such review may be caused by:
(a) a fundamental change in the expected net cash flow or objectives of the Funds;
(b) significant revisions to the expected long-term trade-off between risk and reward
on key asset classes, normally dependent upon basic economic, political, and/or
social factors;
(c) a significant shift in the financial risk tolerance of TCHC;
(d) shortcomings of the Policy that emerge in its practical application, or substantive
modifications that are recommended to TCHC by an Investment Manager, In-
vestment Custodian, or Investment Advisor;
(e) applicable changes in legislation.
APPENDIX A: Description and purpose of each fund, strategic fund asset allocation, fund target / objectives and investment return bench-marks
Reserve Guidelines
CategoriesPermitted Investments per Section V Duration Minimum Maximum Purpose Reserves
Group 1Cash, Money Market, and/or other
Fixed Income Debt Securities
Average maturities less
than 1 year5% 60%
Operating cash reserves
and Capital Expenditures
State of Good Repair
Capital Expenditures
Group 2
Fixed Income Debt Securities such
as Government and/or Large Cap
Corporate Bonds
Average maturities of
more than 1 year but
less than 5 years
5% 60% Capital ExpendituresState of Good Repair
Capital Expenditures
Group 3
Equity Securities including
Canadian, US and/or Global Equity
Pooled Funds
Expected to be held for
5 years or more5% 40%
Bond Sinking Funds and
Long-term Reserves
Group 4 Alternative InvestmentsExpected to be held for
5 years or more5% 10%
Bond Sinking Funds and
Long-term Reserves
Percentage of
Portfolio at Market
Value
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Definition of Selected Terms for Appendix A
Market Value as at Dec. 31, 2016
Categories Permitted Investments per Section V Investment BenchmarksMarket Value as at
Dec. 31, 2016%
Group 1Cash, Money Market, and/or other Fixed
Income Debt Securities
FTSE TMX Canada 91 Day T-Bill Index plus 10
bps. $ 123,404,177 57%
Group 2
Fixed Income Debt Securities such as
Government and/or Large Cap Corporate
Bonds
FTSE TMX Short-term Bond Index plus 20 bps. $ 73,131,255 34%
Group 3Equity Securities including Canadian, US
and/or Global Equity Pooled Funds
S&P/TSX Composite Total Return Index plus 50
bps $ 19,332,731 9%
Group 4 Alternative InvestmentsS&P/TSX Composite Total Return Index plus 50
bps $ - 0%
Total $ 215,868,163 100%
Reserve Proposal based on Market Value as at Dec. 31, 2016
Categories Permitted Investments per Section V Reserve ProposalReserve
Proposal $
Proposed
%
Group 1Cash, Money Market, and/or other Fixed
Income Debt Securities
Development Reserve and other
current CARR/SOGR ($50 M) $ 50,000,000 23%
Group 2
Fixed Income Debt Securities such as
Government and/or Large Cap Corporate
Bonds
CARR ($67.4 M) * SOGR
($12.0 M) Working Capital and
Current Debt Repayment ($66.5
M)
$ 145,868,163 68%
Group 3Equity Securities including Canadian, US
and/or Global Equity Pooled FundsBond Sinking Fund ($20.0 M) $ 20,000,000 9%
Group 4 Alternative Investments $ - 0%
Total $ 215,868,163 100%
* As at Dec. 31, 2016, $46 M of CARR is externally restricted CARR per TCHC agreement with the Ontario Ministry of
Municipal Affairs and Housing. Based on Section XIII of the Investment Policy Statement ("IPS"), this Policy (and
accordingly, this allocation) shall be reviewed annually, but otherwise whenever a major change is necessary. Therefore,
the IAC, BIFAC and the TCHC Board can exercise this review and re-allocation of investment reserves per Section XIII.
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Capital Asset Risk Reserve (“CARR”)
The purpose of this reserve is to have funding for capital repairs and expenditures in the event
of funding shortfalls from other TCHC sources occur. The components of this fund are as fol-
low:
a) an externally restricted fund, as directed by the Ministry of Municipal Affairs and Hous-
ing, as tied to certain provincial properties, through a named external “Capital Asset
Replacement Reserve or External CARR”; and
b) Internal CARR - The purpose of this portion of the reserve is to mitigate the building
capital repair and expenditure risk of TCHC.
Contributions to this fund are as follows:
a) in respect of External CARR, contributions are regulated and required by the Ministry
of Municipal Affairs and Housing (with the associated required contribution
amounts/calculations); and
b) Internal CARR - any other sources proposed by Management for IAC review and ap-
proval.
Withdrawals to this reserve are as follows:
Management requests for withdrawal for IAC review and approval. If withdrawal is re-
quested, this portion of the fund will be included in Group 1 for asset allocation purposes
given the short-term time horizon requirement.
