City of Toronto Investment Report for the Six Month Period Ending June 30, 2025

The General Fund had a book return of 1.7 per cent and generated $179.0 million for the six months ending June 30, 2025. During the first half of 2025, there was a larger than expected drawdown from Short Term Fund (STF). On average, the Short Term Fund, including the short-term investments of the Long Term Fund (LTF), was about 43 per cent of the overall General Fund compared to 48 per cent from the pre-pandemic level in 2019. Although this lower weight does not pose a liquidity concern, it will lower projected earnings from Short Term Fund in the near future. 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. Overall, $2 billion was transferred from STF to the LTF in four quarterly installments during 2024. The Sinking Fund (SF) portfolio is separate from the General Fund and holds the investment funds for future debt repayments. For the six months ending June 30, 2025, the Sinking Fund portfolio had a book return of 1.2 per cent and generated $32.6 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, 2025, approximately 94 per cent of the Sinking Fund and 97 per cent of 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 remaining 10 per cent is allocated to real assets of which approximately 5 per cent has been funded to two global real estate mandates. The final 5 per cent of the real asset category will be directed to global infrastructure mandates in the near future. Adding real assets to the current investment portfolios will enhance the overall portfolios' risk-adjusted investment return and complete 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 2025, the City's ESG score on the LTF was "A" and SF score was "AA", both aligned or outperformed the selected market benchmark as depicted in the investment policy. For the year 2024 and first six months of 2025, 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 2025 and no issues were noted.