It’s possible that I shall make an ass of myself. But in that case one can always get out of it with a little dialectic. I have, of course, so worded my proposition as to be right either way (K.Marx, Letter to F.Engels on the Indian Mutiny)
THAT WAS MY RETIREMENT FUND HE JUST SPENT!!! Graham Thomson · for CBC News · Posted: Apr 24, 2020
ATA worried about pensions' future under AIMCo Alberta teachers are calling on Premier Jason Kenney to reverse his government's decision about their pension fund.
Premier Jason Kenney is fluent in both of Canada's official languages. Yet he can't seem to communicate with Alberta's teachers.
That became evident this week when Kenney and the Alberta Teachers' Association (ATA) butted heads yet again over the government's investment arm, the Alberta Investment Management Corporation, commonly known as AIMCo.
The government is forcing the teachers' $18-billion pension fund, the aptly named Alberta Teachers' Retirement Fund (ATRF), to use AIMCo as its sole investment manager rather than invest with any manager it chooses. AIMCo manages $119 billion in assets, including the pension funds for 375,000 public sector workers, as well as the Alberta Heritage Savings Fund.
Kenney has said rolling the teachers' pension fund under AIMCo's management will save teachers $20 million a year in premiums, increase the scale of AIMCo's portfolio "to invest prudently in a larger class of assets," and generate better returns for the fund.
The ATA is not happy. It hasn't been happy about this since last fall when the government passed Bill 22 forcing the ATRF funds under the AIMCo umbrella.
AIMCo lost $4 billion
The ATA has a long list of reasons to stay clear of AIMCo: the ATRF has been doing a perfectly good job managing the fund for the past 80 years; the Kenney government unilaterally made the decision without first asking the 46,000-member teachers' association what it thought; and the ATA is suspicious of pretty much everything the Kenney government does.
And this week, another reason: AIMCo reportedly lost a whopping $4 billion in the pandemic-hammered stock markets. The story was first reported in the New York-based magazine, Institutional Investor, that called the AIMCo investment strategy a "blunder." The magazine pointed out that although "Canada boasts some of the world's most sophisticated and best-performing public investment funds ... AIMCo is not among that top tier, experts and data suggest."
I don't think anybody at AIMCo will be printing out the Institutional Investor article to send home to mom. "For example, the Ontario Teachers' Pension Plan delivered 9.8 per cent annualized over the last decade, whereas AIMCo gained 8.2 per cent — a gap of more than 1.5 percentage points per year," said the article. "Even within its own province, AIMCo has trailed the smaller Alberta Teachers' Retirement Fund."
Teachers call for repeal of Bill 22
Fortunately for the teachers' fund, its $18 billion in assets have not yet been placed into AIMCo's portfolio. That transition is still underway as both sides work out details. But the ATA, rattled by the AIMCo blunder, wants Kenney to reverse course.
"Teachers invest their own money into their pension plan," said ATA president Jason Schilling. "Teachers were not consulted on the takeover and this story further validates our concerns. I am calling on the Government of Alberta to finally listen to teachers and stop the takeover by repealing Bill 22."
When I asked Kenney during a news conference Wednesday if he'll listen to Schilling or transfer control to AIMCo, Kenney seized on the word "control" and ducked down a rabbit hole.
"No, we were never going to transfer control to AIMCo. The premise of your question is completely unfactual," he said, setting us up for a Kenneysian lecture.
Kenney said the ATRF board will continue to be the governing authority and AIMCo "would simply act as the investment agency for the board as it does for every other public pension fund in Alberta."
That sounds innocent enough, except for a couple of glaring issues.
For one, those other public pension funds are handcuffed to AIMCo. They don't have the freedom to take their money and find a manager that doesn't make billion-dollar blunders.
As for teachers, Schilling said the final decision on investing their money will be made by AIMCo, not the teachers' retirement fund board.
"What's being transferred from the Alberta Teachers' Retirement Fund to AIMCo is the control of the investment management," said Schilling. "There will still be an ATRF board. The board can give suggestions to AIMCo, in terms of investment management strategies, but they don't always have to follow it. And this is the problem teachers have with this transfer."
NDP happily joins the fray
Kenney did point out correctly that the teachers' pension benefits are protected under law, even if the pension fund should take a financial hit. But Schilling said if AIMCo lost, say, $4 billion of the teachers' fund, teachers still on the job would likely see their pension contributions increase to help make up the deficit.
(We don't know yet if the ATRF has lost money during the pandemic crisis. A statement on its webpage said, "while we can't avoid losses when the market falls as it did in March, we structure the portfolio to avoid making a bad situation worse when it does happen."
A Globe and Mail article this week said while the average Canadian pension plan lost 8.7 per cent of its value in the first three months of this year, "AIMCo is expected to be down far more than this.")
The NDP, not surprisingly, has happily jumped into this controversy.
New Democrat MLA Christina Gray has tabled a private member's bill that would reverse Bill 22 as well as give other public pension funds under AIMCo's umbrella the freedom to find other investment managers, if they so choose. Bill 203 is purely symbolic, of course, in the face of the United Conservative Party's majority government.
Kenney seems not to understand the teachers' concerns. Or, perhaps more accurately, he understands perfectly well what they're saying but has turned a deaf ear.
ABOUT THE AUTHOR Graham Thomson You can find columnist Graham Thomson's thoughts and analysis on provincial politics every Friday at cbc.ca/edmonton, on CBC Edmonton Television News and during Radio Active on CBC Radio One (93.9FM/740AM) and on Twitter at @gthomsonink.
Friday, November 15, 2024
WORKERS CAPITAL SEIZED BY THE STATE
Braid: Stephen Harper at AIMCo and UCP's pension drive go hand-in-hand Smith keeps laying down sovereignty building blocks at a furious pace, playing on support still fuelled by public anger at Trudeau
Author of the article:
By Don Braid • Calgary Herald Published Nov 14, 2024
Former prime minister Stephen Harper delivers the keynote address at a conference on Wednesday, March 22, 2023 in Ottawa. Adrian Wyld/The Canadian Press Within days, former prime minister Stephen Harper will almost certainly be the new chair of Alberta Investment Management Corp. (AIMCo).
Some people wonder if this has anything to do with the UCP drive for a provincial pension plan.
Ya think?
Five years before he became prime minister, Harper signed the famous Firewall Letter sent to then-premier Ralph Klein on Jan. 24, 2001. The letter urged the Alberta government to “Withdraw from the Canada Pension Plan to create an Alberta Pension Plan offering the same benefits at lower cost, while giving Alberta control over the investment fund . . . The legislation setting up the Canada Pension Plan permits a province to run its own plan, as Quebec has done from the beginning.
“If Quebec can do it, why not Alberta?”
Premier Danielle Smith obviously wants AIMCo to manage this new pension fund, just as the Caisse de Depot handles Quebec’s stand-alone pension.
To that end, AIMCo has to be a lot more visible — and successful — than it was when she recently fired the entire board.
The Caisse is an investment whale with $434.4 billion under management. AIMCo has a relatively paltry $168 billion. The UCP wants to top that up with a $334-billion divorce settlement from the CPP — 53 per cent of the national fund.
This is politically impossible, as Harper himself showed when he became PM and did nothing to advance the Firewall pension push.
Ted Morton, a former Alberta minister who also signed that letter, says the best Harper could do was “leave Alberta alone.” And he did; for nine years the federal government was friendly to successive provincial PC regimes.
Morton says hopefully that if Harper now leads AIMCo toward a provincial pension, he would “come full circle.”
