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COMMUNITY GROWTH AND SUSTAINABILITY: … GROWTH AND SUSTAINABILITY: CREATING SOVEREIGN WEALTH Oliver...
Transcript of COMMUNITY GROWTH AND SUSTAINABILITY: … GROWTH AND SUSTAINABILITY: CREATING SOVEREIGN WEALTH Oliver...
COMMUNITY GROWTH AND SUSTAINABILITY: CREATING SOVEREIGN
WEALTH
Oliver MacLaren, Olthuis Kleer Townshend LLP and Jack Jamieson, T.E. Wealth
October 3, 2017
Olthuis Kleer Townshend LLP and T.E. Wealth 1
Background
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Era of New Wealth
Growing acceptance of ‘Impact Benefit Agreements’ and Equity Participation over the last 20 years has meant unprecedented wealth to many indigenous communities
IBAs/Equity Participation now viewed as part of a consent framework – Recognition by a company of the impacts on Aboriginal and Treaty Rights as a result of development
Spectrum of benefits are provided in return for approval from community for development to proceed
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Olthuis Kleer Townshend LLP and T.E. Wealth
Era of New Wealth
With some notable exceptions, Reserve lands have not traditionally be the site of intense economic activity
Conversely, a large base of wealth for many first nations continues to be geographically based: Historic Land Claims
Impact Benefit Agreements to address impacts to aboriginal and treaty rights from mining projects
Equity ownership in Projects occurring in First Nation traditional territories
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Era of New Wealth - Grand Bend Wind Project
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Olthuis Kleer Townshend LLP and T.E. Wealth
Era of New Wealth
Historic Land Claims get settled Ability to settle also depends on the attitude of
governments/courts of the day
Resource Projects operate for a finite amount of time
Dependence on one or two projects as a sole basis for wealth means exposure to cyclical trends in resource prices and limited exposure to opportunities in the wider economy
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Era of New Wealth
An approach to wealth generation that is dependent on a consultation and accommodation / consent framework will only bear fruit for so long as the geography offers a commodity for sale
While this new era has in many cases brought unprecedented wealth, in order to preserve the gains made, a sustainable approach is needed.
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The Athabasca Community Trust
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Collaboration Agreement
Black Lake
Fond du Lac
Hatchet Lake
Camsell Portage
Stony Rapids
Uranium City
Wollaston Lake
Cameco Corporation
AREVA
Athabasca First Nations
Athabasca PermanentResident Organization
Companies
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Why Set up the Trust?
Trusts are tools for good governance.
Trusts enable communities to establish binding rules for how revenues can be used over the short and long-term.
Trusts are generally Creditor Proof.
The Athabasca Community Trust is a tool to manage some of the revenue from IBAs and successful business ventures to meet the needs of the present while ensuring that there is money put aside for future generations.
Separate Trust funds from each Athabasca First Nation and Communities’ operating budgets, enabling long-term planning for future community needs.
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Athabasca Community Trust: Mission Statement
“To promote and enhance the environmental, social,cultural and economic health and well-being of theBeneficiaries for present and future generations”.
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Parties to the Trust12
• The people who run the Trust,who make day-to-day decisionsabout how the Trust money isinvested and managed
Trustees
• The people who are entitled toreceive funding from the TrustBeneficiaries
Olthuis Kleer Townshend LLP and T.E. Wealth
Bene
fici
ari
esBene
fici
ari
es
First NationsFirst Nations MembershipMembership
Permanent Resident Organization
Permanent Resident Organization
Permanent Long Term ResidentsPermanent Long Term Residents
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The Beneficiaries13
The Trustees
5 Trustees:
1 Corporate Trustee (The Canada Trust Company):
Manages funds and ensures Trust is administered in accordance with the terms of the Trust.
Does not make decisions on proposals to distribute income other than to confirm that proposal is for a Permitted Purpose.
4 Community Trustees:
Each FN appoints 1 original trustee.
Permanent Resident Organization (“PRO”) will appoint 1original trustee.
Terms are staggered and each community trustee is able to serve more than one term
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Olthuis Kleer Townshend LLP and T.E. Wealth
Trust IncomeTrust IncomeFunds from IBA and
investments
Long Term Fund (40%)Long Term
Fund (40%)Saved for future
Short Term Fund
(60%)
Short Term Fund
(60%)Expended annually
Trust Structure
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Trust capital is invested
Generates a fixed amount of
income per yearthat could be used for programs and services without touching capital
Generates a fixed amount of
income per yearthat could be used for programs and services without touching capital
(Interest earned)
Long Term Fund for the Future: Ultimate Objective
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Short Term Fund
Trustees make annual distributions from the short-term fund after Trust and IBA Implementation Expenses are covered. These distributions will be made as follows:
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Annual Community Distributions
Annual Community Distributions
50%50%
Fixed % for each
community
Fixed % for each
community
50%50%
Proposals based on fixed %
Proposals based on fixed %
A fixed % is distributed to each Athabasca First Nation and PRO (for each Athabasca Community) for programs and services.
