Report on the Public Service Pension Plan for the Fiscal Year Ended March 31, 2021

Retirement Compensation Arrangement No. 1 Account

Retirement Compensation Arrangement No. 2 Account

Report on the Audit of the Financial Statements

Report on Compliance with Specified Authorities

(A) General

The pension plan is a contributory defined benefit plan covering substantially all of the full-time and part-time employees of the federal public service, as well as certain public service corporations as defined in the PSSA, and territorial governments. Membership in the pension plan is compulsory for all eligible employees.

The Government of Canada (the government) is the sole sponsor of the pension plan. The President of the Treasury Board is the Minister responsible for the PSSA. The Treasury Board of Canada Secretariat (the Secretariat) is responsible for the management of the pension plan while Public Services and Procurement Canada (PSPC) provides the day-to-day administration of the pension plan and maintains the books of accounts. The Office of the Chief Actuary (OCA), an independent unit within the Office of the Superintendent of Financial Institutions (OSFI), performs periodic actuarial valuations of the pension plan.

Until April 1, 2000, separate invested funds were not set aside to provide for payment of pension benefits. Instead, transactions relating to the pension plan were recorded in the Public Service Superannuation Account (superannuation account) created by legislation in the accounts of Canada. Pursuant to the PSSA, as amended by the Public Sector Pension Investment Board Act, transactions relating to service since April 1, 2000, are now recorded in the Public Service Pension Fund (pension fund). An amount equal to contributions in excess of benefit payments and administrative costs is transferred regularly to the Public Sector Pension Investment Board (PSPIB) for investment. PSPIB is a Crown corporation whose statutory objectives are to manage the funds transferred to it for investment and to maximize investment returns without undue risk of loss, having regard to the funding, policies and requirements of the three main public sector pension plans (public service, Royal Canadian Mounted Police (RCMP) and Canadian Forces).

(B) Funding policy

The pension plan is funded from plan member and employer contributions, and from investment earnings. For the fiscal year, public service employees who were members of the pension plan on or before December 31, 2012 (Group 1) contributed 9.53% (9.56% in 2020) for the first 9 months and 9.83% (9.53% in 2020) for the last 3 months of pensionable earnings, up to the maximum covered by the Canada Pension Plan (CPP) or Québec Pension Plan (QPP), and 11.72% (11.78% in 2020) for the first 9 months and 12.26% (11.72% in 2020) for the last 3 months of pensionable earnings above that maximum.

The contribution rates for public service employees joining the pension plan on or after January 1, 2013 (Group 2) was set at 8.69% (8.68% in 2020) for the first 9 months and 8.89% (8.69% in 2020) for the last 3 months of pensionable earnings, up to the maximum covered by the CPP and QPP, and 10.15% (10.18% in 2020) for the first 9 months and 10.59% (10.15% in 2020) for the last 3 months of pensionable earnings above that maximum. The government’s contribution is made monthly to provide for the cost (net of plan member contributions) of the benefits that have accrued in respect of that month at a rate determined by the President of the Treasury Board. The contribution rates are determined based on actuarial valuations for funding purposes, which are normally performed triennially.

The PSSA provides that all pension obligations arising from the pension plan be met by the government. The PSSA requires that any actuarial deficit in the pension fund be dealt with by transferring equal instalments to the pension fund over a period of up to 15 years, commencing in the year in which the actuarial report is tabled in Parliament. The PSSA also allows any surplus to be lowered by reducing employer and pension plan member contributions. In addition, if there is an amount considered to be a non-permitted surplus (refer to PSSA section 44.4(5) for the definition of non-permitted surplus) related to the pension fund, no further government pension contributions are permitted while pension plan member contributions under the pension fund may be reduced and amounts managed by PSPIB may be transferred to the government’s Consolidated Revenue Fund (CRF).

(C) Benefits

The pension plan provides pension benefits based on the number of years of pensionable service up to a maximum of 35 years. Benefits are determined by a formula set out in the legislation; they are not based on the financial status of the pension plan. The basic benefit formula is 2% per year of pensionable service multiplied by the average of the 5 consecutive years of highest-paid service. To reflect the Income Tax Act restrictions on registered pension plan benefits, separate retirement compensation arrangements (RCAs) have been implemented to provide benefits that exceed the limits established in the Income Tax Act. Since the RCAs are covered by separate legislation, their account balances in the accounts of Canada are not consolidated in these financial statements; however, condensed information is presented in Note 21.