Ted Morton speaks at the Value of Alberta conference in Calgary on Jan. 18, 2020. Darren Makowichuk/Postmedia Article content
Harper would certainly bring stature and profile to AIMCo, at least among conservatives. He was by far the most successful Alberta prime minister (the others being Joe Clark and, far back in the 1930s, R. B. Bennett).
The pension plan is not popular with most Albertans. It’s a scary move with direct impact on everybody’s bank account, sooner or later.
Before a referendum, the big incentive would be a promise of lifetime monthly payments higher than the CPP.
The Firewall Letter only referred to “the same benefits at lower cost.” The payoff would have to be much bigger than that.
The government is also pushing hard for other key sovereignty measures, including a provincial police force. The dream of a provincial tax collection agency is still active, although quiet for now.
Soon we’ll see a major provincial claim to new powers, stemming from the federal emissions cap.
But Smith and the UCP are working furiously because they have a problem. His name is Pierre Poilievre.
If the Conservative leader becomes prime minister, much of the local fury at Liberal Ottawa will disappear, along with the hunger for sovereignty measures.
Poilievre will be an ally on many issues, especially in energy.
But like Harper before him, Poilievre would never agree to gutting the CPP. He could hardly endorse the Free Alberta Strategy, which raises the prospect of separation as a last resort.
Conservative L Leader Pierre Poilievre speaks in the House of Commons on Tuesday, Sept. 24, 2024. Adrian Wyld The Canadian Press
The thinkers behind this movement have always said no federal government will ever redress what Morton, in his new book titled Strong and Free, calls the “deeper structural vulnerability to predatory federal policies.”
To them it doesn’t matter what party runs the country. The trouble is baked in. The UCP want Poilievre to get that message.
And so, Smith keeps laying down sovereignty building blocks at a furious pace, playing on support still fuelled by public anger at Trudeau.
Re-enter Stephen Harper, stage right.
Don Braid’s column appears regularly in the Herald X: @DonBraid
Public ambush sends alert to $169 billion Alberta pension: Government’s in charge
By Layan Odeh, Paula Sambo and Dawn Lim
November 15, 2024 a
(Bloomberg) -- It was supposed to be a bonding experience.
Evan Siddall, then-chief executive officer of Alberta Investment Management Corp., gathered about 170 senior staff at The Westin Edmonton for a meeting and an exercise on “how to lead from a place of joy” taught by The Moth, a nonprofit dedicated to the art of storytelling.
Things quickly turned joyless.
Nate Horner, Alberta’s finance minister, showed up to tell Siddall and three other executives they no longer had jobs. The four left the building after their phones and laptops were confiscated. Horner then broke the news to the remaining Aimco employees. He also dismissed the entire board.
The public purge sent a clear message: The government of Alberta is the boss, and it’s taking back control.
Horner has temporarily become the fund manager’s chairman and sole director, and the conservative regime that rules the Canadian province plans to overhaul the firm and cut costs.
“To restore confidence in the agency, Alberta’s government has decided to reset the investment corporation’s focus with a new CEO and board,” the government of Alberta said in a statement.
Canada’s biggest pension funds — dubbed the Maple Eight – have long been the envy of peers. They’re admired as among the world’s most sophisticated money managers, known for independence from politics, managing most of their assets internally, hiring world-class talent and paying top executives millions of dollars.
Aimco has invested with elite alternative asset shops such as Blackstone Inc. and KKR & Co.
Now Aimco is controlled by a populist government, which has been considering putting an ex-politician, former Prime Minister Stephen Harper, in charge of the board. The Edmonton-based firm manages about C$169 billion ($120 billion) of public pensions plans and government funds, all of which have a stake in who’s running the show.
“No well-run firm replaces all of its executive team and whole board at once,” pension expert Alexander Dyck, a finance professor at the University of Toronto’s Rotman School of Management, said in an interview. “That’s a recipe for disaster.”
Some staffers and government officials didn’t view the ousters as politically motivated, but rather as a responsible move after complaints about churn and cost under Siddall. Others see it as an attack on the Canadian model of independence that has helped the pension funds attract top talent.
Either way, the intervention has stoked panic among staff over their jobs and pay. In recent years, Aimco has lured people from firms such as Carlyle Group Inc., Royal Bank of Canada and Barclays Plc. Employees have already told acquaintances they want new jobs, anticipating the province will begin treating the pension manager like a state agency and slash their pay.
There are few leaders left at the firm who can reassure them.
Aimco has been without a permanent chairman since the end of last year, and its audit committee chair left in April. Even before last week’s deposition, Aimco experienced senior staff turnover under Siddall.
A chief legal officer and a chief corporate officer left during his tenure. Four different people held the title of chief investment officer in a little more than three years. The last, Marlene Puffer, departed in September as the Alberta government intensified pressure on the company.
To politicians, Siddall seemed disconnected from Alberta’s fiscally conservative culture, neglecting complaints about rising costs.
He grew corporate, non-investment functions and made splashy expenditures along the way, including renting an office in high-end tower One Vanderbilt in New York despite the reservations of some staff.
While an internal study showed the fund’s costs were near the bottom of its peer group in 2022, the appearance that it was spending lavishly posed a problem for the provincial government.
(Aimco annual reports)
And it wasn’t the only issue. Siddall’s positive stance on green investing and his globe-trotting irked officials in oil-rich Alberta, who preferred their pension manager to keep a lower profile.
Along with Siddall, the other senior executives dismissed by Horner included the chief legal officer, the chief of staff and the chief people, culture and engagement officer. None of those executives worked on investments directly.
This story is based on conversations with multiple people familiar with Aimco and Alberta’s government. The people asked not to be identified to discuss confidential matters; some cited concerns over retaliation. A spokesperson for Aimco declined to comment. New offices
Siddall, the former head of Canada’s federal housing agency, became CEO of Aimco in July 2021 after it lost C$2.1 billion on a bet against market volatility that blew up when the pandemic hit.
Fast-talking and blunt, Siddall aimed to elevate Aimco’s profile on Wall Street. Hired with a mandate to revamp the operation, he created new roles such as chief technology officer. While most of staff were in Edmonton, he wanted to attract people beyond Canada, too.
Early this year, Aimco opened the office in New York in One Vanderbilt. The real estate team had suggested at least five cheaper locations for the New York office, but Siddall thought it was important to have an office that attracted staff to work, according to people familiar with the matter.
Several months earlier, Siddall had opened an outpost in Singapore to focus on investments in Asia-Pacific. Aimco’s investments in Asia stood at around 3% of total assets as of last year.
He hired GIC Pte’s Kevin Bong to lead the efforts there. Aimco, which also opened an office in Calgary in 2022, has around 600 people working from seven offices, while giving them the flexibility to work remotely. In London, Siddall caught people’s attention with a renovation to accommodate more staff.
The global expansion suggested to some within the government that the pension fund was shifting priorities away from Edmonton, where its presence has supported the city’s economy. Aimco invests more than 40% of its assets in Canada, with a large chunk of that deployed in its home province.
Alberta Teachers’ Retirement Fund, one of Aimco’s clients, said in the past it has raised issues regarding costs with both the government and the fund. Aimco management has always been transparent about expenses, according to people close to the firm.
Aimco’s clients had asked for an almost doubling of allocations to private assets, driving more costs, according to a letter from former board Vice Chair Ken Kroner to government officials.
“Aimco hired the talent necessary to support this client-led growth, and this should not be misinterpreted as evidence of costs being out of control,” he wrote, adding that fees to outside managers grew at a slower pace than assets.
