In 2023, Provident10 made steady progress against our five-year Strategic Plan, Now to Next: Our Path to 2026, as well as solid investment performance for the Plan. The organization entered 2024 well positioned to continue delivering on our pension promise of providing members with a secure retirement income, well into the future.
As stewards of the Public Service Pension Plan, the Board remains steadfast in our commitment to exemplary governance and effective management.
We are pleased with the Plan’s investment performance and the operational progress the Provident10 team continues to make against the strategic plan.
Despite persistent macro-economic headwinds, the Fund produced strong results in absolute terms, returning 9.1% in 2023. Notably, the Fund is exceeding our discount rate across all pertinent short, medium, and long-term periods and is adding significant value-add over the policy benchmark, as demonstrated in the medium 4-Year term value-added of 1.1%. Ending the year with a funded ratio of 102.4% and net assets totalling $11.52 billion, the Plan maintains a solid financial footing.
In 2023, the Board welcomed David Drover as a new director. Mr. Drover enriches our collective expertise, adding experience, knowledge and further depth to an already strong and active board. We are very pleased to have him join us.
Throughout the pages of this report, you will see, first-hand, the significant economic impact the Plan has on the province, how that impact is an extension of the Plan’s performance, and how pensioners are broadening that impact through their community involvement.
As the theme of this year’s annual report highlights, our members are a constant source of inspiration and the reason all of us at Provident10 – the board, management and all of our employees – are focused on delivering on our pension promise and providing secure income to our members in retirement.
The important progress made in 2023 adds strength and foundation and ensures your plan is built for the long term.
Each year I look forward to this formal opportunity to share our annual highlights with you, our stakeholders.
I’m pleased to report that despite another year of persistent challenges in the economic landscape for 2023, the Fund achieved strong returns, reinforcing our solid foundation and positioning Provident10 for sustained success in fulfilling our pension promise over the long term.
Our commitment to our growing membership is the driving force behind all that we do here at Provident10. We work hard to support both our active and retired members and our communities. In fact, Provident10 contributes approximately $600 million to the provincial economy every year through the pension benefits we pay to our members. This broader economic benefit is something we are very proud of.
With members at the heart of everything we do, it felt only too fitting to use this year’s annual report to highlight and celebrate pensioners from across Newfoundland and Labrador. For me, these stories are a reminder of the importance of our work and the incredible responsibility we hold to our members and to the province.
As we continue to build a foundation for the long-term success of the Fund and of Provident10, we continue to focus on strategic initiatives that will strengthen the Plan into the future. In 2023 we achieved several important milestones. Some of which include:
As we continue to expand and welcome new employers, I am also pleased to report the addition of Cara Transition House in Gander as our newest employer to the Plan. We are honoured to welcome the employees of Cara House to the Provident10 family and look forward to continuing to welcome new participating employers.
Across our operations in 2023 we continued to find ways to improve our ability to serve our members. Our first priority continues to be meeting, if not exceeding, our operational service standards and ensuring pensions are paid.
To that end, I want to acknowledge the hard work and commitment I see every day from the full Provident10 leadership team and all our employees.
Their steady focus on performance excellence made a difference for our members in 2023 and it helped ensure we made continued progress against our five-year plan.
As always, I am grateful for the engagement of our Board of Directors. With their support, we continue to move towards our shared vision of establishing Provident10 as an industry leader in pension and investment services, a trusted brand across Newfoundland and Labrador, a leader in member satisfaction, and an employer of choice for top talent on a provincial and national scale.
On behalf of everyone at Provident10, thank you for the trust you continue to place in us.
Also known as stocks, these can be shares of a publicly traded company – something you would see listed on an exchange (like the Toronto or New York Stock Exchanges) – or investments in private equity, which involves buying (and eventually selling) privately-held companies through funds managed by specialized investment firms. In all, equity is often seen as more volatile and typically carries greater risk, but has the potential to deliver stronger performance over a long-term period.
