UTAM is pleased to announce the release of our 2023 Integrated Annual Report. This report to stakeholders details the performance of the Endowment and short-term working capital pool investments managed on behalf of the University of Toronto. We also provide updates on our continued progress in meeting our climate commitment targets – for carbon footprint reduction, divestment, company engagement and sustainable, low-carbon investment.

As UTAM President and Chief Investment Officer Chuck O’Reilly explains in his message to stakeholders, the report’s theme and title, An Enduring Commitment, reflects UTAM’s steadfast support of the University of Toronto and its goals. “Everything we do at UTAM is framed by a long-term perspective and anchored by our commitment to deliver the best possible outcomes for our sole client.”

The theme echoes UTAM’s new statement of purpose, developed in 2023: to deliver enduring investment returns in support of the University of Toronto’s pursuit of excellence in education and research. This new statement, along with a new definition of UTAM’s overarching strategic objective, came out of a process of consultation among the senior leadership team and stakeholders. “We began by deconstructing what we do – the decisions and actions that make UTAM a leading university investment manager – in order to better articulate why and how we do it,” O’Reilly writes in the report.

This new statement of purpose was not a change of direction, explains Richard Nunn, chair of UTAM’s board of directors, but simply “articulated what had tended to be left unsaid. We’ve defined a north star by which UTAM’s current and prospective employees – as well as our external investment managers and our stakeholders across the U of T community – can better align goals, coordinate actions and measure success.”

Strong returns in a volatile environment

The global economy in 2023 experienced continued uncertainty, reflected in volatile capital market performance. In this environment, the Endowment portfolio delivered a return of 12.9% year over year (net of fees and expenses). Although this result represents a very strong absolute return, the Endowment underperformed the Reference Portfolio – with its benchmark return of 15.1% – by 2.2 percentage points, as the private market equity-oriented investments were unable to keep pace with the public market equity returns of the Reference Portfolio.

“Such fluctuations are a reminder while we compare returns from one year to the next, investors who focus exclusively on the short term risk being distracted from assessing the broader trajectory of investment performance,” O’Reilly writes. UTAM invests the capital in the Endowment portfolio with a very long-term time horizon, which continues to show positive results: over the ten years ending December 31, 2023, the Endowment generated an annualized net return of 7.9% compared to 6.6% for both the Reference Portfolio and the university’s target return of 4% per annum (plus inflation as measured by the Consumer Price Index). This outperformance over the past decade represents a gain of approximately $390 million for the Endowment.

The Expendable Funds Investment Pool (EFIP), which comprises short-term working capital assets of the University, returned 6.7% (net of all fees and expenses) in 2023, outperforming its benchmark target of 5.8%. Over the past ten years, EFIP has returned 1.9%, outperforming its target return of 1.4% and driving a cumulative gain of more than $86 million.

Continued progress on climate commitments

Again this year, UTAM has made progress towards fulfilling our primary climate commitments. We have further reduced the carbon footprint of the Endowment Sub-Portfolio (which consists of equity, equity-like and corporate bond securities) to 32.4 tCO2e/$M (based on total emissions of 96,760.1 tCO2e) from 37.8 tCO2e/$M (based on total emissions of 99,307.8 tCO2e) at the end of 2022.

We are also pleased to report continuing progress in our commitment to divest from fossil fuel companies in the Endowment portfolio by 2030. In 2022, we divested from all direct exposure to fossil fuel companies. With the continued implementation of changes in the Endowment to reduce indirect investments in fossil fuel, we have reduced this exposure from 2.0% of the Endowment’s net asset value at December 31, 2021 to 1.4% at December 31, 2023.

We continue to transition the Reference Portfolio’s asset class benchmarks to indexes that exclude fossil fuels; we expect this process – which better aligns our efforts with the university’s divestment initiative – to be completed by October 1, 2024.

We’ve also made progress on our third climate commitment, to allocate at least 10% of the Endowment portfolio to sustainable and low-carbon investments. At December 31, 2023, 6.8% of the Endowment’s net asset value was invested in such strategies, and we’re confident that this commitment will be achieved ahead of the 2025 target date.

“UTAM has been able to move forward on all of these fronts largely because our entire team is committed to U of T’s vision for a sustainable future,” says O’Reilly. “I thank all of them for their energy, collaborative spirit and steadfast focus.”

Q&A with President Gertler

The 2023 Integrated Annual Report features, as did the 2022 report, a Q&A with U of T President Meric Gertler. In it, he highlights the university’s commitment to sustainability, the role of UTAM in supporting that commitment, and the positive recognition that commitment has brought to the U of T community.

In the 2024 QS Sustainability Ranking of higher education institutions, the University of Toronto ranked first in the world. The top rating, Gertler suggests, is supported by many aspects of the university’s operations, including UTAM’s commitment to responsible investing, and is a reflection of how “we’ve made sustainability an institutional priority. And we’re leveraging our collective energy and talent to meet that priority.”

Read and download the 2023 Integrated Annual Report, UTAM’s 2023 Financial Statements, Carbon Footprint Report and TCFD Report.