Pension benefits are coordinated with the CPP and QPP, and are reduced when the plan member reaches age 65 or earlier if the member receives a disability benefit from the CPP or QPP. The pension reduction factor is 0.7% for members born before 1943, declining gradually for members born from 1943 to 1946 until it reaches 0.625% for members born after 1946. Also, benefits are fully indexed to the increase in the Consumer Price Index.

Other benefits include survivor pensions, minimum benefits in the event of death, unreduced early retirement pensions, and disability pensions.

(A) Basis of presentation

These financial statements present information on the pension plan on a going-concern basis. They are prepared to assist plan members and others in reviewing the activities of the pension plan for the year, not to portray the funding requirements of the pension plan.

These financial statements are prepared in Canadian dollars, the pension plan’s functional currency, in accordance with the accounting policies stated below, which are based on Canadian accounting standards for pension plans in Part IV of the Chartered Professional Accountants (CPA) Canada Handbook (Section 4600). Section 4600 provides specific accounting guidance on investments and pension obligations. For accounting policies that do not relate to either investments or pension obligations, the pension plan complies with International Financial Reporting Standards (IFRS) in Part I of the CPA Canada Handbook. To the extent that IFRS in Part I are inconsistent with Section 4600, Section 4600 takes precedence. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian accounting standards for pension plans.

PSPIB is a Crown corporation whose statutory objectives are to manage the funds transferred to it for investment and to maximize investment returns without undue risk of loss. PSPIB qualifies as an investment entity as defined under IFRS 10 Consolidated Financial Statements and forms part of the pension plan reporting entity. Pursuant to Section 4600, PSPIB’s subsidiaries that are formed to hold investments or those that provide PSPIB with services that relate to its investment activities are consolidated since these entities are not considered investment assets. PSPIB’s investment in subsidiaries, associates, and joint ventures that are considered investment assets are measured at fair value in accordance with Section 4600. Financial liabilities are also measured at fair value in accordance with Section 4600.

The financial statements for the year ended March 31, 2021, were authorized for issue by the signatories on January 31, 2022.

(B) Interests in other entities

Management, through the activities of PSPIB, assesses control, joint control and significant influence with respect to the investees disclosed in Note 6 as follows:

(C) Financial instruments

(D) Determination of fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

At initial recognition, PSPIB evaluates the facts and circumstances related to a transaction to confirm that the transaction price represents the fair value of an asset or a liability. At each subsequent reporting date, market prices are used to determine fair value where an active market exists (such as a recognized securities exchange), as they reflect actual and regularly occurring market transactions on an arm’s length basis. If quoted market prices are not available, then fair value is estimated using valuation techniques based on inputs existing at the end of the reporting period that are derived from observable market data.

Valuation techniques are generally applied to investments in private markets, alternative investments, over-the-counter (OTC) derivatives and certain fixed income securities. The values derived from applying these techniques are impacted by the choice of valuation model and the underlying assumptions made concerning factors such as the amounts and timing of future cash flows, discount rates, volatility and credit risk. In certain cases, such assumptions are not supported by market observable data.

(E) Foreign currency translation

Foreign currency transactions during the period, including purchases and sales of securities, income and expenses, are translated at the rate of exchange prevailing on the date of the transaction.

Monetary assets and liabilities that are denominated in foreign currencies are translated at the functional currency rate of exchange prevailing at the end of the reporting period.

Foreign currency transaction gains and losses on all monetary assets and liabilities are included in investment income.

(F) Securities lending and securities borrowing and related collateral

PSPIB participates in securities lending and borrowing programs whereby it lends and borrows securities in order to enhance portfolio returns. Lending and borrowing transactions including related collateral under such programs do not transfer the risks or rewards of ownership of the securities to the counterparty. Consequently, PSPIB does not derecognize securities lent or pledged as collateral, or recognize securities borrowed or received as collateral. Cash collateral received is recognized as described in Note 5(A)(IX).

The securities lending and borrowing programs require collateral in cash, high-quality debt instruments or securities. Collateral transactions are conducted under terms that are usual and customary in standard securities lending and borrowing programs. PSPIB and its counterparties are authorized to sell, repledge or otherwise use collateral held. The same securities or equivalent securities must be returned to the counterparty at the end of the contract, unless an event of default occurs.

