Thursday, November 21

Alberta Growth Mandate

In October 2015, the newly minted NDP government released their first budget. It was a difficult time for this rookie government as Alberta’s economy was in free-fall and Calgary’s economy was reeling. Finance Minister Joe Ceci sought something positive and the two major provincial financial agencies, reporting to the minister, were enlisted into a program to support deserving Alberta companies.

According to Minister Ceci, there were three cornerstones in his maiden budget: 1) to stabilize public services, 2) a plan to balance the budget, and 3) to act on jobs and diversification. Included under jobs and diversification was a measure to mandate AIMCo “to focus a prudent but significant portion of our province’s Heritage Fund to directly invest in Alberta’s growth. Three percent of the Heritage Fund – $540 million – will be targeted to growth-oriented companies in Alberta. ”

And thus the Alberta Growth Mandate (AGM) was born. But has this budget measure delivered? By 2020 had this measure added jobs and diversified the economy?

The NDP government and its successor, has done a reasonable job at creating a transparent system of reporting on the AGM transactions undertaken by AIMCo on behalf of the taxpayers of Alberta. Successive Heritage Fund reports show the dates of AIMCo investments and the amount and nature of the investments. The reporting however is deficient in showing the market value of these investments as well as the income earned from the investments.

The Criteria

In order for AIMCo to invest Heritage Fund moneys (and other fund moneys), the investment has to satisfy only one of the following criteria:

a. Creates jobs in Alberta
b. Builds new infrastructure in Alberta
c. Diversifies Alberta’s economy
d. Supports Alberta’s growth
e. Connects Alberta’s companies to export markets
f. Develops subject matter expertise within Alberta

Other Funds can also invest

Source: LAPP.ca

The December 2015 Memorandum of Understanding document between the Finance Minister and AIMCo stated:

“AIMCo will execute upon this allocation in two initiatives:

  1. Additional resources will be allocated to identifying and reviewing investment opportunities that would satisfy the mandate and not fit within any of AIMCo’s current investment strategies; and
  2. An increased focus will be undertaken on identifying and reviewing investment opportunities that would both (a) satisfy the mandate; and (b) benefit all of AIMCo’s existing clients through existing investment strategies. Investments that are made through either of these two initiatives will be reported against the Alberta Growth Mandate.”

By allowing other funds to “get in on the action,” the AGM could leverage on the funds managed by AIMCo for its other clients, such as the $45 billion Local Authorities Pension Plan. Thus, not only was up to $540 million in Heritage Fund assets available to be tapped but other Alberta public sector pension funds which meet the investment criteria of the AGM.

In the first Heritage Fund Annual report after the mandate was proclaimed, “AIMCo,” it was noted, “has a significant due diligence process to ensure that capital is deployed prudently.” The TransAlta Renewables and Calfrac investments were noted. The Calfrac investment was glowingly described as: “an innovative pressure pumping services provider focused on North America’s premier unconventional natural gas and light oil plays plus strategic international markets.” This is not to say that AIMCo could invest all these pension funds in AGM-like investments. Rather, given that some portion of public sector funds could be allocated to higher risk investments, then Alberta-based companies subject to AIMCo due diligence could be added to the higher risk investments of these pension plans.

By 2017-18, the the Heritage fund recorded nearly $200 million in investments, virtually all of which was in the oil and gas and real estate sectors.

By March 2019, AIMCo had invested $406 million of Heritage Fund assets in 30 companies comprising the AGM. The following pie charts show the diversification of these investments first by company and then by sector.Alberta Growth Mandate- industry

Assessment- diversification

As can be seen from the pie chart showing the distribution of investments by sector, the mandate appears to be biased towards traditional sectors of Alberta’s economy- oil and gas and real estate. Of the $406 million of investments, 67 per cent or $269 million were placed in oil and gas companies or servicing companies; 17 per cent or $70 million in real estate; 11 per cent in renewable energy ($45.9 million) and five per cent in agriculture ($21.2 million). So if diversification was a criteria, this one of six criteria obviously was not met.

