Max Fawcett is a freelance writer and a former editor of Alberta Oil magazine and Vancouver magazine.
When Alberta Premier Jason Kenney struck his “Fair Deal Panel” in November, he asked it to examine the possibility of the province withdrawing from the Canada Pension Plan and handing the assets over to the Alberta Investment Management Corp. AIMCo, as it is known, runs pensions and investments for the Alberta Heritage Trust Fund, Alberta Health Services, the Local Authorities Pension Plan (LAPP) and other public-sector clients – a total of $119-billion at the end of 2019.
“I believe that a compelling case can be made for such a shift,” Mr. Kenney said at the time. That case relies on his United Conservative Party government’s belief that, as Finance Minister Travis Toews wrote in a November op-ed, AIMCo “regularly achieves spectacular investment performance.”
But while Mr. Kenney waits for the panel to deliver its report, which remains nearly a month overdue, he may want to reflect on recent news that AIMCo lost a reported $2.1-billion on an exotic derivatives trade that blew up in its face. Talk about spectacular performance.
Indeed, even beyond that public and highly costly embarrassment, AIMCo hasn’t been as successful as Mr. Toews let on. “Canada boasts some of the world’s most sophisticated and best performing public investment funds, which essentially operate like Wall Street firms but siphon profits to ex-bus drivers and retired nurses," wrote Leanna Orr, in Institutional Investor. "AIMCo is not among that top tier, experts and data suggest.” While the Ontario Teachers’ Pension Plan produced returns of 9.8 per cent on an annualized basis over the past decade, Ms. Orr noted, AIMCo returned just 8.2 per cent.
LAPP, which pays out benefits to the employees of hospitals, colleges, school boards and a wide variety of local governments across the province, is decidedly underwhelmed by AIMCo’s performance of late. Over the past four years, AIMCo has only beat its benchmark by an average of 0.38 per cent a year – far less than the stated expectation of 0.85 per cent.
That underperformance has gone on for much longer than just four years. According to a LAPP report that compared AIMCo’s returns with targets in the specified investment policies and procedures (SIPP) in the local authorities’ plan, “as measured by quarter ends, AIMCo has been short of LAPP’s SIPP-specified value added expectations for 46 consecutive quarters, or 11 years and 6 months.”
But that track record didn’t stop Mr. Kenney’s government from passing Bill 22 in November, which transfers the pension assets of the province’s teachers – some $18-billion – from the Alberta Teachers’ Retirement Fund (ATRF) over to AIMCo by the end of 2021. Teachers were outraged by the decision, not least because, as the Alberta Teachers’ Association noted, the ATRF had outperformed the AIMCo-managed LAPP by an annual average of 1.5 per cent over the past six years.
For its part, the UCP suggested the move was driven by a desire to achieve economies of scale that could save the teachers $20-million a year in fees and ultimately reduce their pension contributions. “While both AIMCo and the ATRF have achieved good investment returns in the past, AIMCo benefits from having more assets under management,” UCP MLA Nate Glubish wrote in a recent op-ed.
Mr. Glubish is probably right about AIMCo benefiting from having more assets under management, but that’s not really the point here. Unless AIMCo can offer up some actual proof that giving it more money will help the people who the money actually belongs to, it stands to reason that Alberta’s teachers should be allowed to keep their pension funds where they are – and where they’ve earned a higher return than they would have under AIMCo’s supervision.
Equally worrisome for Alberta’s teachers is the fact that, unlike most public pension managers, AIMCo is vulnerable to government interference in how and where it invests. Section 19 of the AIMCo Act states that “the Treasury Board may issue directives that must be followed by the Corporation, the board, or both, in carrying out their powers and duties under this Act and the regulations.”
Both Mr. Kenney and Mr. Toews have said they don’t intend to exercise that power, but that was before the price of oil plunged into negative territory last month. Desperate times can call for desperate measures, and if they get desperate enough in Alberta, AIMCo could receive a directive to support an industry the government has already bet heavily on.
That’s why it’s time to update the legislation that created AIMCo, and implement the kind of buffers and safeguards that protect more successful pension funds from political interference. If AIMCo is going to manage the savings of Alberta’s teachers and other groups, it should win that business on the basis of its performance, rather than having funds assigned by the government. That also applies to the Premier’s idea of pulling Alberta out of the CPP, which consistently delivers better returns with more transparency than AIMCo.
Albertans, like all Canadians, are more worried than ever about their financial futures. Now is not the time to be putting the interests of an asset manager above those of the people who created the assets in the first place.
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