The Plan diversifies its public equity across various categories including:
Real assets are investments like real estate and infrastructure. These can offer strong risk-adjusted returns and often respond to the market differently relative to asset classes like stocks. This makes real assets a popular choice when diversifying an investment portfolio. Since these are tangible assets, they’re typically also a longer-term investment (since they are less liquid than other assets). Provident10 has made strategic investment in both real estate and infrastructure across North America and beyond.
The Plan diversifies its real estate portfolio regionally throughout Canada across three main property sectors:
The Plan diversifies its infrastructure globally across several sectors:
Fixed income includes bonds and other debt instruments – investments that generate returns in the form of interest. They are typically seen as lower risk than equities, as they can be more predictable in their returns. Typically, when we think of bonds, we picture government bonds, but companies can also issue bonds as a way to raise capital. Private debt – or interest collected on loans to corporations or individuals – is also part of Provident10’s fixed income portfolio.
The Plan diversifies its fixed income portfolio across various categories including:
2023 was marked by persistent macro-economic challenges for investors, most notably the intense interest rate volatility that dominated markets through the year. For example, the US 10-Year yield, a significant benchmark for the global financial markets, fluctuated significantly during each quarter. This was followed in the fourth quarter by a substantial decline in long-term interest rates, which helped to rally the markets. The year ended with high single-digit returns across both public market equities and bonds, particularly in duration sensitive assets.
The year was also characterized by a select few stocks driving the performance of the broader equity markets. The Magnificent 7 - a collection of seven large communication and technology stocks (Apple, Alphabet, Telsa, Meta, Microsoft, Amazon and Nvidia) - dominated overall market returns for the year, collectively recording a return for the year that far exceeded the 24% return generated by the S&P 500.
It was a challenge for the Fund to add value above and beyond the performance of this select group of stocks, highlighting the value diversification brings to the longer-term performance of our portfolio.
Infrastructure as an asset class outperformed in 2023, driven by continued digital demands. Infrastructure investments continue to be a bright spot in our portfolio, providing 30 basis point of value add.
Fixed income was also a strong contributor to the performance of our portfolio, driven by strong returns in investment grade and high yield credit as well as in commercial mortgages. As long-term interest rates declined in the fourth quarter, fixed income benefitted with carry yields in excess of 5%, generating decades worth of high absolute returns for fixed income overall.
Real estate was the only asset class that produced negative returns in 2023. This was primarily driven by shifting demand (and valuations) in the office portion of real estate portfolios.
As we look forward, we’re reminded of the unique and often unpredictable challenges our world has faced in recent years. The uncertainty around interest rates here in Canada and globally, the persistent threat of a possible recession and new and continued geopolitical conflicts will carry into the year ahead. All of this makes it very difficult to anticipate what the future will bring for our broader economic environment.
This extraordinary unpredictability also underscores the value of a robust long-term strategy, backed by strong governance and expertise. Our Plan has demonstrated its resilience over the past seven years, and we will continue to build on this foundation as we prioritize delivering on our pension promise to generations of Provident10 members.
After five years of implementation and evaluation, we will begin a new evaluation of our strategic asset diversification in 2024. Guided by our experienced management and investment team, and a track record of strong long-term returns, we look forward to further refining our approach, ensuring that Provident10 will continue to deliver results that positively impact our members, our communities and our province at large.
Everyone on the Provident10 team plays an essential role in supporting our members, and we know that we’re strongest when we work together, collaboratively and strategically. That’s why we introduced a new internal event in 2023, to bring the team together and foster co-operation and alignment across the organization. The inaugural Corporate Kick-off – and the mid-year check-in – allowed employees from every corner of Provident10 to connect and share information, to learn more about what’s happening around the organization and to identify opportunities for collaboration.
We are proud to make an impact in the communities where we live and work – and we wanted to empower our team to invest their time and talents in causes that matter to them. That’s why we introduced Community Connections, a new internal program connecting Provident10’s employees with volunteer opportunities during National Volunteer Week and on Giving Tuesday. Our team members stepped up in a big way, volunteering 60 hours of their time to The Gathering Place and our local Ronald McDonald House.
