1

Canadian – Head Office in Vancouver and globally focused on:

• Exploration

• Mining• Refining

Teck Cominco Limited

Gerry Wahl, Assistant Treasurer Teck Cominco Limited Gerry Wahl, Assistant Treasurer Teck Cominco Limited

CADC2005CADC2005

2

• 9 DB plans• 12 DC plans• 12 Group RRSP’s• 20 Supplemental plans (some funded)• Joint Ventures and partnerships • Canada & the US

• C$1.6 billion in assets

Teck Cominco Pension Environment

CADC2005CADC2005

Why small plans don’t invest in “alternate assets”

Subject of my presentation today …

CADC2005CADC2005

4

Kepner-Tregoe First step in solving a problem: identify it as completely as possible

Break a situation down into its smallest and simplest pieces

“Understand the Problem” …

CADC2005CADC2005

5

“ The essence of investment management is the management of risk, not the management

of returns” Benjamin Graham

A key underlying concept

CADC2005CADC2005

6

Administrators and committees of smaller plans are not familiar or comfortable with the concept of risk:

• It’s not a simple concept – takes time & effort to understand • Definition(s) of risk - focus is usually on “loss” vs. “volatility” • Statistical nature of the risk measures is intimidating • Linkage between returns and volatility is not clear • Linkage between risk and plan objective is not clear• Jargon is confusing

Committees and administrators are more comfortable with the concept of annual returns

The underlying “problem” …

CADC2005CADC2005

7

• The “primary objective” of a plan may be overlooked

• Dependence on style “boxes” and asset liability studies

• Input to asset liability studies is minimal

• Asset liability studies are expected to address all situations

• Asset Liability studies are a source of

frustration

As a result …

CADC2005CADC2005

8

Overcoming the resistance or lack of comfort in dealing with risk.

An approach? ..keep it simple…make it comfortable …at least initially

A critical problem …..from both a governance and financial service from both a governance and financial service providers perspective a critical problem is providers perspective a critical problem is ….. …..

CADC2005CADC2005

9

Solvency deficits must be eliminated within 5

years of filing a valuation

This is a critical requirement …….from a financial perspective

Key issue for a corporate plan

CADC2005CADC2005

How about simple model - focused on

Short term (5 year) funding and volatility Short term (5 year) funding and volatility

CADC2005CADC2005

Underlying ObjectiveUnderlying Objective

increase the awareness and comfort level with “RISKincrease the awareness and comfort level with “RISK””

11

Mitigate fluctuations in:

A. cash contributions

B. funded ratios

Which however are the result of : » Asset liability mismatches» Short term volatility of certain asset classes » Correlations » Legislation

Reasonable objective for smaller plans

CADC2005CADC2005

12

Focus on Basics – On understanding

• the nature/duration of the pension liability

• the financial risk related to contributions

• the role and implications of asset mix

• the limitations of asset liability studies

• the importance of benchmarks

• the major source of “contribution” risk

CADC2005CADC2005

13

Marketing approaches

•AssessAssess client “readiness” levels and focus efforts accordingly client “readiness” levels and focus efforts accordingly

• SponsorSponsor or provide risk conferences, seminars or training sessions or provide risk conferences, seminars or training sessions

• Understand each client plan’s Understand each client plan’s primary objectiveprimary objective and benchmark(s) and benchmark(s)

• Understand the client’s current portfolio Understand the client’s current portfolio asset mixasset mix

• Deal in “Deal in “knowns”knowns” such as annualized 4-5 year returns which reflect such as annualized 4-5 year returns which reflect volatility volatility

• Frame the product in terms of a Frame the product in terms of a risk management approachrisk management approach rather rather than as a source of alpha than as a source of alpha

• DemonstrateDemonstrate how the product would (have) impact on the current how the product would (have) impact on the current portfolio’s longer term i.e. 4-5 year return performance portfolio’s longer term i.e. 4-5 year return performance

CADC2005CADC2005

14

What’s a good result ?

Once comfortable with the concepts and Once comfortable with the concepts and problems relating to risk, there will likely be problems relating to risk, there will likely be more willingness to entertain “alternate” more willingness to entertain “alternate” solutionssolutions

A small plan doesn’t have to target the optimal level of active risk to gain benefits from a better awareness and management of risk

CADC2005CADC2005