City of Toronto Investment Report for the Six Month Period Ending June 30, 2024

The General Fund had a book return of 4.8 per cent and generated $247.6 million for the six months ending June 30, 2023. As a result of the pandemic, the General Fund has held a larger position in the Short Term Fund (STF) to enhance the liquidity and to generally lower the overall risk (risk management). On average, the Short Term Fund, including the short-term investments of the Long Term Fund (LTF), was about 59 per cent of the overall General Fund in 2024 compared to 48 per cent from the pre-pandemic level in 2019. This higher weighting in the Short Term Fund provided significant protection, as well as increased returns as short-term rates moved higher in recent years. Staff re-assessed the City's liquidity position in late 2023 and advised the Chief Financial Officer and Treasurer (CFO&T) that excess funds within the Short Term Fund were available for longer term investment. At that time, a plan was set for $2 billion to be transferred from STF to the LTF in four quarterly installments during 2024. After the transfer STF including short term investments of the LTF is forecasted to be approximately 42 per cent of the total General Fund, returning to pre-pandemic liquidity level. The City's Sinking Fund portfolio is separate from the General Fund and holds the investment funds for future debt repayments. For the six months ending June 30, 2024, the Sinking Fund portfolio had a book return of 3.8 per cent and generated $97.4 million in income. Since January 1, 2018, the City's long-term investments (Long Term Fund and Sinking Fund) have been managed by the Toronto Investment Board (Board) under a Council adopted Investment Policy which is based on the prudent investor standard. Investment portfolios of different asset classes have been progressively phased in to make use of the broader range of investments that have become available. Although, the potential for volatility in total returns over the short-term investment horizon still exist, the overall portfolio risk has been reduced through asset mix diversification. The overall risk-adjusted total returns over the long-term investment horizon are expected to be higher. The Board currently provides oversight of four external fixed income managers, four external global equity managers and two real asset managers that invest the long-term investments. As at June 30, 2024, approximately 90 per cent of both the Sinking Fund and the Long Term Fund were managed by external investment managers. Both fixed income and equity investment asset classes are fully funded in accordance with the target asset mix in the Investment Policy with 70 per cent allocated to fixed income and 20 per cent to global equities. The Board completed contract negotiations with two real asset managers in the first half of 2024 with funding to commence in the second half of the year. Adding real assets to the current investment portfolios will enhance the overall portfolios' risk-adjusted investment return and align with the Council approved policy target asset mix. The Toronto Investment Board has contracted a third-party data provider in order to monitor and report on the high-level Environmental, Social, and Governance (ESG) attributes of the City's long-term investment portfolios. This investment fund-level ESG reporting process will complement the existing corporate-level ESG performance report. At the end of June 2024, the City's long-term investment portfolios score was "A" and is aligned with the selected market benchmark as depicted in the investment policy. For the year 2023 and first six months of 2024, all funds managed are compliant with the Investment Policy. The City's auditor, KPMG LLP, performed the Investment Policy compliance audit during the second half of 2024 and no issues were noted.