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.
Thursday, August 12, 2021
AIMCo’s board makes recommendation after reviewing strategy that lost $2.1 billion
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.
“So, Danielle Smith I think looks at AIMCo as a bit of a cookie jar. The mandate that I think they might go to is something like what you’ve got in Quebec with the (Caisse de dépôt et placement), where there’s a mandate to primarily invest in Alberta, and I think that would be really dangerous.”
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.
With files from The Canadian Press
Friday, March 19, 2021
AIMCo's next move: As Alberta contemplates CPP exit, investment manager focuses on rebuilding trust
As the onset of the COVID-19 pandemic sent markets crashing last March, board members of the Alberta Investment Management Corporation realized they had a problem on their hands.
A Crown corporation that manages nearly $120 billion in assets for pension, endowment and government funds, AIMCo had been pursuing a derivative strategy known as VOLTS that aimed to earn premiums from bets on volatility across multiple global equity markets.
It was one of dozens of “value-added” strategies managed internally by AIMCo’s public equities team, but when markets went haywire with a level of volatility last seen on 1987’s Black Monday, the risky strategy quickly magnified losses.
The board approved a decision to wind down the trades and lock in a $2.1-billion loss to avoid further carnage. It was an embarrassing failure of risk management for a fund that size — the loss erased about one-sixth of the investment returns generated by AIMCo for all of 2019 — and sparked questions of oversight, risk-taking and most of all trust with the more than 30 client organizations that park their money there.
“There’s no doubt that the VOLTS situation shook that relationship,” AIMCo board chair Mark Wiseman said in a recent exclusive interview with the Financial Post. “Our job is to regain the confidence of the clients in that relationship and I think it’s something we have to invest very heavily in.”
Wiseman, who was appointed to lead the board in July, after a review of the VOLTS fiasco landed, knows there is still a lot of work to be done and that the stakes are high: Alberta Premier Jason Kenney is actively considering withdrawing Albertans from the national Canada Pension Plan and to divert the savings to AIMCo, something that would boost its significance in the province.
Wiseman would not comment on the CPP decision, expected this spring, but he said AIMCo’s unique set-up requires a strong partnership with all clients, which range from the pension plans for Alberta judges, teachers, government, and university employees, to the province’s Heritage Savings Trust.
“It only works well when there’s a high degree of trust and collaboration between the client and the asset manager,” Wiseman said, in part because AIMCo works with each to determine an optimal asset mix given their obligations and risk tolerance, before investing accordingly.
Unlike other types of money management, however, most AIMCo clients can’t just take their money elsewhere if they are unhappy, a point made clear last year when Kenney’s United Conservative Party unilaterally moved a number of public sector investment plans including the Alberta Teachers Retirement Fund under AIMCo management.
“In most cases they can’t (opt out),” Wiseman said. “The rules are different (for each client), but for the most part they cannot, and that puts, in my view, a tremendous amount of responsibility on AIMCo to communicate, to be transparent, to be collaborative and to invest heavily in that relationship with our clients.”
Under Wiseman, a search is underway for a new CEO after current CEO Kevin Uebelein announced he would depart by June, before his contract expires.
In addition, a new position has been created to manage client needs and report directly to the CEO
Another step taken in the wake of the volatility losses is the formation of a four-member “enterprise” risk committee , created last month to monitor and manage risks to the organization that are not strictly financial — including reputation. Wiseman is also a member as a result of his role as chair of the Crown corporation.
“That (committee) will be charged with overseeing the governance of enterprise risk for the institution — everything from operating risk, (to) reputation risk, (to) systems risk,” he said, adding that these were monitored but not in a coordinated or consolidated way. “We’ve just put it into a single committee, so it doesn’t get lost.”
Keith Ambachtsheer, a veteran pension consultant, said that with AIMCo at such a critical juncture, someone with Wiseman’s experience was a necessity to manage a range of governance, investing and political concerns.
At 51, Wiseman has been in the senior ranks of large institutional asset managers including the Ontario Teachers’ Pension Plan Board and New York-based Blackrock Inc.
He also spent four years at the helm of the Canada Pension Plan Investment Board, the country’s largest pension management organization — and, like AIMCo, a Crown corporation that operates at arms-length from government. That experience from 2012 until 2016 will undoubtedly help AIMCo should Kenney decide to extract Albertans’ share of CPP and create a home-grown version managed by the provincial asset manager.