(G) Securities sold under repurchase agreements and purchased under reverse repurchase agreements and related collateral

PSPIB is party to repurchase and reverse repurchase agreements. Such agreements involve the sale of securities by one counterparty with a simultaneous agreement to repurchase such securities at a specified price and at a specified future date.

Securities sold or purchased under the repurchase and reverse repurchase agreements respectively, including related collateral, are not derecognized or recognized as all risks and rewards of ownership related to such securities are not transferred. As such, in the case where PSPIB is the counterparty selling securities under such agreements, all income (loss) related to such securities continues to be reported in investment income and obligations to repurchase the securities sold are accounted for as investment-related liabilities.

The difference between the fair value of the securities sold and the repurchase price is recorded as interest expense within investment-related expenses. In the case where PSPIB is the counterparty purchasing securities under such agreements, no income (loss) related to such securities is recognized and obligations to resell the securities are accounted for as investment-related receivables. The difference between the fair value of the securities purchased and resale price is recorded in investment income.

Transactions under repurchase and reverse repurchase agreements involve pledging collateral consisting of cash or securities deemed acceptable by the counterparties. Collateral transactions are conducted under terms that are usual and customary in standard repurchase arrangements. Such terms require the relevant counterparty to pledge additional collateral based on the changes in the fair value of the existing collateral pledged, as well as the related securities sold or purchased. The counterparties are authorized to sell, repledge or otherwise use collateral held. The securities pledged as collateral must be returned to the relevant counterparty at the end of the contract, unless an event of default occurs.

(H) Offsetting of financial instruments

Financial assets and financial liabilities are offset with the net amount reported in the statement of financial position only if PSPIB has a current legally enforceable right to offset the recognized amounts and the intent to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

(I) Pension obligations

The present value of accrued pension benefits is calculated by the OCA on behalf of the plan sponsor, the government, using the projected benefit method prorated on service, based on management’s best estimate of streamed expected rates of return on invested funds for funded pension benefits, and the government’s cost of borrowing derived from the yields on the actual zero-coupon yield curve for Government of Canada bonds, which reflect the timing of the expected future cash flows for unfunded pension benefits.

(J) Investment income

Investment income is made up of interest, dividends, gains (losses) on the disposal of financial assets and financial liabilities, as well as gains (losses) which reflect the change in unrealized appreciation (depreciation) of financial assets held and financial liabilities outstanding at the end of the reporting period. Interest is recognized, on a consistent basis, using the prescribed rates until maturity. Dividends are recognized when the right to receive them has been obtained, generally on the ex-dividend date.

(K) Contributions

Contributions for current service are recorded in the year in which the related payroll costs are incurred. Contributions for past service that are receivable over a period in excess of 1 year are recorded at the estimated net present value of the contributions to be received.

(L) Benefits earned, benefits paid, and refunds and transfers

Benefits earned are accrued as employees render pensionable services.

The funded and unfunded benefits paid are recognized as a reduction of pension obligations when the payments are made. The funded benefits paid are recognized as a reduction of net assets available for benefits when the payments are made.

Benefit payments, refunds to former members and transfer payments to other plans are recorded in the period in which they are paid.

(M) Investment-related expenses

Investment-related expenses are made up of interest expense, as described in Note 5(A)(VII), transaction costs, external investment management fees and other (net).

Transaction costs are incremental costs directly attributable to the acquisition, due diligence, issue, or disposal of a financial asset or financial liability, and they are expensed as incurred.

External investment management fees are directly attributable to the external management of assets on behalf of PSPIB. These fees are paid directly by PSPIB and comprise base fees accrued as a percentage of the fair value of the assets managed externally and performance fees accrued as a function of various performance indicators. This excludes amounts not paid directly by PSPIB for certain pooled fund investments classified under alternative investments and for investments in private markets as outlined in Note 18.

(N) Significant accounting judgments, estimates and assumptions

In preparing the financial statements, management makes certain judgments, estimates and assumptions that can affect the amounts reported therein. Significant judgments include those related to the determination of the investment entity status of PSPIB as described in Note 2(A).

Management also makes estimates and assumptions in the measurement, risk assessment and related disclosures surrounding investments in private markets, certain fixed income securities and the pension obligations.

