We expected Investment Saskatchewan’s processes would identify the information required for oversight by:
establishing a framework to guide the oversight process that includes establishing oversight objectives, and ensuring all parties understand their roles and responsibilities and the Corporation’s investment, strategic, and operational objectives
specifying the information required that includes its purpose, nature, frequency, and timeliness
requesting information from multiple sources to provide a basis to rely on the information received
The Board and management recognize their responsibility for overseeing the investments and the services provided by the investment manager, VPC. It does this through its key planning documents, the Board’s terms of reference, job descriptions of key staff, and the IMA with the
investment manager.
Investment Saskatchewan’s strategic plan sets out its strategic objectives and initiatives (most of which relate to investing activities), public policy considerations, success measures, and targets. The strategic plan also includes its investment mandate, that is, investment objectives and broad expectations for return on investment, risk management, liquidity, and time horizons for holding the investments (i.e., guidance on divestments).
Given its decision to use an investment manager to handle its investment activities, Investment Saskatchewan must have sound processes to monitor the investment manager’s compliance with the IMA. This includes setting clear expectations of the investment manager (for both service delivery and investment performance) and obtaining sufficient information to assess the quality of the investment manager’s performance and processes.
Information to manage
Investment Saskatchewan has a number of processes to obtain
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summarize the roles of the Board, management, and the investment manager. The matrix lists the following: key documents the Board expects, when the documents are due (e.g., annually, quarterly, ad hoc) and from whom (e.g., management or the investment manager), and the nature of expected monitoring (e.g., management review of the
investment manager’s quarterly investment summaries).
In addition, Investment Saskatchewan uses the IMA to require key information from the investment manager. The IMA notes, for certain types of information, when information is required and, in some cases, outlines the specific content. For example, the investment manager must provide quarterly reports on each investment describing the investment’s status, financial targets, forecasts, expected future events, and overall performance.
Investment Saskatchewan varies its financial and operational information requirements depending upon the nature and form of its investments or because of current situations and conditions. It periodically asks the investment manager for additional information necessary to prepare financial and other reports (e.g., quarterly request).
Information to assess the investment manager’s performance
The IMA requires Investment Saskatchewan to evaluate the investment manager’s performance at least annually and permits evaluations as often as quarterly. This evaluation process is critical because it is the primary means that allows Investment Saskatchewan to thoroughly assess and raise questions and concerns regarding the investment manager’s standard of performance. Investment Saskatchewan’s assessment process must be comprehensive so it can identify required adjustments and, ultimately, decide whether to renew the IMA.
At October 31, 2007, Investment Saskatchewan was developing a process to assess the investment manager’s performance including compliance with the IMA. It expects to carry out its first evaluation of the investment manager’s performance in early 2008.
To help monitor compliance with the IMA on an ongoing basis,
Investment Saskatchewan uses a checklist to track the completion of key required activities and the receipt of required reports. This checklist helps
it gather information for most of its investment activities, other than information on new investments. Investment Saskatchewan makes new investments based on the investment manager’s request for payment.7 This request includes a representation that the investment manager has performed due diligence. However, Investment Saskatchewan does not ask for supporting documentation (such as a copy of the due diligence report).
Investment Saskatchewan has developed an evaluation checklist to guide its annual evaluation of the investment manager. This checklist is very brief. It does not refer to specific provisions in the IMA, define expected service levels, or identify applicable industry benchmarks and standards.
It is unclear if the evaluation process will include a review of certain key processes of the investment manager.
For annual evaluations to be effective, the evaluation process must be comprehensive, detailing all of Investment Saskatchewan’s requirements and expectations including the expected frequency of evaluations. Also, Investment Saskatchewan should consider if, as part of the evaluation process, it needs to engage a specialist to assist it in examining the investment manager’s records for evidence of compliance.
1. We recommend that Investment Saskatchewan Inc. document its requirements, expectations, and planned assessment procedures in sufficient detail to facilitate a comprehensive evaluation of the investment manager’s performance.
Information to assess planned divestments
Investment Saskatchewan, through its strategic plan and IMA, has set out its expectation to sell the legacy investments as soon as possible and to sell the new investments after a five- to seven-year holding period. In addition, the IMA requires the investment manager to exit investments in a way that preserves the public policy outcomes8achieved to the extent practical. The IMA also requires the investment manager to consult with Investment Saskatchewan on questions concerning the preferred balance between optimizing an investment’s financial return and preserving the
7The IMA requires VPC to submit a “Funding Request” to pay for an investment.
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public policy outcomes relevant to the investment. To provide the investment manager with informed advice on these matters, Investment Saskatchewan needs information on these public policy outcomes as they plan the optimal timing of each divestment.
Investment Saskatchewan has not asked the investment manager for information about each investment’s expected and actual public policy outcomes. Without this information, Investment Saskatchewan and the investment manager may have difficulty meeting the objective of choosing the optimal timing of divestments and the preferred balance between an investment’s financial return and the public policy outcomes it has achieved.
2. We recommend that Investment Saskatchewan Inc. document and monitor the expected and actual public policy outcomes for each investment.