Alberta pension fund seeks softer borrowing rules

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Alberta's provincial funds manager is pressing the government to change its laws and allow it to borrow money for future investments, saying its current inability to do so is contributing to lower returns.

The Alberta Investment Management Corp., which oversees retirement income for more than 300,000 active and retired public sector employees in Alberta, posted an 8.2-per-cent return on its investments for the year ended March 31, 2011, the firm disclosed in an annual report released Tuesday. That's down from 12 per cent the prior year, and well behind other major guardians of public funds.

The Canada Pension Plan Investment Board's investment portfolio returned 11.9 per cent during the same period, down from 14.9 per cent in the prior year. The Ontario Teachers' Pension Plan had a 14.3-per-cent rate of return in the year ended Dec. 31, compared to 13 per cent the year before. The Ontario Municipal Employees Retirement System posted a 12.01-per-cent rate of return, up from 10.6 per cent.

AIMCo, which manages just under $70-billion in pension and rainy-day, "sustainability" funds, beat benchmark returns by a narrow $14-million in the past year.

Now, chief executive officer Leo de Bever is urging the province to change its rules governing pension investments, as part of a strategy to boost its returns. Alberta pension law currently bars borrowing money, with an exception made solely for real estate. As a result, AIMCo's sum total of borrowed funds amount to only 1 or 2 per cent – well below the roughly 50 per cent at, for example, Ontario Teachers' Pension Plan.

"So you have to factor that in" when assessing their relative returns, Mr. de Bever told reporters Tuesday.

AIMCo has already begun asking the province to relax the rules, saying that if done correctly, borrowing money can actually reduce investment risk – an argument he acknowledges has been "tricky" to make before regulators. It would make sense for AIMCo to boost its borrowed fund percentage to some 10 or 20 per cent of the total, he added.

Yet he suggested that comparisons to other pension plans are unfair, given that AIMCo was founded in 2008 and Mr. de Bever has been working to restructure the organization for the long term. It might be another 18 months or two years until he gets it to that point, he said.

"I took this job because it was the only remaining green-field opportunity to create an organization that could build retirement capital at the absolute lowest possible cost and the highest expected return," Mr. de Bever said in an interview. "I underestimated how much needed to be done to put it in that position."

He pointed to Ontario Teachers, formed in 1991, where Mr. de Bever was a senior vice-president for a decade. "It wasn't until 1999 that it really got any good at consistently delivering better-than-market returns," he said. "It took a long time to build that organization."

"It's not going to take me eight years here," he said.