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Evan Siddall, chief executive officer of Alberta Investment Management Corp.Amber Bracken/The Globe and Mail

Evan Siddall sees his first priority as head of Alberta Investment Management Corp. as transforming the culture so clients’ interests are first, and key to that is remembering the lessons from its infamous multibillion-dollar loss on early-pandemic market swings.

Mr. Siddall began as chief executive officer of the provincially owned agency known as AIMCo in July, capping a number of senior staff changes that followed the $2.1-billion loss on market volatility trading in 2020, and the investigation it sparked. Former CEO Kevin Uebelein left the position before his full tenure was up.

Aided by outside consultants, the internal probe concluded AIMCo suffered from a poor approach to risk management, which led to the losses under the volatility trading strategy (VOLTS). It set out recommendations to prevent a repeat, most directed at improving oversight and accountability.

The debacle was a symptom of a culture in which the pension-fund clients were given little input into investment decisions, Mr. Siddall said. He added that this attitude is being replaced by a new relationship in which clients’ goals are given greater consideration.

In an interview, he said the volatility strategy is now so discredited that AIMCo staff dealing with the fallout try to avoid the term, reminding him of the villain whose name is taboo in the Harry Potter books.

“It’s funny – people, when they talk about the episode, it’s almost like they whisper ‘Voldemort’ instead of saying VOLTS. It’s the thing you don’t talk about,” he said.

“I actually wanted to talk about it because that was the important inflection point for us. It was a painful lesson, but a lesson it was. And you know, as a result, the company’s farther ahead from a risk management point of view than it would be. And I think it created the segue for this … what we’ll call a new covenant with our clients.”

Alberta’s investment manager AIMCo to administer $19.3-billion teachers’ pension plan

AIMCo manages $153-billion in assets for 32 clients. They include pension funds for municipal employees, first responders, judges, university professors and others, as well as government accounts such as the $18-billion Heritage Savings Trust Fund.

When the financial world went on a roller-coaster ride in response to economic disruptions caused by COVID-19 in March, 2020, the volatility strategy – essentially a bet that markets would remain within a specified band of ups and downs – produced outsized losses, equal to a sixth of AIMCo’s 2019 investment returns.

It has since stopped the activity, but the episode called AIMCo’s investment acumen into question, and pension-plan executives openly expressed concerns about the risk inherent in their members’ retirement plans as markets whipsawed in the early weeks of the economic crisis.

Mr. Siddall said one big problem was that AIMCo is accustomed to managing pensions by fiat, and focusing primarily on the needs of clients is not “reflexive.” He said this was a message AIMCo chairman Mark Wiseman imparted when Mr. Siddall was considering the post, saying the change would require a lot of work. Mr. Wiseman, formerly of BlackRock Inc. and Canada Pension Plan Investment Board, also joined after the volatility losses.

Changes in legislation led to confusion about how much autonomy AIMCo had for its investment strategies, Mr. Siddall said. A bill passed by the NDP government in 2018 sought to remove the influence of politicians from AIMCo’s decisions. Then in 2019, Premier Jason Kenney’s newly elected UCP government forced the management of additional public-sector pensions, including those of the province’s teachers, under the AIMCo umbrella.

Last month, Mr. Siddall signalled the change in tone when AIMCo struck an agreement that ended months of lawsuits, court hearings and bitter negotiations with the Alberta Teachers’ Association. The union representing 46,000 members was staunchly against AIMCo controlling their pensions, arguing their long-time manager, the Alberta Teachers’ Retirement Fund (ATRF), had provided above-average returns for decades.

Under the deal, ATRF has final say over the $19.3-billion pension plan while AIMCo manages it. AIMCo, the teachers and their pension manager hailed the outcome. “It contains provisions designed to provide alignment between AIMCo’s management of ATRF’s assets and the best interests of our plans,” ATRF chief executive officer Rod Matheson said at the time.

Clients have noticed the shift in management style, but point out it is still early. Mr. Siddall canvassed them early on for their thoughts about their relationships with AIMCo, said Chris Brown, CEO of Local Authorities Pension Plan, whose members include public-sector employees in health, municipalities and education. He said he expressed concerns about risk management and respecting what the plans and the beneficiaries want.

“[This means] really understanding that, notwithstanding your key clients are required to use you, the business still needs to be client focused, it needs to be focused on what the clients are trying to achieve, because AIMCo exists to serve the clients, not the other way around,” Mr. Brown said.

Since the losses in the spring of 2020, AIMCo’s financial results have improved. At the end of the second quarter, it reported it had a year-to-date total fund return of 7.3 per cent, beating its benchmark by 3.5 per cent. It generated $4-billion over its benchmarks during the period.

The next big step for AIMCo will be formalizing a climate-change and “transition finance” plan, which may include a net-zero CO2 target, Mr. Siddall said. It will release targets early next year to guide the portfolio in terms of future investments, he said.

However, unlike other major funds, including the Caisse de dépôt et placement du Québec, AIMCo will not divest its oil-and-gas assets, which make up 4.5 per cent of its public-equities portfolio. To do so would be to miss out on financial gains and opportunities as energy companies invest to reduce their carbon footprints, he said.

“There will be money to be made in transition plans for our clients, and we’re going to use home-field advantage to do it, and we will benefit from the ingenuity that exists here. I’m not going to take us out of that ingenuity by divesting of hydrocarbons,” Mr. Siddall said.

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