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Teck Cominco Limited

Teck Cominco Limited

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Teck Cominco Limited

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  1. Teck Cominco Limited Canadian – Head Office in Vancouver and globally focused on: • Exploration • Mining • Refining Gerry Wahl, Assistant Treasurer Teck Cominco Limited CADC2005

  2. Teck Cominco Pension Environment • 9DBplans • 12 DC plans • 12 Group RRSP’s • 20 Supplemental plans (some funded) • Joint Venturesand partnerships • Canada & the US • C$1.6 billion in assets CADC2005

  3. Subject of my presentation today … Why small plans don’t invest in “alternate assets” CADC2005

  4. “Understand the Problem” … Kepner-Tregoe First step in solving a problem: identify it as completely as possible Break a situation down into its smallest and simplest pieces CADC2005

  5. A key underlying concept “ The essence of investment management is the management of risk, not the management of returns”Benjamin Graham CADC2005

  6. The underlying “problem” … Administrators and committees of smaller plans are not familiar or comfortable with the concept of risk: • It’s not a simple concept – takes time & effort to understand • Definition(s) of risk - focus is usually on “loss” vs. “volatility” • Statistical nature of the risk measures is intimidating • Linkage between returns and volatility is not clear • Linkage between risk and plan objective is not clear • Jargon is confusing Committees and administrators are more comfortable with the concept of annual returns CADC2005

  7. As a result … • The “primary objective” of a plan may be overlooked • Dependence on style “boxes” and asset liability studies • Input to asset liability studies is minimal • Asset liability studies are expected to address all situations • Asset Liability studies are a source of frustration CADC2005

  8. A critical problem ….. from both a governance and financial service providers perspective a critical problem is ….. Overcoming the resistance or lack of comfort in dealing with risk. An approach? ..keep it simple…make it comfortable …at least initially CADC2005

  9. Key issue for a corporate plan Solvency deficits must be eliminated within 5 years of filing a valuation This is a critical requirement …….from a financial perspective CADC2005

  10. How about simple model - focused on Short term (5 year) funding and volatility Underlying Objective increase the awareness and comfort level with “RISK” CADC2005

  11. Mitigate fluctuations in: cash contributions funded ratios Which however are the result of : Asset liability mismatches Short term volatility of certain asset classes Correlations Legislation Reasonable objective for smaller plans CADC2005

  12. Focus on Basics – On understanding • the nature/duration of the pension liability • the financial risk related to contributions • the role and implications of asset mix • the limitations of asset liability studies • the importance of benchmarks • the major source of “contribution” risk CADC2005

  13. Marketing approaches • Assess client “readiness” levels and focus efforts accordingly • Sponsor or provide risk conferences, seminars or training sessions • Understand each client plan’s primary objective and benchmark(s) • Understand the client’s current portfolio asset mix • Deal in “knowns” such as annualized 4-5 year returns which reflect volatility • Frame the product in terms of a risk management approach rather than as a source of alpha • Demonstrate how the product would (have) impact on the current portfolio’s longer term i.e. 4-5 year return performance CADC2005

  14. What’s a good result ? Once comfortable with the concepts and problems relating to risk, there will likely be more willingness to entertain “alternate” solutions A small plan doesn’t have to target the optimal level of active risk to gain benefits from a better awareness and management of risk CADC2005