But as IT and human resources budgets added up, new expenses became a flashpoint.
Staff costs ballooned by 71%, and headcount grew by 29% from 2019 to 2023, according to a statement from Horner’s office. Third-party management fees also increased by 96% during the period.
(Annual reports of the three fund)
Another source of friction: Aimco awarded a contract worth millions of dollars to BlackRock Inc. for its portfolio management software Aladdin.
Some insiders saw this as a necessary expense to replace an inferior risk-management tool. Others viewed it as an unnecessary contract that cost too much. BlackRock declined to comment.
Aimco spent C$276 million on salaries, wages and benefits in its last fiscal year, and awarded Siddall more than C$4.5 million in direct pay.
New York State Teachers’ Retirement System, a US fund that oversees a similar amount of money but relies more heavily on outside managers than Canadian funds, spent $59 million on salaries and benefits, according to its most recent annual report.
Aimco ultimately falls in the lowest third on cost relative to peers, according to a study by CEM Benchmarking for 2022, the latest such study available. Its costs were 23% lower than those of average peers.
As for returns, Aimco beat its benchmarks in two of the three years Siddall was in charge, and recent internal surveys showed employee morale substantially improving. That gave the board few reasons to question his investment judgment.
But for politicians in Alberta’s capital city, it wasn’t quite so simple.
‘First kick’
Alberta produces the vast majority of Canada’s crude oil — close to 4 million barrels a day — and its economy relies on fossil-fuel revenues for creating jobs and boosting growth. In fact, government royalties from oil and gas form a part of the pool of money Aimco manages.
The province is led by Premier Danielle Smith, a conservative and outspoken booster of the oil and gas sector who frequently fights with Prime Minister Justin Trudeau’s left-leaning government in Ottawa. Recently, Smith said she was “pissed” about federal draft rules to cap oil and gas emissions and vowed to challenge them.
Siddall didn’t embody Alberta’s conservatism.
A longtime public servant who has Parkinson’s disease, he increased the focus on human resources at Aimco and boosted diversity and inclusion initiatives — including hiring a chief people officer.
On Instagram, he posted photos from a COP climate conference in Egypt and reflected on Canada’s treatment of indigenous people.
While he rejected fossil-fuel divestment — a political non-starter in Alberta — he also pitched decarbonization as an attractive investment strategy.
In February, Aimco said it was creating a C$1 billion fund dedicated to the energy transition, including “low-carbon renewable energy production,” to be led by then-CIO Puffer.
Some clients complained to the government that the pension fund manager was steering away from Aimco’s principles. Others backed its direction.
Ultimately, Horner sided with the first group. The government has for months been mulling giving the chairman’s role to Harper, according to people familiar with the matter. He’s a longtime politician who led the Conservative Party of Canada to three straight election victories — and he’s deeply trusted by conservatives in Alberta.
The finance minister waited for an opening. Then came last week’s purge at the Westin hotel. More changes are certain, potentially destabilizing Aimco further.
“You’re kicking at the foundation, and the concern is that when you kick at the foundations enough, at some point they’re all gonna fall down,” said Dyck, the pension expert, speaking about Canadian pension funds in general and their history of political non-interference. “It’s just, this is the first kick.”
Fired AIMCo chair disputes Alberta’s narrative on costs in letter to Horner AIMCo is a low-cost manager compared to similar funds and has 'solidly' exceeded benchmarks over the years, says Kenneth Kroner
Published Nov 14, 2024 •
Alberta Finance Minister Nate Horner at the Alberta Legislature. Photo by Shaughn Butts/Postmedia files
The former interim chair of Alberta Investment Management Corp. has written a letter to the Alberta cabinet minister who fired him last week to dispute what he calls an “incorrect narrative” and “misinformation” about the performance of the asset manager and Crown corporation.
In a letter to Alberta Finance Minister Nate Horner that was viewed by the Financial Post, Kenneth Kroner disputes the data and a number of assertions used to justify the government’s “reset” at AIMCo, which saw the entire board of directors, including Kroner, as well as chief executive Evan Siddall, removed from their posts. The letter goes on to say that while the government is within its rights to replace the board, the faulty narrative that AIMCo’s costs are out of control will make things difficult for the next board and management team. “Over the last week, there have been numerous public statements made about AIMCo’s performance and costs,” wrote Kroner, who was on the board of AIMCo for eight years and had been acting chair since the beginning of this year. “I have concerns that these are tarnishing AIMCo’s reputation, which will only make it harder for Albertans to have confidence in the public asset manager, and will create unnecessary barriers for AIMCo in its goal to deliver strong investment performance for Albertans.
Contrary to skyrocketing costs and poor performance, he said AIMCo is a low-cost manager compared to similar funds and has “solidly” exceeded benchmarks over the years.
“The data contradicts the very negative narrative that is out there,” Kroner wrote in the letter, which was also sent to the government’s bipartisan standing committee on the Alberta Heritage Savings Trust Fund, which is managed by AIMCo.
“The misinformation will make it unnecessarily difficult for the next management team to be effective,” it said.
In statements to media since the board and Siddall were let go en masse last Thursday, Horner has said he and his team had asked for changes at AIMCo and applied “constant” pressure on costs.
“We asked for change. Weren’t seeing it. Weren’t seeing it. We were seeing the opposite,” he told the Calgary Herald.
“It became evident things were not going to change even with constant pressure from me and the team.”
In a statement announcing the board purge, the government said that AIMCo’s third-party management fees increased by 96 per cent in the 2019 to 2023 period, the number of employees increased by 29 per cent and salary, wage and benefit costs increased by 71 per cent. The government said the cost increases had not come with a commensurate increase in returns.
In Kroner’s response, dated Wednesday, Nov. 13, he said the government’s measure of AIMCo’s total returns ignores the fact that clients, such as operators of pension funds for teachers, judges and police officers, direct how much of each asset class the pension management organization should invest in on their behalf
“AIMCo’s mandate is to outperform the benchmarks that clients given them,” Kroner wrote. “This is why I’ve consistently emphasized that AIMCo’s contribution can only be measured by returns versus their client-directed benchmarks, not total returns.”
He said AIMCo has consistently added value on this metric, the only one it can control. For example, the provincial government’s Heritage Fund has seen an annualized 10-year return that is half a percentage point above its benchmark after all costs through the end of June. Returns outperformed the benchmark in seven of those years, and, after all costs, added $1 billion to the Heritage Fund, according to the letter.
“This is not poor investment performance as the narrative states, but rather is a performance record that Albertans can be proud of,” wrote Kroner, who holds a PhD in economics from the University of California at San Diego and was a senior managing director at Blackrock and predecessor Barclays Global Investments for more than 20 years.
As for the government’s statements about AIMCo’s costs, he said they were indeed rising, but so were assets under management. Moreover, independent firm CEM Benchmarking pegged AIMCo’s costs at 23 per cent below what an average peer would incur to manage AIMCo’s client assets.
“That $258-million (based on 2022 figures) goes straight into Albertan’s pockets,” Kroner wrote. “AIMCo has always been, and remains, a cost-conscious, high value-for-money asset manager.”
The government figures that Kroner says “are being used to tarnish AIMCo’s reputation” include an assessment of third-party management fees. Third-party assets rose by two and half times in the 2019 to 2023 period, so fees naturally went up. “But these fees went up at a much slower pace than assets,” he wrote, “and the data shows that AIMCo’s average third-party management fees dropped by a third … over that window. This is evidence of effective cost management not undisciplined cost management.”
