Skip to main content

The chief executive of Alberta’s flagship fund manager has failed to calm fears among pension clients over what they say is inappropriate risk-taking that resulted in a multibillion-dollar loss on market swings.

The Alberta Investment Management Corp., known as AIMCo, held an online meeting on Thursday to update its clients on the recent performance problems, including what it said was an unanticipated $2.1-billion loss on derivatives – financial contracts that pay off only if stock markets remain stable – due to the impact of COVID-19 on the economy. AIMCo clients include pension plans for 375,000 nurses, 4,000 police officers and other civil servants in the province.

Clients who attended the virtual meeting with AIMCo CEO Kevin Uebelein and chief investment officer Dale MacMaster said the executives avoided questions on three key issues: Who is accountable for the strategy, what role the risk management team played in monitoring it, and what steps, if any, AIMCo has taken to ensure employees will not try to make up for the loss through additional risky investments? The Globe and Mail has agreed to not to name the sources because their employers do not allow them to speak publicly.

An executive of one client said the group expected to be told the individuals responsible for the loss were suspended or fired. Another client said the costly investment strategy appears to be a symptom of deeper cultural problems within the organization related to risk management, and was disappointed that was not discussed during the meeting.

Instead, Mr. Uebelein said the AIMCo board of directors is reviewing these issues and no decisions had been made. In an open letter posted on AIMCo’s website after the client meeting, Mr. Uebelein said board members are “using both the strength of AIMCo’s internal audit capabilities, as well as outside, third-party experts.”

AIMCo told its clients the fund manager completed an audit of more than two dozen other investment strategies run internally and by outside fund managers, and found no other positions lost more than expected.

AIMCo spokesman Denes Nemeth said the meeting was held to discuss market conditions and their impact on various investments, and the executives also provided the information about the volatility strategy included in Mr. Uebelein’s letter before it was posted online.

Edmonton-based AIMCo is a Crown corporation that manages $119-billion in client assets. Besides public-sector pension funds, it manages government accounts such as the $18-billion Heritage Savings Trust Fund, the rainy-day fund built in the 1970s from a portion of oil and gas revenues.

Starting in March, AIMCo suffered far larger losses than comparable funds because of the derivatives strategy. Under the strategy, major U.S. financial houses agreed to pay AIMCo a fee for, essentially, insurance against unusual volatility. If markets remained stable, then it earned steady returns.

It suffered the heavy losses when the economic collapse wrought by COVID-19 sent the S&P 500 and other stock benchmarks on a roller-coaster ride, putting it on the losing end of the trades. The strategy raised questions about the level of risk AIMCo had taken on as a steward of pensions and public funds.

“I certainly would never want to experience such an outcome from a strategy,” Mr. Uebelein said in his letter.

He said the market moves were unprecedented and AIMCo was unable to offset the losses with gains that would usually follow when markets calmed down.

However, the fund manager’s clients pointed out that major moves in the market happen every few years – the global financial crisis and Sept. 11 terrorist attacks triggered short-term swings in stock prices – and are concerned that AIMCo’s risk management fell short of expectations in recent months.

Last year, Premier Jason Kenney’s government passed legislation that will put the pensions of Alberta teachers under the AIMCo umbrella by the end of 2021. Also as part of the legislation, AIMCo became the exclusive investment manager for the retirement plan of Alberta’s police associations, the Special Forces Pension Plan (SFPP).

Officials with the SFPP declined to comment Friday on Mr. Uebelein’s response to the investment losses. But Curtis Hoople, president of the Alberta Federation of Police Associations, representing collective bargaining units of municipal police forces, said the situation has only added to members’ concerns about their pension investments being forced under AIMCo’s management. The government has not responded to letters he has sent about those concerns and whether there may be other options, he said.

“We still have confidence in the SFPP, and we hope they are getting to the bottom of what this looks like between AIMCo and our pensions,” he said.

Mr. Kenney has also proposed pulling Albertans’ public pensions out of the Canada Pension Plan and having AIMCo manage them, although no decision has been made.​

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.