Crossfire Lunch: your questions answered

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Crossfire Lunch your questions answered!

• 2004 Global Investment Conference
• Crossfire Lunch
• Friday, April 16, 2004
• Chauteau Fairmont Whistler
• Presented by
• Canadian Investment Review
• and
• Bureau of Asset Management,
• University of British Columbia

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Crossfire Lunch your questions answered!

• Part One
• PLAN SPONSORS
• Whats the biggest reason for investing outside
  of Canada?

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Crossfire Lunch your questions answered!

• The narrowness and relative riskiness of the
  Canadian marketplace.
• A need to achieve proper diversification outside
  a market that only represents about 3 of the
  total world markets. A secondary reason is the
  desire for enhanced returns from other equity
  markets.

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Crossfire Lunch your questions answered!

• Diversification away from a small, limited
  market with liquidity problems for a fund our
  size. We've got four international and two global
  ex-Canada managers, all with the ability to
  allocate up to 15 of their portfolios to
  emerging markets. We did have a separate
  emerging markets mandate a few years ago, but
  found that our board couldn't handle the
  volatility.

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Crossfire Lunch your questions answered!

• It is intuitive--particularly in a
  "boundaryless" economy--that you should look
  across a sector globally rather than within
  global subsets. More acceptance of giving away
  the asset allocation decision of U.S./non-U.S.
  this asset allocation is just due to historical
  measurements and the way indexes are measured.

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Crossfire Lunch your questions answered!

• Why put all your eggs in one basket?
• We believe that we need to diversify our risks
  to broader markets as Canada represents only a
  very small proportion of global markets.
• To get access to industries and market leading
  companies that are not available in Canada.
  Canada is simply not a broad enough market.

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Crossfire Lunch your questions answered!

• Part Two
• Your questions for each other

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Crossfire Lunch your questions answered!

• For a service provider
• With the increased development and complexities
  of global regional economies, how much country
  specific research and stock selection skill
  should portfolio managers offer? In other words,
  is a top-down or bottom-up investment approach
  likely to add more value today and in the future?

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Crossfire Lunch your questions answered!

• For a plan sponsor
• U.S. equity managers have traditionally had a
  difficult time beating their benchmarks over the
  long term. Why haven't plan sponsors been
  quicker to embrace indexing with portable
  overlays that have higher probabilities of adding
  value?

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Crossfire Lunch your questions answered!

• For a service provider
• How many managers are truly global in the way
  they manage global portfolios? Do they just
  put different pieces together (i.e. EAFE and U.S.
  portfolios) and call it a global portfolio, or do
  they actually do research globally, by sector and
  industry?

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Crossfire Lunch your questions answered!

• For a service provider
• How many research people do you really need to
  do global research? Do they really have to be
  onsite at different locations, or is it better
  to have all your people in one place interacting?

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Crossfire Lunch your questions answered!

• For a plan sponsor
• Global researchfact or fiction? Is it truly
  possible to be a global investment management
  firm with independent research, or does the sheer
  task of researching so many companies mean you
  must rely on outside sources?

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Crossfire Lunch your questions answered!

• For a plan sponsor
• Regional or global mandateswho should make the
  asset allocation decision? Do you have favour
  going global by using global mandates, or the
  traditional approach of hiring regional managers
  (e.g. a U.S. manager, an EAFE manager, a European
  equities manager, etc.), and why?

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Crossfire Lunch your questions answered!

• For a service provider
• On the question of the benefits of currency
  hedging of EAFE, there seems to be different
  views some say agree that hedging reduces risk,
  others say no, because there are diversifying
  benefits to currency exposure. Any views?

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Crossfire Lunch your questions answered!

• For a service provider
• From an asset liability perspective, should
  pension plans hedge all non-Canadian exposure?
  Why or why not? Is it feasible to hedge 100 of
  non-Canadian exposure and then use an actively
  managed currency overlay to add value from
  currency?

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Crossfire Lunch your questions answered!

• For a plan sponsor
• Do you think most pension plans have failed to
  develop currency policies? If so, why?

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Crossfire Lunch your questions answered!

• For a service provider
• A question for the custodians since your
  pension plan clients have to adhere to the 10
  single-issuer rule on a real-time basis--for
  example, a Canadian pension plan holds many bank
  stocks, but bonds issued by banks are also
  included in the 10 issuer ruledoes your
  compliance monitoring service also include any
  applicable counterparty risk of any of the banks
  inherent in the pension plan?
• If a plan uses swaps and the counterparty of the
  swap is a Canadian bank? If you don't, should
  you? How would you monitor this?

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Crossfire Lunch your questions answered!

• For a service provider
• Investment manager fees are considerably higher
  for global equities that they are for Canadian
  equities. What is the justification for such a
  large difference in fees compared to domestic
  investments?

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Crossfire Lunch your questions answered!

• For a plan sponsor
• Why don't more sponsors employ a global small
  cap strategy in their overall equity mandates?

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Crossfire Lunch your questions answered!

• For a service provider
• Performance fees seem to be a thing of the
  past. For EAFE or global money management firms,
  what are you prepared to offer investors as a
  means of sharing the pain of underperforming
  active strategies?

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Crossfire Lunch your questions answered!

• For a service provider
• If global mandates are substitutes for many
  smaller market-based mandates, what is the
  optimal global portfolio size in terms of number
  of securities? (Explain the tradeoff between
  depth of market coverage and concentration of
  best ideas.)

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Crossfire Lunch your questions answered!

• For a service provider
• How can plan sponsors be satisfied that global
  investment managers are performing due diligence
  in selecting investments in some global markets
  that may not have the same standards and controls
  in placeand may be less transparentthan more
  developed markets like Canada and the U.S.?

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Crossfire Lunch your questions answered!

• For a service provider
• In expanding the global content of pension
  portfolios, we often have to resort to
  synthetic products to stay within the Canadian
  30 foreign content rule. How aggressive are
  managers with such products and what comfort
  would we have that some products may not be
  acceptable to CCRA or, even worse, overturned at
  a subsequent time?

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Crossfire Lunch your questions answered!

• For a service provider
• How can plan sponsors be satisfied that global
  investment managers are performing due diligence
  in selecting investments in some global markets
  that may not have the same standards and controls
  in placeand may be less transparentthan more
  developed markets like Canada and the U.S.?

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Crossfire Lunch your questions answered!

• For a service provider
• Where is the next global growth story after
  China? What are the risks and rewards? When will
  China devalue its currency?

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Crossfire Lunch your questions answered!

• For a service provider
• To what extend does withholding tax impact your
  decision to invest in securities?