He said AIMCo’s headcount increases have also drawn much public discussion, but that the staffing reflects client request for a near doubling of the illiquid investments such as real estate, private equity and infrastructure in the period between 2019 and 2023. It was well known that this would require expanding investment and legal teams, strengthening risk controls, and building a global presence.
“AIMCo hired the talent necessary to support this client-led growth, and this should not be misinterpreted as evidence of costs being out of control,” Kroner wrote.
Horner stepped in as acting chair following the board and executive purge last week. Alberta’s deputy minister of executive council, Ray Gilmour, the province’s top bureaucrat, was named interim chief executive. Since then, speculation has emerged that former prime minister Stephen Harper will become AIMCo’s next chair. Sources say his name has been in the mix for nearly a year, since shortly after Mark Wiseman, former CEO of Canada Pension Plan Investment Board, announced plans to step down as chair of the Alberta pension and investment manager.
The Alberta Investment Management Corp. has completed its review of a volatility trading strategy, known as VOLTS, that resulted in $2.1 billion in losses in the wake of the coronavirus crash.
While the strategy would have been expected to generate some losses in periods of market volatility, the losses were far greater than expected, noted a report on the review.
As the crisis unfolded, the AIMCo’s board took steps to mitigate further losses by approving a plan to wind down and permanently close the strategy altogether. It also moved to review more than 50 other value-added strategies to determine whether any of them also had the potential for outsized losses. It found none of them had the potential to perform as poorly as the volatility strategy.
The report outlined the history of the AIMCo’s volatility contracts strategy, which began in 2013 and was expanded in January 2018 to include capped/uncapped variance swaps. “These swaps trade a relatively fixed return during typical to moderately high volatility conditions for a significantly more steeply tilted and non-linear loss function during high to very high volatility conditions and carry the risk of greatly magnified losses from extreme volatility events, such as the COVID-related volatility experienced in March or that experienced in the October 1987 Black Monday event.”
While the volatility portfolio was shifting towards higher-risk capped/uncapped contracts, the overall portfolio was growing above its pre-2018 levels. As well, a legacy risk system was in place that worked reasonably well for situations with a linear relationship between portfolio investments and underlying economic and market factors. However, it didn’t work well with non-linear returns, like the volatility strategy. “The limitations of the risk system had previously been recognized and its replacement had been identified and was in the process of being implemented,” said the report.
By January 2020, the AIMCo’s risk management team had modelled the risk involved in the capped/uncapped strategy and called for more attention to be paid to the unlikely, but still possible, chance of extreme tail risk. The public equities team started taking action to reduce the fund’s overall exposure to the volatility strategy in early March, but by then it was too late. “Unprecedented and sustained volatility caused by the COVID-19 crisis made it impossible to unwind the positions without considerable loss.”
In response to the situation, the board launched a comprehensive review of the volatility trading strategy. A new report by the AIMCo outlines recommendations and changes as a result of the review.
“Oversight of AIMCo’s investment strategies and risk management is the responsibility of the board of directors,” noted the report. “The losses incurred by our clients as a result of the VOLTS strategy are wholly unacceptable. The board is determined that the lessons from this experience will improve AIMCo’s management processes, prevent any similar occurrences and, most importantly, strengthen the risk culture of AIMCo.”
The board’s review concluded that the degree of challenge from the first and second lines of defence, namely the investment and risk management teams, regarding the strategy was unsatisfactory. And the “breadth and depth of risk governance controls, collaboration and risk culture” were also unsatisfactory. Further, analytics relating to the extreme tail risk inherent to the volatility strategy weren’t escalated to senior management and the board quickly enough.
As a result of the review, the board has adopted — and instructed management to implement — 10 recommended changes. First, that the AIMCo’s chief executive, investment and risk officers will personally lead and ensure the integration of the risk management and investment management staff, progressing toward a more collaborative and inclusive relationship. Second, the AIMCo will broaden its risk framework to deepen its description of risk appetite and risk tolerance, as well as launch a process of dialogue and debate across the organization on these topics.
Further, the AIMCo’s management will propose revised investment approval thresholds relating to any investment strategy or product using over-the-counter options, swaps or other derivatives, with the exception of cases in which derivatives are used only for hedging risks inherent in an investment strategy. As well, regular risk reporting to the board will become more granular by including exposure and risk measures against applicable thresholds and limits for all products and strategies.
Management will also develop an escalation and remediation process whereby risks that may lead to outsized or unexpected losses will be identified, regardless of the risk limit. And the risk management team will provide the approving authority, including an independent review of significant risks, whenever a product or strategy originates, is expanded or changed in terms of design or description.
At the outset, expansion or change in design or description of any strategy or product, the AIMCo will also clearly indicate any risk that an amount in excess of the initial investment could be lost. As well, if a change is made to the design or description of an investment, the original authority that approved the product or strategy will have to re-approve it as though it were completely new.
As for talent management, the board said its human resources and compensation committee will continue its redesign initiatives to push risk and investment managements’ further integration, including provisions for their compensation to be meaningfully linked to both teams’ degree of improved collaboration. The board also asked the chief executive officer to revise the AIMCo’s talent management strategy, organizational design and management succession plan.
In the review process, the AIMCo used its internal audit group and chief legal officer, in addition to third-party advice from Barbara Zvan, former chief risk officer at the Ontario Teachers’ Pension Plan, and KPMG’s financial risk management team.
“No matter how carefully designed a set of prescriptive rules are, a so-minded individual or group can usually find a way to circumvent such rules,” said the report. “Consequentially, the most important changes emerging from the board’s review are actually not process changes at all, but rather changes to the culture in which the rules are to be embedded.
“With the oversight of the board, senior management will continue to move AIMCo’s culture toward a more collaborative environment among risk and investment professionals. These changes are not so easily effected and will require strong focus and leadership from the board and senior management, as well as continuous evaluation against clear, predetermined benchmarks.”
Alberta Finance resists pension plan representation on AIMCo board
NDP MLA's bill proposes adding members from four largest public sector pension plans to board Michelle Bellefontaine · CBC News · Posted: Feb 26, 2021 5:02 PM MT | Last Updated: February 26
NDP MLA Shannon Phillips introduced Bill 208 last fall. (Émilie Vast/CBC)
Alberta finance officials are pushing back against a proposal in a private members' bill that would add members representing public sector plans to the board of the Alberta Investment Management Corporation (AIMCo).
Shannon Phillips, the NDP MLA for Lethbridge-West, presented Bill 208, Alberta Investment Management Corporation Amendment Act, 2020, to the Standing Committee on Private Bills and Private Members' Public Bills on Friday.
The bill proposes adding four members representing the Alberta Teachers Retirement Fund, Special Forces Pension Plan , Local Authorities Pension Plan and Public Sector Pension Plan to AIMCo's 11-person board.
Since taking office nearly two years ago, the current United Conservative government has compelled the pension funds to use AIMCo as their investment manager.
MLAs have been inundated with phone calls, emails and letters about this issue, Phillips said.
Adding representation from the four largest public sector pensions to the AIMCo board would help ease those worries, she said.
"Those funds then deserve a better window over governance at AIMCo and input into how they make investment decisions and ultimately how they serve their clients," she told the committee.
AIMCo is an investment firm owned by the provincial government. Management came under fire last year after losing $2.1 billion from a bet on market volatility.
Managers of the four pensions, which provide retirement income for teachers, provincial and local government workers, health care workers and municipal police officers have expressed concern that AIMCo would mishandle their funds.
Lowell Epp, assistant deputy minister for Treasury Risk and Management for the Alberta government, rejected Phillips' proposal in his presentation to the committee.