While Wiseman’s career has not been without controversy — he joined AIMCo six months after stepping down from his position at Blackrock, the world’s largest asset manager, after failing to disclose he was in a relationship with a colleague as required by company policy — his investment management credentials may be unmatched in Canada
“He will have strong views on what AIMCo needs to do to regain the trust of its clients,” Ambachtsheer said, adding that Wiseman would also be a good resource to help determine what attributes are needed in the Alberta asset manager’s next CEO.
Malcolm Hamilton, an actuary and former partner at pension consultant Mercer who specialized in the design and funding of public and private pension plans, said he expects AIMCo will ultimately recover from the damage done by the volatility strategy.
“One bad year or one bad mistake is never fatal for a public sector pension plan,” Hamilton said. “You acknowledge your mistake, learn from it … then you move on.”
But not everyone is happy.
A private members’ bill introduced by Alberta’s NDP finance critic in December sought to get AIMCo clients a seat at the boardroom table, and better access to the investment manager’s governance and how investment decisions are made. Defeated along party lines at the committee stage last week, the bill sought to boost the 11-member board to 15, with four representatives from AIMCo’s public sector clients. A statement posted by the NDP Caucus said another purpose of the bill was to remove the ability of the province’s finance minister to issue investment directives to AIMCo.
And that is only part of a far-more politically charged environment Wiseman finds himself in.
There is also discontent at the Alberta Federation of Labour, which has accused the UCP government of beefing up AIMCo with funds — from the pensions pushed under its umbrella to the potential standalone Alberta replacement for CPP — with the intent of pressuring the investment manager to prop up the oil-and-gas industry as global investors turn to more environmentally friendly alternatives.
Wiseman acknowledged that investment managers benefit from size and scale, but he said AIMCo already has those attributes as one of Canada’s largest institutional investment managers.
“My view for AIMCo is that very simply, Albertans — regardless of what assets are managed by AIMCo, whether that’s expanded or not — deserve a world class public asset manager for the province that can benefit from all the scale and scope benefits that are set forth in the Canadian model,” he said.
A large part of that model, established at institutional investment managers such as CPPIB and the Ontario Teachers’ Pension Plan, is independent governance, meaning decisions are free from political interference and left entirely to the board, he said.
AIMCo’s relationship with Alberta’s government, too, has been established at arms-length, and while the terms could be tweaked to reinforce independence — not just arms-length but “orangutan arms” as Wiseman put it — the investment manager has made all decisions independently since he joined the board.
That includes implementing “changes to the culture” and other recommendations called for by outside experts that assessed what went wrong with the VOLTS volatility strategy that was first undertaken in 2013 and got increasingly risky after 2018, with a “legacy” risk-management system that didn’t spot the problem until it was too late.
“I can tell you unequivocally, in my eight months as chair, there has been zero interference, attempt of interference at my level, or as far as I know at the level of management at AIMCo,” Wiseman said. “And more to the point, I believe the government of Alberta is fully aligned with the Canadian model…. That’s what they’ve asked me to help them do.”
He said the independent governance model is a big factor in the investment returns generated by Canada’s large pension funds, which remain among the top-10 in global rankings such as the 2020 Mercer CFA Institute Global Pension Index.
It is so important to him that Wiseman pledged to leave AIMCo if the government ever abandons the arms-length relationship with the asset manager.
“If it’s no longer the case, I won’t be chair of the board,” he’s said, “because, very simply, I believe in strong, independent public asset management.”
Wiseman said decisions around oil and gas and the energy transition to a lower carbon economy will likewise be made based on investment potential rather than politics, and he sees a “massive investment opportunity” in alternative energy.
“I actually think AIMCo can play, potentially, a really, really unique role because physically of where we sit… in terms of the information flow about these topics,” he said.
“Some of the best technology, some of the best innovation, some of the best thinking in the world, obviously as they relate to energy in particular, are coming out of Alberta.”
He said he believes the organizations whose money AIMCo manages, for the most part, also recognize there is a “home-field” advantage over institutional investors outside the province and the country when it comes to the energy transition.
“I think the clients are laser focused on being a fiduciary to their beneficiaries,” he said. “That decision is being made purely from an investment point of view, not a political point of view.”
