Alberta UCP Takes Over Your Pension

The ATA and ARTA both continue to call for the reversal of this unilateral decision. Recent poor investment decisions made by AIMCo resulting in losses between 2 to 4 billion dollars have caused increased nervousness amongst teachers and retired teachers about the safety and reliability of their pensions under AIMCo management. Here are two articles from the Globe and Mail that outline the issue:

1. By: Jeffrey Jones

Jeffrey Jones is a Mergers and Acquisitions reporter for The Globe and Mail

Confidence in public institutions is crucial in a crisis. Alberta’s public-sector pension manager and Premier Jason Kenney are putting on a clinic on how to shake that confidence.

The revelation that Alberta Investment Management Corp., known as AIMCo, suffered a $4-billion loss betting against volatility in financial markets deserves far more explanation than offered by either so far, given its important public policy role.

This is not about the drop in overall asset value that has hit nearly all major investors since COVID-19 disrupted global markets in early March. To be sure, the Edmonton-based Crown corporation has been hit that way, too. The key issues are the high-risk strategy AIMCo employed on behalf of its clients and how losses piled up without anyone pushing the ejector-seat button. Checks and balances apparently failed.

As a result, you can bet it has been anything but business as usual among top executives and board members at AIMCo after a strategy it had previously employed with success suddenly blew up.

Yet Mr. Kenney, in his first public comments on the debacle on Wednesday, said essentially that things are tough all over, given the unprecedented turmoil in financial markets. AIMCo chief executive officer Kevin Uebelein has been silent. This doesn’t cut it.

AIMCo plays a critical role in the province’s economy. It is the manager of $119-billion of public-sector pension funds and big chunks of the public purse, notably the $18-billion Heritage Savings Trust Fund, the rainy-day fund built long ago from a portion of oil and gas revenues. The government does not direct its investment strategies, but as owner it certainly has overseer responsibilities. It is also sketching out AIMCo’s expansion.

AIMCo has said it has been transparent in keeping its pension-fund clients apprised of its travails as they worsened, which is true. Indeed, much of The Globe and Mail’s reporting in recent days has been based on interviews with officials associated with those organizations, and who have been taken aback by the magnitude of the losses from sophisticated derivative trading. Some of the losses are said to have been realized and some could still be recouped.

It’s an uncomfortable conversation for them to have with their plan members, who are already on edge as the economy sputters and worries about the contagion and job security linger.

But aren’t all Albertans ostensibly clients, too, as beneficiaries of the public accounts that AIMCo manages? It explained this week that it does not discuss the performance of specific investment strategies outside its regular disclosures. If AIMCo was a publicly traded company, it would have to issue a special news release to disclose any material event that could have a major impact on the corporation and its shareholders.

This is nothing if not material. It’s weirdly tempting to play down the size of the loss in the context of a $119-billion portfolio. But here’s some perspective: $4-billion could have bought all the shares in Alberta-based WestJet Airlines last year for the price Onex Corp. paid, and there would have been $500-million left over.

The transition is not due to be completed until the end of 2021, so the teachers are not affected by AIMCo’s loss. Unsurprisingly, though, it has reignited their opposition big time, as they question how much risk they may be exposed to without having a say in investment decisions.

The Premier has also used AIMCo as a political cudgel. As part of the tension with Ottawa that has shaped much of his year in power, the UCP will study pulling Alberta out of the Canada Pension Plan to have AIMCo manage the money instead. As his argument goes, Albertans could enjoy lower premiums and keep returns within the province.

Now, regardless of the current global crisis, unexplained trading losses and murky risk criteria do nothing to build confidence among citizens that entrusting AIMCo with much more of their money is a wise move.

2. By Max Fawcett

Max Fawcett is a freelance writer and a former editor of Alberta Oil magazine and Vancouver magazine.