The pension obligations are actuarially determined, and the actual experience may differ significantly from the assumptions used in the calculation of the pension obligations. The significant actuarial assumptions used in measuring the pension obligations are found in Note 12.

One source of estimate uncertainty is the outbreak of COVID-19, which the World Health Organization classified as a global pandemic in March 2020. The COVID-19 pandemic, which has impacted global commercial activity and contributed to significant ongoing volatility and unpredictability in the global financial markets, continues to evolve. As a result, the economic environment continues to be subject to sustained volatility, which could continue to impact the actuarial assumptions used to measure the present value of the pension obligations and the market value of PSPIB’s portfolio. The pension obligations and the investments held by PSPIB, as at March 31, 2021, as well as the return on investments for the year, reflect the impacts resulting from the COVID-19 pandemic to the extent known and estimable at the reporting date.

Although assumptions reflect management’s best estimates, actual results may differ from such estimates due to the uncertainties involved in using them.

(I) Public markets

Public markets consist of Canadian and foreign investments in the following securities: common shares, American depository receipts, global depository receipts, participation notes, preferred shares, income trust units, exchange-traded funds units, pooled funds units, and securities convertible into common shares of publicly listed issuers.

(II) Private markets

Private markets consist of investments in real estate, private equity, infrastructure and natural resources.

Real estate investments comprise direct equity positions in various private entities, fund investments, as well as properties in the real estate sector. Real estate investments focus on partnerships, companies and properties operating mainly in the retirement and residential, office, retail and industrial sectors, as well as private funds invested in real estate assets. Real estate investments are presented net of all third-party financing.

Private equity investments comprise fund investments with similar objectives, co-investments in private entities, as well as direct equity positions.

Infrastructure investments comprise direct equity positions, fund investments and co-investments in various private entities. Infrastructure investments focus on entities engaged in the management, ownership or operation of assets in energy, transportation and other regulated businesses. Infrastructure investments are presented net of all third-party financing.

Natural resources investments comprise direct equity positions, fund investments and co-investments in various private entities. Natural resources investments focus on entities engaged in the management, ownership or operation of assets in timberlands, agriculture and upstream oil and gas. Natural resources investments are presented net of all third-party financing.

(III) Fixed income

Fixed income consists of cash and money market securities, government and corporate bonds, inflation-linked bonds and private debt securities.

Cash and money market securities include instruments having a maximum term to maturity of 1 year, such as treasury bills, certificates of deposit and bankers’ acceptances. A portion of such instruments has maturities of 90 days or less and is held to meet short term financial commitments. Such instruments are readily convertible into known amounts of cash and have an insignificant risk of change in value.

Government and corporate bonds include Canadian and foreign, federal, provincial, territorial and municipal bonds, floating rate notes, asset-backed term notes and mortgage-backed securities. Inflation-linked bonds are fixed income securities that earn inflation-adjusted returns.

Private debt securities are fixed income securities of private companies held directly or through private funds. Such debt securities take the form of senior debt, mezzanine and distressed debt and primary and secondary investments in leveraged loans. Private debt securities also include third-party loans such as junior and senior debts, construction loans, bridge loans, income-participating loans, as well as other structured finance products in the real estate sector.

(IV) Alternative investments

Alternative investments consist mainly of units of funds that hold a mix of equity, fixed income and derivative instruments, as well as hedge funds.

(V) Amounts receivable and payable from pending trades

Amounts receivable from pending trades consist of proceeds on sales of investments, excluding derivative financial instruments, which have been traded but remain unsettled at the end of the reporting period.

Amounts payable from pending trades consist of the cost of purchases of investments, excluding derivative financial instruments, which have been traded but remain unsettled at the end of the reporting period.

(VI) Interest and dividends receivable

Interest and dividends are recorded at the amounts expected to be received at the end of the reporting period, which due to their short-term maturity, approximates fair value.

(VII) Interest payable

With respect to the borrowings described in Note 5(A)(XI), interest is accrued at the amount expected to be paid at the end of the reporting period, which approximates fair value.

(VIII) Securities sold short

Securities sold short reflect PSPIB’s obligation to purchase securities pursuant to short selling transactions. In such transactions, PSPIB sells securities it does not own with an obligation to purchase similar securities on the market to cover its position.

