City of Toronto Investment Report for the Year 2025

The General Fund had a book return of 3.6 percent and generated $391.0 million for the year ending December 31, 2025. The Short Term Fund, including the short-term investments of the Long Term Fund (LTF), was about 40 percent of the overall General Fund by December 2025 compared to 48 percent from the pre-pandemic level in 2019. This lower cash position was primarily due to an increased spending rate on capital projects. Staff will continue to monitor liquidity levels in 2026. The City's Sinking Fund portfolio is separate from the General Fund and holds the investment funds for future debt repayments. For the year ending December 31, 2025, the Sinking Fund portfolio had a market return of 2.7 percent and generated approximately $85 million in total market return. 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 December 31, 2025, approximately 95 percent 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 percent allocated to fixed income and 20 percent to global equities. The Board completed contract negotiations with two real asset managers in the first half of 2024 with funding 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. It is a legislative requirement that the Investment Policy be reviewed annually. Staff have reviewed the Investment Policy and no changes are recommended at this time given that policies have only been in place since 2018 and in that time we have experienced several years of volatility triggered by COVID-19 impacts. The City of Toronto Investment Policy can be reviewed in Attachment 1 of this report. For the year 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 2025 and no issues were noted. 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 on a quarterly basis. This investment fund-level ESG reporting process will complement the existing corporate-level ESG performance report. At the end of December 2025, the City's long-term investment portfolios overall score was "AA" and is within the "Leader" category of the selected market benchmark as depicted in the investment policy. The Carbon Intensity Score for both the LTF and the SF are better than benchmark, with the trend in this indicator showing steady improvement over the years.