He says a 15-member board is unwieldy and would be less productive than a smaller board. He also suggested the proposed new members would represent the interests of their individual pension plans and not AIMCo as a whole.
"Representative boards frequently take a combative approach to decision making rather than a much more productive, consensus-based approach," he said.
Epp said each public sector pension retains control over their investment policies.
UCP MLAs, who make up the majority on the committee, echoed some of Epp's concerns.
Referendum question
The Alberta government has the power to issue investment directives to AIMCo. Bill 208 would remove that provision from existing legislation.
Concerns have been raised that the UCP government could order AIMCo to invest funds in oil and gas projects.
Phillips said the power has never been used, so it shouldn't be a problem to remove it.
"Removing that section of the act is a very simple solution to some of the concerns that have been raised by the public," she said.
The government is currently studying the feasibility of leaving the Canada Pension Plan and creating an Alberta Pension Plan in its place, a measure recommended by the Fair Deal Panel last year.
Bill 208 proposes asking Albertans in a referendum whether they want to switch to a provincial pension plan and if they want AIMCo to manage the fund.
Epp, in his presentation, said early evidence suggests a provincial pension plan could be beneficial, but that no decisions have been made on who would manage the funds.
MLAs on the committee agreed to hear stakeholder presentations on Phillips' bill before deciding whether to send it back to the legislative assembly for additional debate.
UCP-dominated committee kills bill that would have added representation to AIMCo board
Author of the article: Ashley Joannou Publishing date: Mar 08, 2021 •
A lone skater enjoys the ice rink below the Alberta Legislature, in Edmonton Wednesday Jan. 27, 2021. We have two years to figure out the future of Alberta before separation is potentially put on a referendum question, says columnist Danielle Smith. PHOTO BY DAVID BLOOM /Postmedia Article content A bill that would have added representatives from four major Alberta pensions plans to the board of AIMCo is essentially dead after a government-dominated committee voted against it being debated in the legislature.
The standing committee on private bills and private members’ public bills heard from speakers in favour of NDP MLA Shannon Phillips’ bill Monday morning before voting 6-4 along party lines that the bill should not be given a full debate.
“Today’s decision is yet another example of the UCP ignoring the legitimate concerns of Albertans, and moving ahead with their ideological agenda,” Phillips said in a statement following the defeat.
Bill 208, the Alberta Investment and Management Corporation Amendment Act, would have bumped the size of AIMCo’s board from 11 to 15 by adding representatives from the Alberta Teachers Retirement Fund, Special Forces Pension Plan, Local Authorities Pension Plan and Public Sector Pension Plan.
Those four pensions are now legally required to be managed by AIMCo following legislation passed late last year. The government argued the consolidation would allow for better economy of scale with lower costs overall but unions have expressed distrust in AIMCo’s management and worries they were giving up control.
Greg Meeker, former chair of the Alberta Teachers Retirement Fund, argued Monday that without representation on the board, all teachers could do if they were upset by an AIMCo decision was write a “strongly worded letter.”
“I would suggest that we need representation to go beyond that level, beyond the strongly worded letter level,” he said,
UCP MLA Shane Getson said he was worried adding extra seats would potentially give undue influence to some by having a client able to influence their own specific pension at the board level.
Meeker said adding four seats to AIMCo’s board would not provide a particular advantage.
“That’s not an ability to issue edicts to AIMCo. That’s not the ability to issue an order to the investment staff to prioritize the ATRF investments,” he said. Brad Readman, the president of Alberta Fire Fighters Association said his members’ pensions are part of the LAPP, which is currently handled by AIMCo, but the current legislation takes away the option to ever leave.
He said while the current members’ pensions won’t change there is a responsibility to protect future members and that Phillips’ bill should be debated. “Let’s make sure the long-term pension plans and retirement security of firefighters, first responders, teachers, are protected,” he said.
Government officials have said public sector pension boards would continue to control their own investment strategies even under AIMCo’s management though the Alberta Teachers Association has promised to sue over a ministerial order they say takes away their control. Bill 208 would have also removed a provision in the existing law that allows the government to give AIMCo investment directives.
The bill would have also required a referendum if Alberta launched a provincial pension plan and AIMCo was chosen to manage that money.
Members on both sides of the aisle acknowledged hearing concerns from their constituents about how pensions are managed under the government’s new rules. UCP MLA Whitney Issik blamed this on a “hyperbolic misinformation campaign” and pointed out that the LAPP, managed by AIMCo, is ranked among the top plans in Canada.
NDP members argued that the level of concern was all the more reason to give the issue a full debate.
“It needs to have a proper debate where we can hear from the minister of finance, where we hear from other ministers where we can hear from the opposition, and government, and independent MLAs,” said NDP MLA Thomas Dang.
AIMCo's 11-person board, CEO and three executives were dismissed over the Government of Alberta's frustration with increasingly high costs and over-reliance on third-party money managers
“To suddenly dismiss all these people, I can’t explain it , the current reasons just don’t hold water, they’re just not credible.”
Alberta Finance Minister Nate Horner revealed Thursday the entire leadership of the Alberta Investment Management Corp. was dismissed. The move is unrelated to the proposed Alberta Pension Plan, he said Friday
HE LIES, THEY NEED AIMCO FOR THEIR ALBERTA PENSION SCHEME
. David Bloom/Postmedia file
The mass overhaul of leadership at the Alberta Investment Management Corp. will likely raise new questions about the provincial government’s proposal to implement an Alberta pension plan which, if approved by Albertans and the province, would likely be managed by the Crown investment corporation. Article content
The Alberta government on Thursday dismissed the $169-billion public pension fund’s 11-person board, its CEO and three executives, citing frustration with increasingly high costs and AIMCo’s over-reliance on third-party money managers. On Friday it appointed Ray Gilmour, a longtime government bureaucrat, as interim CEO.
The province’s extraordinary intervention into the arms-length pension fund manager resurrected questions around potential plans to put a provincial pension to a referendum — an idea that has gone dormant after receiving wide disapproval in late 2023. Finance Minister Nate Horner said Friday the upheaval at AIMCo has “nothing to do” with it being the potential manager.
“This move surely does not come across as something that creates a lot of confidence in the Alberta government. If anything, this is just another nail in the coffin if that’s what they’re trying to do — I don’t know. It’s all very strange,” Keith Ambachtsheer, director emeritus of the International Centre for Pension Management at the University of Toronto’s Rotman School of Management, said of the potential Alberta Pension Plan. Article content
AIMCo, the sixth-largest pension fund in Canada, is responsible for overseeing the nearly $24 billion Alberta Heritage Savings Trust Fund and has a mandate to operate independently from the government — though the law defining its mandate allows for greater government involvement than is available to the federal government in relation to the Canada Pension Plan Investment Board. The now-dismissed board members were all appointed by the governments of former premier Jason Kenney and current Premier Danielle Smith.
AIMCo has been presented as one of top potential investment managers for a provincial pension plan in the event it was approved via referendum, as outlined in a 2023 report prepared by Lifeworks analyzing the considerations involving a potential provincial pension plan. That report argued Alberta was entitled to 53 per cent of the national retirement plan’s assets, worth about $334 billion, a number that’s been rebuffed by the CPPIB and others.
Keeping assets in the Canada Pension Plan Investment Board — the least-expensive option available — was also considered in the report, however that option presents serious challenges because it would require approval from several provincial governments.
The Lifeworks report suggested amending legislation to assert AIMCo’s operational independence in the event it became responsible for an Alberta Pension Plan’s assets.