When Alberta Premier Jason Kenney struck his “Fair Deal Panel” in November, he asked it to examine the possibility of the province withdrawing from the Canada Pension Plan and handing the assets over to the Alberta Investment Management Corp. AIMCo, as it is known, runs pensions and investments for the Alberta Heritage Trust Fund, Alberta Health Services, the Local Authorities Pension Plan (LAPP) and other public-sector clients – a total of $119-billion at the end of 2019.

“I believe that a compelling case can be made for such a shift,” Mr. Kenney said at the time. That case relies on his United Conservative Party government’s belief that, as Finance Minister Travis Toews wrote in a November op-ed, AIMCo “regularly achieves spectacular investment performance.”

But while Mr. Kenney waits for the panel to deliver its report, which remains nearly a month overdue, he may want to reflect on recent news that AIMCo lost a reported $2.1-billion on an exotic derivatives trade that blew up in its face. Talk about spectacular performance.

Indeed, even beyond that public and highly costly embarrassment, AIMCo hasn’t been as successful as Mr. Toews let on. “Canada boasts some of the world’s most sophisticated and best performing public investment funds, which essentially operate like Wall Street firms but siphon profits to ex-bus drivers and retired nurses,” wrote Leanna Orr, in Institutional Investor. “AIMCo is not among that top tier, experts and data suggest.” While the Ontario Teachers’ Pension Plan produced returns of 9.8 per cent on an annualized basis over the past decade, Ms. Orr noted, AIMCo returned just 8.2 per cent.

LAPP, which pays out benefits to the employees of hospitals, colleges, school boards and a wide variety of local governments across the province, is decidedly underwhelmed by AIMCo’s performance of late. Over the past four years, AIMCo has only beat its benchmark by an average of 0.38 per cent a year – far less than the stated expectation of 0.85 per cent.

That underperformance has gone on for much longer than just four years. According to a LAPP report that compared AIMCo’s returns with targets in the specified investment policies and procedures (SIPP) in the local authorities’ plan, “as measured by quarter ends, AIMCo has been short of LAPP’s SIPP-specified value added expectations for 46 consecutive quarters, or 11 years and 6 months.”

But that track record didn’t stop Mr. Kenney’s government from passing Bill 22 in November, which transfers the pension assets of the province’s teachers – some $18-billion – from the Alberta Teachers’ Retirement Fund (ATRF) over to AIMCo by the end of 2021. Teachers were outraged by the decision, not least because, as the Alberta Teachers’ Association noted, the ATRF had outperformed the AIMCo-managed LAPP by an annual average of 1.5 per cent over the past six years.

For its part, the UCP suggested the move was driven by a desire to achieve economies of scale that could save the teachers $20-million a year in fees and ultimately reduce their pension contributions. “While both AIMCo and the ATRF have achieved good investment returns in the past, AIMCo benefits from having more assets under management,” UCP MLA Nate Glubish wrote in a recent op-ed.

Mr. Glubish is probably right about AIMCo benefiting from having more assets under management, but that’s not really the point here. Unless AIMCo can offer up some actual proof that giving it more money will help the people who the money actually belongs to, it stands to reason that Alberta’s teachers should be allowed to keep their pension funds where they are – and where they’ve earned a higher return than they would have under AIMCo’s supervision.

Both Mr. Kenney and Mr. Toews have said they don’t intend to exercise that power, but that was before the price of oil plunged into negative territory last month. Desperate times can call for desperate measures, and if they get desperate enough in Alberta, AIMCo could receive a directive to support an industry the government has already bet heavily on.

That’s why it’s time to update the legislation that created AIMCo, and implement the kind of buffers and safeguards that protect more successful pension funds from political interference. If AIMCo is going to manage the savings of Alberta’s teachers and other groups, it should win that business on the basis of its performance, rather than having funds assigned by the government. That also applies to the Premier’s idea of pulling Alberta out of the CPP, which consistently delivers better returns with more transparency than AIMCo.

Albertans, like all Canadians, are more worried than ever about their financial futures. Now is not the time to be putting the interests of an asset manager above those of the people who created the assets in the first place.