List of Investments, 31 March 2019

Transaction DateCompany NameCommitments ($millions)InstrumentSector
November 23, 2015TransAlta Renewables45.9EquityRenewable Energy
December 22, 2015Calfrac Well Services6.5EquityOil & Gas
June 10, 2016Calfrac Well Services39.9Debt with WarrantsOil & Gas
August 10, 2016Pine Cliff Energy6.1Interest Bearing Notes/WarrantsOil & Gas
October 7, 2016Journey Energy6.1Interest Bearing Notes/Oil & Gas
Nov. 1, 2015 to December 31, 2017 (approval on Oct. 1, 2014)VERSUS (10th Avenue Residential24.2Direct InvestmentReal Estate
Nov. 1, 2015 to December 31, 2017 (approval on Mar. 23, 2011)Manning Town Centre6.4Direct InvestmentReal Estate
Nov. 1, 2015 to December 31, 2017 (approval on Jul. 23, 2014)Stonegate Industrial Buildings22Direct InvestmentReal Estate
Nov. 1, 2015 to December 31, 2017 approval on May 25, 2015)West Village Towers0.3Direct InvestmentReal Estate
Nov. 1, 2015 to December 31, 2017 (approval on Sept. 14, 2016)Stonegate Common Phase I Retail6.2Direct InvestmentReal Estate
November 8, 2016 to December 6, 2016Calfrac Well Services1.6EquityOil & Gas
December 13, 2016Savanna Energy45.7Debt with warrants and EquityOil & Gas
December 12, 2016 to December 30, 2016Pine Cliff Energy0.2EquityOil & Gas
December 15, 2016 to December 23, 2016Savanna Energy0.4EquityOil & Gas
January 31, 2017Razor Energy7.2Loan Facility/Common SharesOil & Gas
February 17, 2017Perpetual Energy10.1Debts and EquityOil & Gas
March 3, 2017Journey Energy2.6Warrant ExerciseOil & Gas
May 9, 2017Whitecap Resources8.7Interest Bearing NotesOil & Gas
May 12, 2017Razor Energy0.7EquityOil & Gas
May 25, 2017Ikkuma Resources8.9Debt with WarrantsOil & Gas
May 31, 2017Ember Resources9.3Preferred with WarrantsOil & Gas
June 9, 2017Kinder Morgan Canada29.1Credit FacilityOil & Gas
August 1, 2017Trident Exploration Corp12.3DebtOil & Gas
August 8, 2017Bonnefield21.2Private Equity Direct InvestmentAgriculture
September 22, 2017Western Energy Services43.8Loan Facility/Common SharesOil & Gas
November 27, 2017First Nations ETF7Interest Bearing NotesOil & Gas
December 15, 2017Enerflex4.2Interest Bearing NotesOil & Gas
December 31, 2017Five Corners Residential10.6Direct InvestmentReal Estate
January 15, 2018Razor Energy3Loan Facility/Common SharesOil & Gas
January 22, 2018Journey Energy4.1EquityOil & Gas
February 1, 2018Wolf Midstream8.3Loan Facility/Common SharesOil & Gas
07-Nov-18Ikkuma Resources3.5DebtOil & Gas
406.1
Source: Alberta Heritage Savings Trust Fund, 2019 Annual Report, at page 9.

In future posts, we will dive more closely into the investee companies and how exposed these companies are both to declines in oil prices and environmental liabilities.

2 Comments

  • Elizabeth L

    Thank you for your blog. Some of those ‘energy’ companies were alternative (solar / wind), correct? I’m alsonwondering about the support provided for expansion of local brewing and distilling companies? And the various tech companies? And cannabis? Were they not helped under AIMco?

    • Bob Ascah

      Elizabeth- from what I can tell from the Heritage Fund reports, there is one renewables energy company which is TransAlta. As far as brewing, distilling or cannabis companies are concerned unless these have been recent investments- since 31 March 2019, it doesn’t look like it. Definitely nothing on the tech side.

      My take is that AIMCo, for whatever good reasons it had back in the 2016-19 period believed that investing mainly in oil and gas was a prudent thing to do. Given what has happened over the past few years and especially since March 9th, this has proven to be a poor investment decision.
      WHether the the NDP government monitored these investments against the criteria set out in the mandate is another question.

Comments are closed.