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Alberta’s government-owned investment fund parted company this week with executives responsible for a $2.1-billion loss on trades linked to market volatility, as its board of directors completes an audit and brings in an outside leader.

Alberta Investment Management Corp., known as AIMCo, oversees $119-billion on behalf of 31 clients, including pension plans for health care workers and police officers and the Heritage Savings Trust Fund. In an e-mail to clients on Wednesday, chief executive officer Kevin Uebelein said executive vice-president of public equities Peter Pontikes “is no longer employed with AIMCo.” Separately, AIMCo said portfolio manager David Triska, who ran the volatility-based strategies, also left the Edmonton-based fund manager.

AIMCo did not tell its clients why Mr. Pontikes left after spending 19 years at the Edmonton-based fund manager and the Alberta government, and a spokesperson declined to comment on the two executives’ departures. Mr. Pontikes was AIMCo’s third-highest paid employee last year, earning $1.93-million. Sources who work with AIMCo and its clients said the two former executives were directly responsible for the fund manager’s recent losses on derivatives-based investments tied to market volatility. The Globe and Mail agreed to keep the sources’ identities confidential because they were not authorized to speak publicly on the matter.

As The Globe first reported, AIMCo’s public equities portfolio included a strategy that essentially bet against sharp swings in stock prices, an approach that made modest returns in recent years, but resulted in significant losses when the global pandemic sent markets on a roller-coaster ride in late March. In April, AIMCo decided to wind down the investments, a process that took until mid-June.

In early April, AIMCo executives told clients the fund manager did not fully understand the risks they were taking on volatility-linked investments. In a press release at the end of April, Mr. Uebelein said the performance “is not acceptable” and said: “Anytime you are counting in the billions, it is a big number worthy of attention, and I certainly would never want to experience such an outcome from a strategy.”

In mid-May, AIMCo’s board announced it hired senior partners in KPMG’s financial risk management team to provide an independent review of the fund manager’s investment and risk management processes. The board said KPMG would provide a report by mid-June. In addition, former Ontario Teachers’ Pension Plan chief risk officer Barbara Zvan volunteered to review the fund manager’s operation, and her report was also scheduled to be delivered last week. On Wednesday, an AIMCo spokesperson said the board’s final report of its review is expected to be released to clients and the Alberta government by the end of the month.

Last week, AIMCo announced former Canada Pension Plan Investment Board CEO Mark Wiseman will become the fund manager’s chair on July 1, after former Enbridge chief financial officer Richard Bird finishes a three-year term. Mr. Wiseman was terminated in December from his previous job as global head of active equities at BlackRock Inc., which oversees US$7-trillion, for violating the New York-based fund manager’s code of conduct by failing to report a relationship with a co-worker.

Public filings from AIMCo clients show the fund manager was one of Canada’s worst-performing pension plans in the first three months of 2020, and has consistently missed performance benchmarks.

The $3-billion Special Forces Pension Plan for police officers, an AIMCo client, reported in early June that its fund was down 12.2 per cent in the first quarter of this year, compared with a 6.7-per-cent decline in their benchmark. AIMCo posted a 10.2-per-cent loss on a $50-billion portfolio belonging to its largest client, a fund for health care and municipal workers called the Local Authorities Pension Plan or LAPP. The average Canadian pension plan lost 8.7 per cent of its value in the first three months of this year, according to consulting firm Mercer.

In addition to losses on volatility-linked strategies, filings from clients show AIMCo turned in poor results in the first three months of the year in stock, bonds, real estate and private equity investments. Last year, LAPP said AIMCo’s results fell short of the pension plan’s value-added expectations for 46 consecutive quarters, or 11 years and six months.

AIMCo employees are among the best-paid government workers in Alberta: Its CEO and chief investment officer made $3.4-million and $3.6-million, respectively, last year. Alberta’s governing United Conservative Party announced plans last fall to move an $18-billion retirement fund for the province’s teachers under the AIMCo umbrella next year, a move the teachers’ unions opposes. Alberta Premier Jason Kenney has also raised the idea of moving Alberta’s contributions to the Canada Pension Plan into AIMCo.

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