“(The Alberta Pension Plan) has completely dropped off the political agenda,” said Duane Bratt, a political science professor at Mount Royal University. “Now it’s going to go right back on the agenda.”
Thursday’s decision will undermine confidence in AIMCo over the short-term and thus its ability to manage an in-province pension plan, Bratt said, but public sentiment could change over the long run if the corporation stabilizes.
“Maybe they think by the time that they put this to a referendum, let’s say in a year’s time, maybe AIMCo’s ship will have righted itself because of the actions that were taken … I don’t know. But AIMCo is connected to the APP,” Bratt said.
Ambachtsheer said he’s perplexed by the overhaul, adding the government has left numerous questions unanswered.
“To suddenly dismiss all these people, I can’t explain it,” he said. “The current reasons just don’t hold water, they’re just not credible.”
Alberta NDP Leader Naheed Nenshi said the mass dismissals “leads to a real drop in public confidence in the work they’re doing.
“This action should mean that any talk of the vastly unpopular Alberta pension plan should be dead now. It should be done, because it’s very clear that the government has admitted that they have no idea how to manage people’s pensions,” Nenshi said in an interview.
Nenshi said the issues at AIMCo, as outlined by the province, do not come as a surprise, but he takes issue with the government’s approach to making changes at the corporation. “We’ve known all this is going on for some time, so how did the government take its eye off the ball so much that they have to take this kind of drastic action instead of managing the process as any normal, sane shareholder would do?”
Money manager’s interim CEO a longtime public servant
AIMCo’s interim CEO, Gilmour, was touted as a dedicated public servant. He has commissioner of corporate services for the City of Medicine Hat and has a background in the banking and financial services industry, according to a profile on the C.D. Howe Institute’s website. (Horner will serve as director and chair of AIMCo for the next month until a new chair is appointed.)
Gilmour has served in executive councils under ex-premiers Rachel Notley and Kenney, and currently under Smith, spanning several ministries including finance, intergovernmental relations, infrastructure and municipal affairs.
Horner’s office declined an interview request on Friday. Meanwhile, Alberta’s lieutenant governor also approved on Thursday the incorporation of a provincial corporation “for the purpose of managing and investing all or a portion of Crown assets.”
This move is not related to the government’s decision to axe AIMCo’s board and CEO, Justin Brattinga, press secretary for Horner, wrote in an email to Postmedia. “The corporation is a preliminary step in our work to grow the Heritage Savings Trust Fund, and as Minister Horner said we will have more to say on that before the end of the year,” Brattinga wrote. “The establishment of the corporation is not related to the actions taken in regards to AIMCo.” Article content
Teachers’ Retirement Fund says pensions ‘remain secure’
The Alberta Teachers’ Retirement Fund on Friday told members in a statement that “their pensions remain secure” and that nothing at AIMCo to date has concerned it about the status of its investments — though it has raised issued with regards to costs at AIMCo with the investment manager and the province.
“We look forward to working with Treasury Board and Finance and being part of determining the appropriate path forward,” it wrote The Alberta Federation of Labour said Albertans “deserve answers” on the government’s decision.
“Precipitous actions like this do not inspire confidence that the UCP can be trusted with the retirement savings of hundreds of thousands of Albertans, or that they can be trusted to successfully and safely run an Alberta-only alternative to the CPP,” wrote Gil McGowan, AFL president and former Alberta NDP leadership hopeful.
In Ottawa, federal NDP MP Heather McPherson called the move “another step to pull Alberta out of the Canada Pension Plan” while federal Minister of Labour and Seniors Steve MacKinnon called the province’s moves “harebrained schemes coming out of Alberta” and said the CPP has a “sterling” reputation.
— With files from Matthew Black
UCP Fires Board and Top Executives Managing Public Pensions
Shock announcement raises questions about what Danielle Smith plans for workers’ retirement savings.
Finance Minister Nate Horner will replace the AIMCo board until a new slate of directors can be found. Photo by Jeff McIntosh, the Canadian Press.
With its surprise decision to cashier the entire board and the top executive of the supposedly independent Alberta Investment Management Corp., we see once again that the United Conservative Party government is determined to control everything, everywhere, all at once.
And if you’re an Albertan, that includes your retirement savings in the Canada Pension Plan Investment Fund.
Indeed, we can be certain this shocking announcement has something to do with that scheme, because chronic underperformance by AIMCo, as the provincial Crown investment corporation is commonly known, has been a frequent target of critics of the UCP’s planned pension grab.
Under the headline “Restoring confidence in AIMCo,” the government said in a terse and unexpected news release Thursday that “after years of AIMCo consistently failing to meet its mandated benchmark returns, the minister of finance will be making changes to restore confidence in Alberta’s investment agency.”
The release complained about a 96-per-cent increase in management fees at AIMCo between 2019 and 2023 and a 29-per-cent increase in the number of employees while the Crown corporation managed a smaller percentage of funds internally — although the news release made no effort to explain exactly what that last point meant.
“Alberta’s government has decided to reset the investment corporation’s focus,” the news release said mildly. “All board appointments have been rescinded and a new board will be established after a permanent chair is named.” That, according to the release, is supposed to take place within 30 days.
“In the interim, president of treasury board and Minister of Finance Nate Horner has been appointed the sole director and chair for AIMCo, effective immediately” — which is not really reassuring for a supposedly arm’s length company managing $169 billion in pension investments.
Notwithstanding the 30-day promise, a cabinet order set Horner’s term as chair of the AIMCo Board to run until the end of September 2025.
Accusing the UCP of wanting to control everything, everywhere, all at once was a clever tribute to the 2022 comedy-drama movie of the same name first used by NDP justice critic Irfan Sabir last spring to describe the UCP fiddling with its own fixed election date law to give itself a little extra time in office.
“Danielle Smith said during the election that Albertans were her bosses,” added Rachel Notley, who was leader of the Opposition at the time, “but it is clear now that she intends to be the boss of everyone.”
Those lines could certainly be applied with similar effect to Thursday’s bombshell.
A comprehensive article in the Globe and Mail revealed that in addition to the 10 board members referred to but not named in the news release, CEO Evan Siddall and three other unnamed executives had been canned.
Siddall, who was appointed CEO on July 1, 2021, with a mandate to turn the company around after its big trading losses during the pandemic, had been the long-time president and CEO of the Canada Mortgage and Housing Corp. Judging from his Wikipedia biography he seems to have attended meetings of the World Economic Forum and the Bilderberg Group, which must have made certain MAGA-minded members of the UCP caucus feel as if they had ants in their pants.
Or maybe it was Siddall’s decision to let Alberta’s teachers have a limited role in the management of their pension fund, which had been grabbed by the UCP in 2019 and handed over to AIMCo amid great controversy. Indeed, some of those additional pension employees the government was complaining about likely came from the management arm of the teachers’ pension fund.
Whatever happened, NDP finance critic Court Ellingson told the Globe that Siddall and some of his colleagues showed up at a public meeting of the standing committee on the Alberta Heritage Savings Trust Fund on Wednesday and there was no hint anything was afoot.
Ellingson said in a statement sent to media Thursday afternoon that firing the entire board and the CEO is too drastic a measure for this just to be about AIMCo salaries “when this government passed legislation to remove the caps on salaries for board members.”
“The premier herself appointed some of these AIMCo directors,” he said. “The finance minister himself said this spring that AIMCo was doing a good job.”
He also argued that even in a temporary role, having a partisan politician at the helm of a supposedly arm’s length agency investing 375,000 Albertans’ retirement savings is troubling.