(IX) Collateral payable

As part of securities lending and certain OTC derivative transactions, cash collateral is received and reinvested by PSPIB. PSPIB recognizes cash collateral received with a corresponding payable. The payable balance reflects the obligation of the transferee to return cash collateral to the transferor at the end of the transaction in the absence of an event of default by the transferor.

(X) Securities sold under repurchase agreements and purchased under reverse repurchase agreements

As described in Note 2(G), PSPIB is party to repurchase and reverse repurchase agreements.

(XI) Borrowings under the capital market debt program

PSPIB’s capital market debt program is described in Note 9(B).

(I) Swaps

Swaps are transactions whereby two counterparties exchange cash flow streams with each other based on predetermined conditions that include a notional amount and a term. Swaps are used to increase returns or to adjust exposures of certain assets without directly purchasing or selling the underlying assets.

(II) Futures

Futures are standardized contracts to take or make delivery of an asset (buy or sell) at a predefined price and predefined future date. Futures are used to adjust exposures to specified assets without directly purchasing or selling the underlying assets.

(III) Forwards

Forwards are contracts involving the sale by one party and the purchase by another party of a predefined amount of an underlying instrument, at a predefined price and at a predefined date in the future. Forwards are used to adjust exposures to specified assets without directly purchasing or selling the underlying assets.

(IV) Options

Options are contracts where the seller gives the purchaser the right, but not the obligation, to buy or sell a given amount of an underlying security, index, commodity, currency, interest rate, credit or other financial instrument, at an agreed-upon price stipulated in advance, either at a determined date or at any time before the predefined maturity date.

(V) Warrants and rights

Warrants are options to purchase an underlying asset which is in the form of a transferable security and which can be listed on an exchange or traded OTC.

Rights are securities giving shareholders entitlement to purchase new shares issued by a corporation at a predetermined price (normally less than the current market price) in proportion to the number of shares already owned. Rights are issued only for a short period of time, after which they expire.

Valuation techniques

(I) Classification

Financial assets and financial liabilities described under Note 5(A) are classified within the fair value hierarchy, described as follows, based on the lowest level of input that is significant to the fair value measurement as a whole.

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that PSPIB can access at the end of the reporting period.
• Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or the liability, either directly or indirectly. Level 2 inputs include:
  1. quoted prices for similar assets or liabilities in active markets
  2. quoted prices for identical or similar assets or liabilities in markets that are not active
  3. inputs other than quoted prices that are observable for the asset or liability
  4. market-corroborated inputs
• Level 3 inputs are unobservable inputs for the asset or liability that are used within model-based techniques. They reflect PSPIB’s assessment of the assumptions that market participants would use in pricing the assets or liabilities.

The classification within the levels of the hierarchy is established at the time of the initial determination of fair value of the asset or liability and reviewed at the end of each reporting period. PSPIB determines whether a transfer between levels has occurred and recognizes such transfers at the beginning of the reporting period.

The following table shows the fair value of financial assets and financial liabilities as at March 31, 2021, classified within the fair value hierarchy ($ millions):

The following table shows the fair value of financial assets and financial liabilities as at March 31, 2020, classified within the fair value hierarchy ($ millions):

There were no significant transfers between Level 1 and Level 2 during the year ended March 31, 2021 (no significant transfers between Level 1 and Level 2 during the year ended March 31, 2020).

(II) Process for Level 3 fair value determination

The valuation process is monitored and governed by an internal valuation committee (VC). This committee is responsible for overseeing all aspects of fair value determination. This includes valuation methodologies and procedures for each type of investment and ensuring they are complied with. Valuation methodologies established are based on widely recognized practices that are consistent with professional appraisal standards. Such standards include, among others, the International Private Equity and Venture Capital Valuation Guidelines, the Canadian Uniform Standards of Professional Appraisal Practice and the Uniform Standards of Professional Appraisal Practice in the United States of America.

The fair value of investments classified as Level 3 in private markets is determined at least semi-annually. For other interim reporting periods, the fair value is reviewed and adjusted, as appropriate, to reflect the impact of any significant market or investment-specific events or circumstances. For each investment, the relevant valuation methodology is applied consistently over time as appropriate in the prevailing circumstances. The appropriateness of significant changes in valuation methodologies is reviewed by the VC.

