Hedging Strategy and Pension Fund Restructuring Presented to X  Alison Catherine Cristiana Jean-Talon and Co.

Agenda IntroductionAnalysisExecutionConclusion 1.Introduction 2.Analysis 3.Valuation 4.Implementation

Mandate Assist X to …….. IntroductionAnalysisExecutionConclusion

Mandate Assist X to …….. IntroductionAnalysisExecutionConclusion Key Issues 1 High exposure to oil price Pension Fund Deficit Alignment of economy views 23

Recommendation We recommend X to…… IntroductionAnalysisExecutionConclusion   Execution Tactics  Hire 2 new specialized fund managers Overweight on Equities and diversify Put Bear Spread Option Strategy

Agenda IntroductionAnalysisExecutionConclusion 1.Introduction 2.Analysis 3.Execution 4.Implementation

Industry overview IntroductionAnalysisExecutionConclusion ONE BLABLA ONE BLABLA

Company overview IntroductionAnalysisExecutionConclusion ONE BLABLA ONE BLABLA text

Company overview IntroductionAnalysisExecutionConclusion ONE BLABLA ONE BLABLA Takeaway Text

Agenda IntroductionAnalysisExecutionConclusion 1.Introduction 2.Analysis 3.Execution 4.Implementation

Overview of the Pension Plan Current Fund Defined Pension Benefit Plan Managed by the Company’s treasurer AUM of $395M Actuarial deficit of $30,9M Restructure the portfolio to cover the fund’s deficit IntroductionAnalysisExecutionConclusion

Current Portfolio Allocation Return 54%-13% Fixed IncomeEquity 0% Cash With only two tourism stocks and an ETF, we consider the portfolio being too risky IntroductionAnalysisExecutionConclusion

Current Asset Allocation Current Asset Allocation doesn’t reflect management projected view on the economy IntroductionAnalysisExecutionConclusion Rising Interest Rates in Cnd and US Current Portfolio Bullish on U.S and Emerging Markets Neutral on Canadian Equities 80% of bond portfolio in long term maturities 26% of U.S. equities and 0% in Emerging Markets equities 74% of equities in Canadian equities

Covering the Fund’s Deficit Cash from Operations Employee’s Contribution to X% Returns Less capital to create shareholder value o Capex o Dividends May lose talent to competitors Required to take on more risk To cover the fund’s deficit, the most feasible route is increasing returns by taking slightly more risks IntroductionAnalysisExecutionConclusion

Restructuring Goals Modify Investment Policy Statement Cover the Fund’s deficit  Bond portfolio vs views on interest rates  Equity portfolio vs expectations on the different markets  Total allocation vs currency risk and tax benefits $395M $30.9M in Deficit No Deficit 8% 8.3% IntroductionAnalysisExecutionConclusion Rebalance the portfolio considering management views

Investment Policy Statement Return objective IceAir needs 8.33% to cover the deficit Risk Tolerance Low risk tolerance : capital preservation Time horizon 25-years investment horizon (close the gap within) Liquidity needs Payments to retirees (no immediate need) Constraints Maximum 10% in cash, (target at 0%) Investment in ESG ETF No weapon, alcohol, tobacco IntroductionAnalysisExecutionConclusion

Optimal Portfolio This capital allocation doesn’t meet the fund’s required rate of return to recover its deficit IntroductionAnalysisExecutionConclusion 3,7% Expected Return Standard Deviation 7,4% Graph with optimal portfolio Bond/Equity return

Proposed Allocation 3,7% Expected Return Standard Deviation 7,4% Graph with optimal portfolio Bond/Equity return The recover the fund and achieve 8.33% return, 42% has to be invested in equities and 58% in bonds IntroductionAnalysisExecutionConclusion

Proposed Asset Allocation - Equities Allocation Return 8.4% 5.1% Previous Allocation Proposed Allocation Standard Deviation 3.5% 3.0% The recover the fund and achieve 8.33% return, 42% has to be invested in equities and 58% in bonds IntroductionAnalysisExecutionConclusion

Current Sector Allocation graph Concerns Current Portfolio 68% of equities in 2 tourism stocks Remainder in ETF Highly volatile stocks Very concentrated portfolio With only two tourism stocks and an ETF, we consider the portfolio being too risky IntroductionAnalysisExecutionConclusion

Proposed Sector Allocation Diversification Implementation over 6-12 months Hire 2 new managers specialized in X and Y Buy ETF/Stocks (20-30) in different sectors e.g. Financials, Staples, O&G, etc. Eliminate market risk Reduce volatility Further Considerations Fixed Income Equities Short duration bonds Canadian Provis/Munis and International high quality bonds High quality corporate bonds ESG ETF (e.g. iShares MSCI ESG ETF) Diversify sector allocation to reduce the exposure to the tourism sector and associated volatility IntroductionAnalysisExecutionConclusion

In a Nutshell… Diversify sector allocation to reduce the exposure to the tourism sector and associated volatility Fixed Income Decrease allocation from 63% to 58% Invest in lower duration bonds Equities Increase allocation from 24% to 42% Higher emphasis on U.S. and Emerging Market Equities Diversify away from tourism sector Cash Target allocation at 0% as we see better opportunities in the market Management Hire 2 new fund manager specialized in equities (North America vs. International and Emerging Markets) IntroductionAnalysisExecutionConclusion

Goal of Portfolio Restructuring Cover the Fund’s deficit  Bond portfolio vs views on interest rates  Equity portfolio vs expectations on the different markets  Total allocation vs currency risk and tax benefits $395M $30.9M in Deficit No Deficit 8% 8.3% IntroductionAnalysisExecutionConclusion Rebalance the portfolio considering management views

Current Asset Allocation Current Asset Allocation doesn’t reflect management projected view on the economy IntroductionAnalysisExecutionConclusion Rising Interest Rates in Cnd and US Current Portfolio Bullish on U.S and Emerging Markets Neutral on Canadian Equities 80% of bond portfolio in long term maturities 26% of U.S. equities and 0% in Emerging Markets equities 74% of equities in Canadian equities

Proposed Asset Allocation New Asset Allocation reflects management projected view on the economy IntroductionAnalysisExecutionConclusion Rising Interest Rates in Cnd and US Proposed Portfolio Bullish on U.S and Emerging Markets Neutral on Canadian Equities 80% of bond portfolio in long term maturities 26% of U.S. equities and 0% in Emerging Markets equities 74% of equities in Canadian equities

Goal of Portfolio Restructuring Cover the Fund’s deficit  Bond portfolio vs views on interest rates  Equity portfolio vs expectations on the different markets  Total allocation vs currency risk and tax benefits $395M $30.9M in Deficit No Deficit 8% 8.3% IntroductionAnalysisExecutionConclusion Rebalance the portfolio considering management views

Thank You Q&A  Alison Catherine Cristiana 