It certainly seems to have unsettled some in investment circles. The Globe quoted the director emeritus of the International Centre for Pension Management at the University of Toronto’s Rotman School of Management, Keith Ambachtsheer, saying the move “should be construed as a government takeover of [an] asset pool that belongs to the people of Alberta.”
Will Danielle Smith Use Albertans’ Pensions to Bail Out Big Oil?read more
Ellingson argued “AIMCo’s poor returns are a clear reflection of the UCP’s incompetence.”
“We have raised concerns about their poor returns for years, and we’ve noted AIMCo’s returns have been below that of the Canada Pension Plan,” he said. “Until now, the UCP even proposed using AIMCo to manage the proposed Alberta Pension Plan. Any such APP scheme should now be completely off the table.”
Count on it, though, the opposite is true. If this indicates anything, it’s that the UCP still covets the CPP’s investment funds and saw AIMCo’s returns as an impediment to that ambition. Nor does the party value independent minds in positions of oversight.
Interestingly, another Order in Council published Thursday “approves the incorporation of a provincial corporation for the purpose of managing and investing all or a portion of Crown assets.”
David J. Climenhaga is an award-winning journalist, author, post-secondary teacher, poet and trade union communicator. He blogs at AlbertaPolitics.ca. Follow him on X @djclimenhaga.
Alberta Finance Minister Nate Horner became the one-man board of Alberta Investment Management Corp. this week, and promptly fired its chief executive. (Jeff McIntosh/The Canadian Press)
When Alberta's public pension manager lost $2.1 billion in a risky bet on market volatility in 2020, little of the scorn or blame fell at the feet of then-premier Jason Kenney or his government.
Why? The investment decisions at the Alberta Investment Management Corporation (AIMCo) are independent of the government. Cabinet's lone role is to appoint directors to the fund manager's board and let the experts invest, trade and (ideally) grow the funds.
The teachers group whose pension funds the Kenney government transferred to AIMCo's control was understandably frustrated their savings' destiny was tied to the downs and ups of the wealth giant in that moment, but the teachers' union wasn't lobbing rhetorical grenades at the premier for the loss itself.
That distance between the politicians and the pension investors shrank substantially this week, when Finance Minister Nate Horner took the unprecedented step to remove the entire independent board of AIMCo, name himself the temporary one-man board and fire CEO Evan Siddall.
All future rhetorical grenades (and bouquets) can be addressed to the finance minister and Premier Danielle Smith.
Ready, AIMCo, fired
Horner has pledged to appoint a new board within a month, but in the meantime he appointed as interim CEO Ray Gilmour, a veteran senior provincial bureaucrat who lacks experience in the world of big-fund management, but did work in Alberta banks more than two decades ago.
The Smith government pitched the move as "restoring confidence in AIMCo" after underperforming financial results and rising costs. Sebastien Betermier, a leading analyst of pension funds, doesn't see this as confidence-building in the agency's ability to make the sophisticated, long-term investment decisions they need to.
"To me it goes the exact opposite way," Betermier, the executive director of the International Centre for Pension Management, told CBC News. "That goes against the whole independence, the ability of the funds to work at an arm's length from government."
When the province created AIMCo in 2007, the then-Tory government specifically barred MLAs from serving on the fund manager's board, to ensure independence. A cabinet order this week temporarily undid that rule.
Betermier, a finance professor at McGill University, said this seemingly abrupt turmoil could also give pause to other major investors or firms AIMCo partners with on large-scale investments. The fund currently co-owns Yorkdale Mall in Toronto with a major property developer (itself owned by an Ontario pension manager), and has been building thousands of U.K. rental apartments in a joint venture with a British firm.
The two-million-square-foot Yorkdale mall in Toronto, one of Canada's largest, is co-owned by AIMCo as part of the fund's diversified portfolio of assets. (Frank Gunn/The Canadian Press)
"When you see moves like this, where the government can come in any day and dismiss the whole board, that sends shivers in your ability to implement such projects going forward," Betermier said.
Horner expressed some disappointment in recent failures by AIMCo to meet growth benchmarks, but said cost growth was the main reason behind the move. In announcing the board's sacking, his office noted that over the last four years, AIMCo has hiked its staff expenses by 71 per cent and its employee numbers by 29 per cent.
"We want them to be a low-cost provider," Horner told reporters.
Unmentioned in that news release is that, thanks in part to the shift of teachers' pension funds to AIMCo's portfolio, the agency's total managed assets rose over that stretch to $166 billion from $115 billion, a 44 per cent increase. (Instead, the release noted that more funds are being managed by external groups than previously.)
Does an investment firm guarantee itself better returns by slashing its workforce and hiring lower-paid executives?
Short-term frustration with costs can overlook the time it takes to develop an international investment strategy over a longer term, Betermier said.
Of the country's major public-sector pension managers known as the Maple 8 — including the Canadian Pension Plan Investment Board and the independent investment arms of the British Columbia and Quebec governments — it's the youngest, only launching in 2008.
It's lately been playing catch-up to its peers to establish more international offices, including New York this year, its first Asian office in Singapore last year, and a recent plan by Siddall to more than double its presence in London.
"It's a project where you can generate a lot of value for pensioners, but you need to give it time," said Betermier. "One of the big risk factors is precisely government interference, when you come right in the middle of an initiative and you undo it."
Evan Siddall led AIMCo for three years before being terminated. The former investment banking executive and head of the Canada Mortgage and Housing Corporation arrived at AIMCo after major investment losses tarnished the agency's reputation. (Jeff McIntosh/The Canadian Press)
Horner isn't alone in his frustration with the costs. Deb Gerow, president of the Alberta Retired Teachers Association, said expenses and management fees "have been a concern for us," compared to the educator retirement fund's smaller previous operations.
But is the wholesale sacking of a board the solution to a minister's balance-sheet frustrations?
"It struck me as a rather extreme reaction given the problems the government identified," said Bob Baldwin, a veteran pension consultant who has chaired the C.D. Howe Institute's pension policy council.
It makes him wonder what other considerations were behind the Smith government's takeover of AIMCo leadership.
Horner and his office have said this decision has nothing to do with the UCP's consideration of removing Alberta from the Canadian Pension Plan (and possibly putting AIMCo in charge of an Alberta pension mega-fund). Nor, they say, does this have anything to do with the premier's ambition, reiterated at last weekend's UCP convention, to balloon the $23-billion Heritage Savings Trust Fund into a $250-billion fund by mid-century.
There is certainly a desire by Horner and the premier to change the focus and approach of the Crown corporation that currently stewards Alberta's long-term savings account and the retirement funds of thousands of residents. It's not clear how they want that approach to change, aside from producing wealth management on a leaner budget.
And what happens to AIMCo's investments in the coming years will depend on the quality of the leaders Smith's cabinet selects to run the agency, who will undoubtedly be more aligned with the desired directions of Horner and the premier than a group appointed over several years by both UCP and NDP premiers.
Success will be attributed to this government's actions. So will future losses and failures.
It's the same way that the Smith government has tied Alberta Health Services' outcomes to their own decisions, by ousting the entire board in 2022 and then redesigning the entire system's structure.
They dismantled and remade it, and will politically own whatever comes next.
AIMCo expansion, Alberta's investment
focus were sources of tension before purge,
sources say
Pension veterans say there was more going on behind the scenes than scrutiny of costs
A longtime pension executive described the blanket dismissals as a “shock.”
