AIMCo’s $4-billion debacle strikes a blow to public confidence

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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.

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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.

Mr. Kenney has much at stake with AIMCo. His United Conservative Party government has already passed legislation that forces the province’s teachers to shift their retirement funds to AIMCo from their own manager. The teachers’ union has staunchly opposed the move, arguing that its members have been well served by the Alberta Teachers’ Retirement Fund, which has been in charge of their pensions for 80 years.

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.

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