In cases where the services of third-party appraisers are used, PSPIB ensures their independence and that valuation methods used are consistent with professional appraisal standards outlined above. In validating the work performed by appraisers, PSPIB ensures that the assumptions used correspond to financial information and forecasts of the underlying investment.

With respect to fund investments classified as Level 3, the annual fair value is generally determined based on audited financial statements received from the fund’s general partner. In certain cases fair value is obtained from information provided by the fund’s administrators and is reviewed by PSPIB to ensure reasonableness and adherence to acceptable industry valuation methods. Where necessary, the impact of restrictions on the sale or redemption of such investments is taken into consideration in determining fair value.

To reflect the impact, where applicable, of significant market movements or other events occurring up to March 31, 2021, such as those in connection with the market disruption described in Note 2(N) adjustments to private markets and fund investments are made, as appropriate. Such adjustments are based on a number of factors, including public market trading comparables, investment-specific characteristics, as well as market conditions and uncertainties at that time.

(III) Level 3 significant inputs

The following table outlines key information with respect to significant inputs related to financial assets and financial liabilities categorized within Level 3 as at March 31, 2021:

The following table outlines key information with respect to significant inputs related to financial assets and financial liabilities categorized within Level 3 as at March 31, 2020:

(IV) Level 3 reconciliation

The following table shows a reconciliation of all movements related to financial assets and financial liabilities categorized within Level 3 for the year ended March 31, 2021 ($ millions):

As at March 31, 2020, an investment of $403 million in a non-listed fund that held listed securities was classified as Level 3 due to the nature of the contractual restrictions on the redemption of fund units. During the year ended March 31, 2021, the listed securities held by the fund were transferred to PSPIB and were classified as Level 1 as at March 31, 2021. Additionally, as at March 31, 2020, a private market investment of $134 million was classified under Level 3 as its fair value was determined based on significant unobservable inputs. During the year ended March 31, 2021, this investment was transferred to Level 2 as the underlying investee indirectly held by PSPIB became publicly traded.

The following table shows a reconciliation of all movements related to financial assets and financial liabilities categorized within Level 3 for the year ended March 31, 2020 ($ millions):

As at March 31, 2019, an alternative investment of $167 million in a non-listed fund that held listed securities was classified as Level 3 due to the nature of the contractual restrictions on the redemption of fund units. During the year ended March 31, 2020, the investment was transferred to Level 2 as the contractual restrictions were lifted. Additionally, as at March 31, 2019, a public market investment of $72 million was classified as Level 1 and was transferred to Level 3 during the year ended March 31, 2020, as the investment became privately held.

(V) Level 3 sensitivity analysis

In the course of measuring fair value of financial instruments classified as Level 3, valuation techniques used incorporate assumptions that are based on non-observable data. Significant assumptions used for each asset class are described in Note 5(C)(III). Although such assumptions reflect PSPIB’s best judgment, with all other variables held constant, the use of reasonably possible alternative assumptions could yield different fair value measures representing, at a minimum, a 3% increase and 3% decrease as at March 31, 2021 (3% increase and 3% decrease as at March 31, 2020) in the fair value of financial instruments categorized as Level 3. This excludes fund investments where a sensitivity analysis is not possible given the underlying assumptions used are not available to PSPIB. In the case of fund investments, the fair value is determined as indicated in Note 5(C)(II).

(I) Measurement of market risk

The absolute annualized volatility of the total portfolio is used as the primary measure of market risk. The absolute volatility is a statistical measure of the size of changes in investment returns of a given investment or portfolio of investments. It is used to illustrate the potential loss of value in an investment or portfolio of investments as a result of fluctuations in market prices.

PSPIB uses 7 years’ worth of market returns scaled to a 12-month holding period to calculate the absolute volatility. For investments that are not actively traded, the calculation of the absolute volatility uses securities with similar risk attributes as a proxy.

The absolute volatility is statistically valid under normal market conditions. Although it includes losses from severe market events such as those described in Note 2(N), it does not solely measure such events. It also assumes that the future will behave in a pattern similar to the past. Consequently, if future market conditions differ significantly from those of the past, potential losses may differ from those originally estimated.

The following table shows the absolute volatility of the total portfolio expressed as a percentage of net investments as at March 31:

Financial assets

Financial liabilities