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Pursuing UPP’s target asset mix
When UPP began assuming management for the pension assets of participating organizations in July 2021, we identified opportunities within the combined portfolio to enhance long-term performance. As a result of our findings, we developed a multi-year transition plan toward one unified and cost effective portfolio tailored to UPP’s funding objectives and investment beliefs.
UPP’s target asset mix is specifically designed to fund our pension benefits for the long term. It will help us maintain a healthy funding and liquidity position, stay well-equipped to pay members’ pensions, and remain agile to investment opportunities as markets evolve. The pace at which UPP can shift toward our target asset mix depends on both structural and transitionary elements, including market movement, liquidity, available investment opportunities, and the duration of investment commitments within the original portfolios. For more information on our target asset mix see our:
Where we're headed
In the short to medium term, UPP will continue to transition the portfolio with these goals in mind:
- balance risk and return within the Plan’s unique context
- selectively internalize aspects of our strategy to save costs and enhance control
- further diversify the fund in line with our investment beliefs, including growing our exposure to private markets and other assets that respond well to inflation
- continue our path toward a net-zero portfolio by 2040 or sooner
- harness our structure and growing scale to yield enhanced value for members
UPP's exposure evolution
The Plan’s asset mix is diversified across a broad range of asset classes, organized in three categories: return enhancing, interest rate sensitive, and inflation sensitive. Under this structure, we divide our total fund assets based on their exposure to key economic drivers as well as their risk-return characteristics and roles in funding the pension.
In line with our target asset mix, we explore new investments with a focus on enhanced cost efficiency and control, alignment with our members’ needs, and long-term value.
Since starting our portfolio transition, UPP’s Investment team has made significant progress in shifting our exposure to certain asset classes, including:
- Adding new private assets in our inflation-sensitive asset class and building and maintaining a robust liquidity position.
- Consolidating our partnerships and mandates to better meet our long-term needs
- Transitioning pooled funds to segregated fund vehicles, which offer greater transparency and investment control and help us better apply our ESG lens
- Decreasing our public equity holdings and redeployed capital into lower-risk assets, including interest rate–sensitive and inflation sensitive assets, which are better aligned with our strategy and pension liability
UPP’s exposure evolution
Inception July 1, 2021 – December 2023
Return enhancing
Interest rate sensitive
Inflation sensitive
Leverage
Return enhancing
Return enhancing strategies generally reduce funding risk over the long term by delivering higher relative rates of return. They can, however, display higher relative volatility (a measure of market risk) in the short term.
Asset subclasses: Public equities, private equities, private debt, absolute return.
Interest rate sensitive
Interest rate sensitive strategies generally reduce funding risk over the long term by helping offset the effects of changing interest rates to our assets and liabilities. This includes long-dated government bonds, which are a stable source of long-term returns and help align our fixed income portfolio with the interest rate sensitivity of our liabilities.
Asset subclasses: Fixed income, inflation sensitive bonds
Inflation sensitive
Inflation sensitive strategies provide stable long-term returns while helping mitigate the impact of inflation on the long-term value of the Plan liabilities, which are linked to salary levels and partially indexed to changes in inflation.
Asset subclasses: Infrastructure,
real estate
Leverage
Short-term money market & funding helps us dynamically change our exposures in a fast-moving market. Proactive liquidity planning ensures we can maintain our desired asset mix and meet our liability obligations while remaining a reliable source for markets when liquidity is scarce.
In 2023, Canadian holdings made up over half (51%) of the Plan’s assets, held in equities, bonds, real estate and infrastructure.
Snapshot of recent investment activity
Infrastructure
Inflation sensitive
Copenhagen Infrastructure Partners
Fund investment supports development and construction of renewable energy projects around the world. The commitment is part of UPP’s active strategy to further diversify its portfolio with inflation-protected assets and help build sustainable value for Plan members.
Absolute return
Return enhancing
Compass Rose Asset Management, Claren Road Credit Fund
Fund focuses on long/short relative value trading in global investment grade credit and larger high yield issuers. The strategy exhibits a highly convex return profile, which means that it is expected to generate outsized returns in periods of stress and heightened volatility in credit markets, while eking out respectably strong numbers in more benign environments.
Infrastructure
Inflation sensitive
Arjun Infrastructure Partners, Angel Trains
Investment in Angel Trains, UPP’s first co-investment, expands our infrastructure investment program and aligns with UPP’s desire to support the transition to a low-carbon economy.
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