### 3 Investment Performance

There’s a lot to admire about the Canadian’s pensions investment style. They spend a lot less and have achieved higher returns than the AFM-EPF. To measure their performance, they compare each asset to a market-based index of similar assets and disclose this to members in their yearly annual report. This was one of the recommendations in section ﬁve of our paper and we are happy to see that the AFM-EPF has started to do the same thing. We feel it is an essential component of the periodic reporting owed to participants. Unfortunately, the AFM-EPF reports returns gross of expenses, which overstates the actual returns. A blemish shared by both funds is that neither one compares their total return to any benchmark. We provide that here.

The Canadian plan is signiﬁcantly smaller than the AFM-EPF. The Canadian’s net investments for 2016 were about $0.75 billion CAD, while Pension-USA’s were around$1.75 billion USD. Signiﬁcant returns are much more diﬃcult to get once you cross the billion-dollar mark. Many investing experts (including Warren Buﬀett) have made this point. Keep it in mind as you evaluate each fund’s performance.

Year-over-year investment comparisons are quite diﬃcult between Pension-CANADA and Pension-USA due to the diﬀerences in their ﬁscal years. However, both report ﬁve-year returns. Comparing these is reasonable, since the longer period should reduce the eﬀect of any end-point noise. Figure 1 gives the results for each as well as our benchmark Berkshire Hathaway1.

Unfortunately, the AFM-EPF is on the wrong side of both of these metrics. They have historically paid more for lower returns. They have recently made some changes in their investment advisers and process. We are all hopeful that these changes will correct the problems. The Canadian plan has done much better, but as the comparison with Berkshire shows, there is plenty of room for improvement.

As far as we can tell, each fund’s investment managers are paid the same no matter how well they perform. Historically, better returns have occurred when pay is related to how well the investment manager performs.

1Disclosure: The authors are Berkshire shareholders.