Provident10 is committed to being a good neighbour and an active corporate citizen. In 2023, we were proud to make contributions to three local community organizations that are focused on delivering support services to the people of Newfoundland and Labrador: The Gathering Place, the Single Parent Association of Newfoundland and Labrador, and the Community Food Sharing Association. And our employees also chose to make financial donations to Kids Help Phone and fulfill Christmas wish lists for a family of five.
In our five-year Strategic Plan, Now to Next: Out Path to 2026, we laid out our goals and priorities for Provident10. To achieve these goals (and to continue to deliver on our promise to members), we are investing in areas critical to our long-term success: our people, our processes, and our technology.
In 2023, we invested in a new recruitment tool as we continue to seek top talent to join Provident10. We also continued to focus on diversity, equity, inclusion and belonging (DEIB), taking additional steps towards more inclusive group insurance benefits, offering education and awareness sessions, and conducting an internal DEIB survey.
We’re continuing to build an efficient and agile organization that reacts and adapts to the evolving times in support of our members. To ensure that we have the right people and systems in place to support critical changes and improvements across Provident10, we have made a multi-year commitment to building our change capabilities through a formal Change Management program.
Now in its second year, the program achieved a significant milestone in 2023 with the successful launch of our Case Management System. We will continue to build on the successful integration of change management practices, tools and templates across our organization to support our employees as we deliver on further strategic changes in 2024 and beyond.
Our team is united in our commitment to integrity, support and results in the service of our members. To achieve these goals, we invest in internal governance, ensuring that our people and our business have the right tools, policies and training. These investments ensure that we are accountable and compliant today, and continuously improving for the future.
In 2023, we completed a number of risk-based projects, demonstrating the effectiveness of our governance, risk management and internal control processes. This Internal Audit Plan is critical to ensuring that areas of risk across all business areas are identified and addressed, while still allowing our team to respond to ongoing changes encountered in the course of regular business. It also offers valuable recommendations for improvement. The positive outcomes of the 2023 Internal Audit Plan served as a valuable source of independent feedback to Management and the Board, further highlighting the effectiveness of the organization’s governance, risk management and control processes.
We were also pleased to finalize our IT Strategy and Roadmap, as well as table our IT Governance Framework with final approval anticipated next year.
We report on the attendance of our Directors at duly constituted and ad hoc meetings, as well as their annual compensation. Compensation is outlined in our Board of Directors Renumeration Policy, and includes an annual honorarium, a per-meeting attendance allowance and reimbursement for reasonable travel expenses. Government and Union employees are not eligible for per-meeting attendance allowances.
The Board Chair and Vice Chair are ex-officio, non-voting members of all committees.
The organization is committed to transparency with respect to the compensation of members of our Executive Team. Our Board of Directors approves the compensation principles and philosophy for the organization, as well as the salary and variable compensation of our Chief Executive Officer.
Compensation decisions are made to align with our objectives under our Strategic Plan, specifically around retention and recruitment of top talent, which are key to ensuring the organization has the right people for operational excellence and delivery on strategic initiatives. To support this goal, the organization maintains a total compensation and benefit program for all fulltime employees that includes market-competitive compensation, pension contributions and other retirement benefits, life and disability insurance, and health and dental benefits.
A Supplementary Retirement Arrangement (SRA) for Designated Officers of Provident10 has been established. The SRA provides retirement benefits to Designated Officers for earnings in excess of those used to calculate benefits under the PSPP due to the limits on pensionable earnings imposed by the Income Tax Act. Designated Officers and the organization both make required contributions to the SRA in equal amounts. In alignment with our overarching compensation principles and philosophy, this program is designed as a strategic tool to recruit and retain individuals in key executive leadership roles. The CEO was the only Designated Officer eligible for the SRA in 2023.
In addition to base salary, our employees – including the Executive Team – receive variable compensation through the Short-Term Incentive (STI) Program. The STI Program is designed to ensure alignment of priorities between the organization and Board of Directors and provides the Board with the opportunity to assess corporate performance metrics.
STI Program sets annual corporate and individual targets assessed for 0%–150% attainment with minimum, target, and excellence performance metrics. The maximum total reward is capped. The chart below reports both base salary and STIP, to provide an overview of total cash compensation.