To fund proposals received from Athabasca First Nations & Members, Athabasca Communities & Permanent Long Term Residents, or designated community organizations for permitted programs and services. Each Athabasca First Nation and Community is eligible to receive a fixed percentagefor proposals.
Permitted Purposes
Annual Distributions can only be used to: enhance community planning;
promote health/well-being of Members and Permanent Long Term Residents;
address community housing needs;
improve community infrastructure;
preserve or protect the language, culture and traditional land use of an Athabasca First Nation;
carry out community-based environmental projects or otherwise advance the environmental priorities of an Athabasca First Nation or Community;
support community events and gatherings;
provide educational and economic opportunities for Members and Permanent Long Term Residents (including scholarship/grant programs, trade apprenticeships, and internship programs); and
support community business development and capacity building for Members and Permanent Long Term Residents .
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Funding for Proposals
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Application Process for Proposals
A portion of the Trust funds for proposals will be available twice a year.
Community Trustees evaluate proposals in accordance with the Trust and criteria set out in the Deed.
Projects can only be funded if they support a ‘Permitted Purpose’ under the Trust.
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Who Can Submit Applications?
Eligible applicants:
Athabasca First Nation
Athabasca Community
Member of an Athabasca First Nation
Permanent Long Term Resident of an Athabasca Community
Organization representing an Athabasca First Nation or Community
Joint proposals by eligible applicants
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Olthuis Kleer Townshend LLP and T.E. Wealth
Determining the Investment Strategy to
Achieve Long Term Sustainable Growth…
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How Do We Best Achieve a Goal of Sustainable Wealth?
which strives to:
“Meet the needs of the present without compromising the ability
of future generations to meet their own needs.”
Trust and Community Priorities Can Be Numerous…
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Housing?
Education?
Health Care?
Economic Development?
Culture & Language?
Infrastructure?
… But What about Investment for Future
Generations?
Requires a Commitment – given the many prioritiesthat can exist today, there is often a need to“Prioritize the Priorities”
Creating Sustainable Wealth No Amount of Wealth is Unlimited!
Growth & Sustainabil i ty
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Requires Time, Consultation and Buy-In from thebeneficiaries to achieve a common vision
Requires Balance – to live within the sustainability andaffordability of current resources in order to balance theneeds of today with that of future generations…
… Achieving Community Growth & Sustainability is
much more than finding a good investment manager!
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Growth & Sustainability26
Achieving Growth & SustainabilityThings to Consider…
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Community Priorities?
Required Return on Investment?
Investment Asset Mix?
How to Minimize Risk/Volatilitythrough Portfolio Structure?
Required Return on Investment (RROI)Necessary To Meet Trust Priorities?
Housing
Post Secondary Education?
Trust Expenses
Preserve the Financial Stability of the First Nation for Future Generations?
Funding Needed to Meet Trust PrioritiesTrust Value / $40 million
PurposeAnnual Income Requirement ($)
% of Total Assets
Housing $800,000 2.00%
Post Secondary $400,000 1.00%
Trust Management and Expenses
$200,000 0.50%
Total Annual Requirement
$1,400,000 3.50%
Inflation $ 800,000 2.00%*
Total Annual Required Return
$2,200,000 5.50%
Sample Priorities
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Looking Back… Portfolio Sustainability Given Various Withdrawal Rates
0
10
20
30
40
50
1926
1928
1930
1932
1934
1936
1938
1940
1942
1944
1946
1948
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
50/50 ALLOCATION, YEAR END PORTFOLIO WITHDRAWALS BEGINNING FROM 1926-1976
5% 4% 3%
Source: William P. Bengen, “Determining Withdrawal Rates Using Historical Data” http://www.retailinvestor.org/pdf/Bengen1.pdf Oct 1994
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# o
f Y
ea
rs P
ort
folio
Ass
ets
Las
t
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The Investment Policy’sTarget Return To Meet Investment Objectives
3.50% Return Target to Meet Sustainable Annual Payment
2.00% To Meet Estimated Inflation
5.50% Estimated Required Return on Investment
to meet Trust Objectives
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What Should We Invest In?No investment is the best all the time !
Determining the Asset Mix that is appropriate in meeting the Required Return?
Sample Portfolio
Return Contribution
50% in Equities (@ 8.0%) = (4.00%)
50% in Bonds (@ 3.0%) = (1.50%)
* An Active investment Manager can be expected to add value over and above the market return
5.50%*
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Not Meeting Trust Objectives Can Be Considered the Biggest Risk Of All
Risk Management
“The process of analyzing a portfolio’s exposure to risk and determining how to best handle such exposure”...
This involves managing the portfolio with a goal of decreasing the probability or likelihood of an undesirable event occurring and/or reducing the impact such an event will have on the portfolio.