State of Good Repair Fund (“SOGR”)
This reserve is set aside to maintain and keep track of proceeds received from the sale of
stand-alone housing units or any other capital dispositions, with the exception of assets sold in
relation to development initiatives to which such funding is required for development projects,
to finance the capital repair needs of existing residential buildings. The State of Good Repair
Fund (“SOGR”) also includes education tax savings, and recovery of development costs that
were previously incurred by TCHC to maintain TCHC’s housing stock in a state of good repair
in accordance with the instructions from the City and such other contributions that may be
forthcoming in the future, and as directed by the TCHC Shareholder. Permitted withdrawals
are for capital expenditures deployed on TCHC properties.
Development Risk Reserve
This reserve is for the various ongoing development projects of TCHC. Permitted withdrawals
of this fund will be for capital deployment related to development projects only. In the event of
a significant and material event that requires significant cash flows be provided to the project.
Contributions to this fund will be brought to the IAC for review and approval. This fund will be
included in Group 2 for asset allocation purposes given the mid-range time horizon unless the
use of this fund is imminent and withdrawal has been requested with the IAC and the TCHC
Board of Directors. In which case, the funds will be invested in Group 1 while waiting for with-
drawal.
Bond Sinking Fund for Debentures Maturing in 2037 and 2040
TCHC has entered into a Credit Agreement with TCHC Issuer Trust which in turn entered into
an agreement with various agents to issue two (2) long-term bonds totaling $450 Million. A
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4.877% $250 Million Series A Bond which is due in May 11, 2037 and a 5.395% $200 Million
Series B Bond which is due on February 22, 2040.
TCHC is not required to make any principal repayments to the debenture holders on an annual
basis, only the interest payments are required two (2) times per year. Establishing a sinking
fund is deemed to be a prudent measure. No foreseeable principal withdrawals for this fund
given that the first tranche is not due until 2037. Any contributions will be brought to the IAC for
review and approval. This fund will be included in Group 3 for asset allocation purposes given
the long-range time horizon.
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SCHEDULE A: Form of Compliance Certificate
CERTIFICATE OF COMPLIANCE
[NAME OF INVESTMENT MANAGER]
[Name of MANDATE]
[Name of Client]
(The “Client”)
The undersigned hereby confirms that for the period from [Date Range] and solely in connection
with the above:
1. [NAME OF INVESTMENT MANAGER] has complied with the terms of the Investment
Management Agreement between [NAME OF INVESTMENT MANAGER] and the Client including
but not limited to the terms of the Mandate(s) (as defined in the Investment Management Agree-
ment) and the investment restrictions in the Investor’s Investment Policy Statement; and
2. [NAME OF INVESTMENT MANAGER] has complied with all applicable securities regula-
tory requirements relating to the investment of the Portfolio.
COMMENTS:
Notwithstanding the above, during the reporting period, the following exceptions are noted:
1. No exception for this period 2. Or, note the exceptions as it occurred during the reporting period
________________________________________________________________________
________________________________________________________________________
[NAME OF INVESTMENT MANAGER]
________________________
[Name]
Investment Compliance Officer
________________________
[Date]
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SCHEDULE B: Form of Pooled Fund Compliance Checklist
Name of Investment Manager
Name of Pooled Fund (“Pooled Fund”)
Toronto Community Housing Corporation
(the “Client”)
Section references below shall, unless otherwise indicated, be references to the section of the Client’s
Investment Policy Statement (“IPS”) (as defined in the Subscription Agreement pursuant to which this
Checklist is being delivered)
The undersigned confirms that for the month ending [ ]:1
Pass /Fail Explanation
For All Pooled Funds
1. The management of the Pooled Fund was in accordance with all the terms, conditions and guidelines stipulated in the applicable Pooled Fund’s Investment Policy Statement
Pass
2. Over a four year period, performance of the Pooled Fund exceeds the investment bench-marks specified in the Toronto Community Housing Corporation Investment Policy Statement. [Appendix A]
Pass
3. Over a four year period, the Pooled Fund shall have a market beta of less than 1.00
Pass
For Equity Pooled Funds Only
4. No more than 10% of the Pooled Fund is in-vested in securities having a market cap of less than $1 billion (s7.4(b))
Pass
4. Under normal market conditions, the Pooled Fund’s cash position does not exceed 10%
Pass
1 While certain of the enumerated items in the checklist may not be existing investment strat-
egies/restrictions of the applicable Pooled Fund or may deviate from a Pooled Fund’s investment
strategies/restrictions, Investment Manager is to report any material discrepancy/deviation (i.e.
“Pass/Fail”) on an ongoing basis
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5. No individual security on a marked-to-market basis shall represent more than 10% of the Pooled Fund2 [s7.4(a)]
Pass
6. Restricted securities for the Pooled Fund shall not exceed more than 10% of the Pooled Fund portfolio. [s 7.4(c)]
Pass
Other than what is mentioned in the “Explanation” section of this checklist, listed below are any other material de-
viations / discrepancies between the Toronto Community Housing Corporation’s Investment Policy Statement and
the investment strategies and restrictions and/or the performance of the Pooled Fund for the period covered by
this Compliance Checklist.
None______ (place checkmark if none)
Details below:
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Dated:
Signed by:
Name of Investment Manager
2 Per the Pooled Fund Investment Policy, maximum individual issuer concentration restrictions apply at time
of purchase (so restrictions could be exceeded after that point, due to market value fluctuations).