Alberta Investment Management Corp. chief executive Evan Siddall in Calgary, Alta., 2022. Alberta has relieved Siddall of his duties. Photo by Jeff McIntosh/The Canadian Press files
The decision by Alberta Investment Management Corp. (AIMCo) to launch operations abroad as it chased higher returns and the extent to which the investment manager should invest in Alberta were sources of tension with the provincial government in the months leading up to Alberta’s stunning decision this week to remove AIMCo’s entire board of directors and chief executive, according to several people familiar with what transpired.
In a news release Thursday, the Alberta government said the “reset” at AIMCo was driven by rising costs at the Crown corporation, including third-party management fees and salaries and benefits that were not matched by a corresponding return on investment.
But three pension veterans familiar with events said there was more going on behind the scenes than scrutiny of costs.
One of them described the stated rationale of costs as “smoke and mirrors” for a deeper agenda to reshape AIMCo.
“Cost-cutting is not a big issue here,” said the source, who asked not be identified because of sensitivities around recent events. “This is a deeply political situation.”
This is a deeply political situation
Another of the sources, all of whom spoke on condition of anonymity, pointed to efforts to expand investment capabilities by hiring expensive investment managers and opening offices in New York and Singapore this year and last as a point of tension.
But others said that was just one piece of the puzzle, and suggested the government is focused on driving investments in Alberta.
The shakeup at AIMCo comes as Alberta Premier Danielle Smith prepares to unveil her government’s plan to boost the size of the AIMCo-managed Heritage Savings Trust Fund, which, according to its website, “produces income to support government programs In February, Smith said she envisioned the fund, which was established in 1976 to collect a portion of Alberta’s non-renewable resource revenue to invest in projects that would improve life in Alberta and diversify the Alberta economy, to grow much larger by 2050 than the nearly $24 billion value it had June 30.
The Alberta government also announced plans last year to pull out of the Canada Pension Plan, and take its share of the giant fund with it, but that effort appears to have moved to the back burner.
“We’ll be releasing our plan to grow the Heritage Savings Trust Fund to $250 billion by the end of the year, with a focus solely on getting the best returns for Albertans,” Justin Brattinga, senior press secretary at Alberta’s Ministry of Treasury Board and Finance, said Friday.
Asked whether the government had concerns about AIMCo’s direction and wanted more investments, operations and jobs in Alberta, Brattinga did not directly address the question.
“AIMCo’s mandate is to be a low-cost investor,” he said. “Our concern was with the rapid and unacceptable increases to their operating costs without a corresponding increase in returns for their clients.”
On Friday, the Alberta government announced that its most senior public servant, deputy minister of executive council Ray Gilmour, would be interim CEO, put in place to “stabilize operations and ensure smooth operations during the transition period.”
That followed Thursday afternoon’s bombshell announcement that the government had rescinded all board directorships at AIMCo. Nate Horner, Treasury Board President and Finance Minister, said he had also relieved AIMCo CEO Evan Siddall of his duties.
Horner has been installed as chair and sole director for the next 30 days until a replacement can be found.
One source said they believed the government has found some support for its approach in a client group still reeling from a loss of trust following AIMCo’s stunning $2.1 billion loss in 2020 on a volatility trading strategy, when the COVID-19 pandemic was declared.
The Alberta Teachers’ Retirement Fund, one of the investment manager’s 30 or so clients, told members that the issue of costs had been raised with both the government and AIMCo prior to this week’s purge.
“Nothing that has happened with regard to the changes at AIMCo thus far has caused us concern about the status of our investments,” the ATRF said in a note to members posted on its website Thursday. “At the same time, we have in the past raised issues regarding costs at AIMCo with both the Government of Alberta and with AIMCo.”
The retirement fund for Alberta’s teachers was forced through legislation to turn management of its funds over to AIMCO in 2019. It was a contentious start for the relationship. Unable to reach an agreement on terms of the new arrangement, the outcome was imposed through a government order
Despite the assertions of the teachers’ retirement fund and the government, industry sources say AIMCo’s costs are in line with industry standards, and that returns slightly below benchmarks reflected the risk profile of the investment managers clients rather than performance issues relative to peers.
AIMCo posted an overall return of 6.9 per cent in 2023, despite challenges in its real estate portfolio. The asset manager, which invests on behalf of pension, endowment, insurance and government clients in Alberta, ended the year with $160.6 billion in assets under management. The return, though positive, fell below AIMCo’s benchmark return of 8.7 per cent. A longtime pension executive described the blanket dismissals as a “shock.”
Jim Leech, who ran the Ontario Teachers’ Pension Plan Board for six years, said Friday he doesn’t believe the wholesale clear-out of the boardroom and the dismissal of senior executives including the CEO can be solely about “a few basis points of performance or costs.”
The Alberta government’s sudden decision to dismiss the entire board and CEO of the Alberta Investment Management Corp. (AIMCo) comes at a time when a number of the pension fund’s clients are “unhappy,” according to a business columnist with The Globe and Mail.
“I’m not actually completely surprised by this,” Andrew Willis told BNN Bloomberg’s Amber Kanwar in an interview Friday morning.
“AIMCo has been controversial for a couple of years and their performance hasn’t been that great… there is an underlying reason for this rather abrupt action from the government and it’s to do with the ability to keep these clients happy – there is a lot of unhappy clients at AIMCo.”
Willis said that what makes AIMCo unique as a fund is its structure as a crown corporation that manages capital for more than a dozen different groups in Alberta.
“That includes the heritage fund, but it also includes a number of different public sector pension plans,” he explained.
“The university professors in Alberta, for example, AIMCo runs their money, and over the last few years, those professors have been complaining about performance and they’ve been withdrawing their funds from AIMCo and giving them to other outside managers.”
In a statement on Thursday, the province’s Finance Minister Nate Horner said the decision to fire the fund’s board came down to management fees that were too high and a consistent failure to meet benchmark returns.
The Canadian Press reported on Thursday that Horner told reporters following the announcement that he had been watching AIMCo’s performance closely for some time and determined that necessary changes to the fund weren’t going to happen without a “major reset.”
Willis said that despite the government’s suggestion that the fund has been underperforming, their recent returns, though not outstanding, have been on par with most other large Canadian pension plans.
“There wasn’t a complete outlier in performance, they weren’t ahead of anybody else… but they certainly weren’t laggers,” he said.
AIMCo had encountered some setbacks in recent years related to volatility during the pandemic, Willis noted, but he said the fund’s management, led by chief executive officer Evan Siddall, had created a “credible turnaround plan” to resolve those issues.
“Their costs have been rising, they’re staffing up, they want to do more global investing, they want to get into more alternatives – that takes people, so that’s why the headcount was rising, and that’s one of the things that’s upset the government,” he said. Ray Gilmour named interim CEO
Horner will act as AIMCo’s sole director and chair for the time being until a new chair is appointed, which the Alberta government says will happen within 30 days. The province has also appointed an interim CEO: Deputy Minister of Executive Council Ray Gilmour.
Willis said that Gilmour has “no investment management experience,” but is “clearly a trusted pair of hands” within the Alberta government.
He added that aside from who will ultimately run the fund, the biggest question AIMCo faces going forward relates to its mandate.
“Danielle Smith, the premier of Alberta has made it clear she wants to see more investment in Alberta from public money. She made the bid to get Alberta’s share of the Canada Pension Plan (CPP) managed in Alberta too,” Willis said.
Alberta is Canada’s largest oil and gas producer, and while the province has made inroads in diversifying its economy in recent years, Willis said “there’s only one big industry, and it’s fossil fuels.”
“So, if you’re overweighting towards that industry, that’s a dangerous thing for Alberta pensioners,” he said.