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The Importance of Limiting Losses
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1% 5% 11%
25%
43%
67%
100%
150%
233%
-1%-5% -10% -20%
-30%-40%
-50%-60%
-70%
-100%
-50%
0%
50%
100%
150%
200%
250%
Required Gain
Loss
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Annual Cumulative Annual CumulativeYR 1 13.0% 13.0% 5.4% 5.4%YR 2 2.0% 15.3% 5.4% 11.2%YR 3 - 5.0% 9.5% 5.4% 17.2%YR 4 8.0% 18.3% 5.4% 23.6%YR 5 19.0% 40.7% 5.4% 30.3%YR 6 6.0% 49.2% 5.4% 37.4%YR 7 11.0% 65.6% 5.4% 44.8%YR 8 7.5% 78.0% 5.4% 52.7%YR 9 -12.0% 56.6% 5.4% 61.0%YR 10 - 5.0% 48.8% 5.4% 69.8%YR 11 9.5% 62.9% 5.4% 79.0%YR 12 2.1% 66.4% 5.4% 88.7%YR 13 12.0% 86.3% 5.4% 99.0%YR 14 6.5% 98.4% 5.4% 109.8%YR 15 -18.0% 62.7% 5.4% 121.2%YR 16 25.0% 103.4% 5.4% 133.2%YR 17 8.0% 119.7% 5.4% 145.9%YR 18 5.4% 131.5% 5.4% 159.3%YR 19 8.3% 150.7% 5.4% 173.3%YR20 5.4% 164.3% 5.4% 188.2%
Simple Avg 5.4%` 5.4%Std Deviation 9.8% 0.0%Compound Avg 5.0% 5.4%
Impact of Reduced Volatility on Returns
Managing R i sk & Vo la t i l i tyPort fo l io S t ruc ture Cons idera t ions…
Managing Risk & Volatility“Balanced” Managers versus “Specialists”
“Balanced” Manager
An investment manager that manages multiple asset classes for the investorand is viewed as being proficient in all asset classes. This is in contrast to a“Specialist” Manager who just manages one asset class.
Benefits: Tactical Asset Allocation - The manager can overweight/underweight
certain asset classes based on their outlook on the markets
Rebalancing is performed by the manager-generally more timely .
Overall Costs are generally less expensive as any given manager has more of the portfolio.
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Growth & Sus ta inabi l i tyPor t fo l io S t r uc ture Cons iderat ions
Reducing Volatility through Multi-Investment Style Portfolio Structure
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Impact of Mul t i -Manager Solut ion on Overal l Costs (Sample)
Single Manager Solution
Impact of splitting $10,000,000 between two Investment Managers
Illustration: Impact on Overall Costs of a Multi-Manager Solution
Portfolio SizeFee (%)(2) – (1) above Fee (S)
Impact on Overall Costs $10,000,000
0.50% - 0.42%= + 0.08% = + $7,500
Firm Portfolio Size Fee (%) Fee (S)
Manager A –Value Mgr. $10,000,000 0.42% (1) $42,500
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Commun i ty Growth & Sus ta inabi l i ty Por t fo l io S t r uc ture Cons iderat ions
Source: RBC Capital Markets Quantitative ResearchDecember 1986 – September 2016
Income Driven Investment Strategy
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Growth & SustainabilityImpact of Ignoring the Future!...
Scenarios Year 5 Year 10 Year 20 Year 40 Year 50
Cumulative Dollars (4.5%) Transferred to Community $22,500,000 $45,000,000 $90,000,000 $180,000,000 225,000,000
Portfolio Value $100,000,000 $100,000,000 $100,000,000 $100,000,000 $100,000,000
Purchasing Power Adjusted by Inflation (2%) $90,573,081 82,034,829.99 $67,297,133 $45,289,042 $37,152,788
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Growth & Sustainabil i tyBuilding Today and for the Future!
Scenarios Year 5 Year 10 Year 20 Year 40 Year 50
Cumulative Dollars (2.5%)Transferred to Community $13,687,969 $28,699,005 $63,214,186 $154,646,807 214,686,723
Portfolio Value $109,665,912 $120,266,122 $144,639,402 $209,205,565 251,603,420
Purchasing Power Adjusted by Inflation (2%) $100,000,000 $100,000,000 $100,000,000 $100,000,000 100,000,000
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Growth & Sustainabil i ty
In Summary “Prioritize Community Priorities”
Growth and Sustainability Requires an Ability to Balance the Needs of Today with those of the Future Generations and to live within the a sustainable withdrawal rate based on the Resources that are Available
Volatility Reduction Can Increase Future Growth & Sustainability Asset Class Diversification Multi-Manager / Multi-Style Investment Structure Recognize the Benefits of Income Models on Risk and Return
Growth and Sustainability Means Incorporating Inflation Protection
Build for Today and Save for the Future!