On 31 March I made the following presentation to the Southern Alberta Council on Public Affairs about my Parkland paper Can AIMCo be Fixed? You can view the presentation on Youtube here. The discussion after the presentation was stimulating and wide ranging and highlighted concerns about government politicians interfering with public sector pensions. The Medicine Hat News had a story about the presentation on 13 April 2022.
Below are my speaking notes and below that is a PDF of revised slide deck. (One of the numbers in Figure 2 had to be restated.)
“Good afternoon everyone! I am speaking to you from Treaty 6 territory, a traditional gathering place for diverse Indigenous peoples including the Cree, Blackfoot, Métis, Nakota Sioux, and many others whose histories, languages, and cultures continue to influence our vibrant northern Alberta community.
I would like to thank Bev Muendal for inviting me to speak to the Council. The Council performs an important role in educating membership on important public policy issues, issues that are often highly complex. Issues requiring full public debate among an informed public. This presentation could be termed the “presentation on AIMCo I never gave.” That’s because this comes from a media availability session that was scheduled but no media showed to ask questions about the research paper.
Slide 2-
Here are the key findings and recommendations from the report:
- AIMCo is one of the most significant provincial agencies in Alberta- its importance is central to the financial security of nearly 500,000 people
- AIMCo’s investment performance has, since its inception, been mediocre and recent poor returns contributes to the erosion of the trust.
- The ownership structure of AIMCo must be changed- AIMCo’s sole owner today is the Government of Alberta even though about two-thirds of its funds are pension fund assets.
- AIMCo’s current board is all- white- this lack of diversity is a problem-
- Independence from government influence over investment decisions is critical to trust.
- AIMCo is now the sole statutory provider to nearly all public sector pension plans – this monopoly status is not conducive for trust or responsiveness when one party has no choice in changing investment managers.
Slide 3 Alberta Public Sector Pension Plans- significance
The five main pension funds which are now being managed by AIMCo totalled almost $100 billion at the end of 2020. There are over 460,000 active and inactive members and retirees in these 5 plans.
Slide 4 Trust central to pension bargain
Pages 9-20 of the report describe the recent evolution of AIMCo with emphasis placed on certain actions by the government and AIMCo resulting in an erosion of trust.
The UCP government’s first budget- swept teachers, WCB, and AHS investments- over $30-billion- under the management of AIMCo. There was no consultation with the ATRF and ATA
The public sector pensions plans’ ability to move their investments to another manager- measures just put in place by the NDP in 2018-– was removed
The manner in which new investment management agreements (IMAs) were imposed through ministerial order sent the wrong signals to boards and members. The ministerial order was signed just before Christmas but not communicated to affected boards until January 4th. This agreement limited severely the pension plan boards’ ability to make investment policy and strategy changes.
The IMA issue caused the ATA to sue the provincial government and AIMCo. This case was resolved out of court this past fall but the IMA has not been made public. I understand the offending sections of the IMA were taken out as part of the deal withdrawing the lawsuit
In March 2020 with extreme volatility on global equity markets-due to COVID a complex volatility trading strategy called VOLTS led to large losses that ultimately closed out at about $2.1-billion. This development – after the other actions- created more distrust of AIMCo and the government.
Another source of mistrust between government and pension plans is Finance Minister Toews’ reference to “public money” of AIMCo. Let me be clear, public sector pension plans’ investments are not public money- they are investments held in trust to pay pensions. – they are not public money once employer contributions are made.
The next three slides compare investment management performance of AIMCo, its major clients’, ATRF and four major provincial pension fund managers.
Comparison of results is fraught with complications and the qualifications on the findings are found in Appendix B-.
The data points reflected in the following charts are the difference between the overall benchmark set by the plan’s boards or AIMCo and the actual results. The difference is what is referred to as the value added by the pension manager or in industry parlance “adding alpha”. Each chart compares performance against benchmarks and where available multiple year performances.
Slide 5- AIMCO, LAPP, PSPP, SFPP, AHSTF
Figure 2 in the Report looks at value added by AIMCo managers for four public sector plans- Local Authorities, Public Service, Management Employees and Special Forces as well as the Heritage Fund.
Performance generally has been met- that is benchmarks have been exceeded – a number greater than zero means value has been added by the manager- But the last few years performance has been poor – mainly due to the VOLTS strategy (Volatile Trading Strategy).
Slide 6 AIMCo vs. ATRF
Figure 3 shows that for longer-term returns, the ATRF recent 10-year period returned a respectable 70 basis points above the benchmark. ATRF’s 4-year performance is over one percentage point higher than AIMCo’s.
Slide 7 AIMCo versus its peers
Figure 4- This compares AIMCo’s performance against its peers- B.C. Investment Management Corporation, Caisse de depot, Ontario Teachers and Ontario Municipal Employees Retirement System (OMERS).
As the figure shows- AIMCo performance has been ok- not the worst (OMERS is) but not the best and its performance has been poor over the last several years.
Poor investment performance is something I believe the new AIMCo CEO is focussed on improving.
The last set of slides describes the recommendations found on pages 27 through 34 of the Report
Slide 8
The ownership of AIMCo needs to be changed. This slide shows the relative magnitude of funds managed for government accounts and non government accounts at the end of 2020. The largest fund would be Local Authorities $54-billion. The next major AIMCo clients are Alberta Teachers and the government’s Heritage Fund. This should give government input into the direction of AIMCo but not control
Slide 9 Joint ownership- recommendation
The first Policy Recommendation is to eliminate the Crown’s sole ownership of AIMCo. Ownership positions would be subject to negotiations between the major clients of AIMCo and the Government of Alberta,
The proportion of board seats would be based on the amount of funds managed by AIMCo. Revised legislation could address board representation eliminating the need for the provincial Cabinet to appoint all directors. The appointment of board members would be the sole responsibility of the pension plans’ corporate boards and the government. This makes sense because the provincial government is no longer trustee or administrator of the plans
Slide 10 The current constitution of AIMCo’s board- all white members- does not reflect the demographics of the population they are ultimately serving.
At the present time there is a very high bar to qualify to serve on AIMCo’s board- Individuals must “have proven and demonstrable experience and expertise in investment management, finance, accounting or law or experience as an executive or a director in a senior publicly traded issuer.” You need to be part of the corporate club.
This is not to say each current director is not qualified- however a lack of diversity on boards means that issues tend to be discussed only in financial or technical terms. But there is more at stake in pensions than numbers.
Skill should be defined more broadly to include a range of professional backgrounds, such as HR management, Indigenous relations, environmental sciences, IT, and medical science.
Non-Canadian directors should broadly reflect AIMCo’s investments in other geographic markets notably Asia
Slide 11- Independence from government
The 2018 reforms under the NDP -creating a new joint governance model- was partly based on “taking politics out of pensions.” The UCP government did not tamper with joint governance- except for a change in representation on one board –
However, Bill 22 meant AIMCo was suddenly thrust into the political spotlight although AIMCo was entirely absent in the UCP’s election platform. This raises the question- “what did the government see in making AIMCo a political issue?”
To reduce government influence a new ownership structure as recommended makes the government a minority participant.
Slide 12 Lastly AIMCo’s monopoly status should be revoked. My recommendation is to give plan participants the option to give two-years notice of departing after AIMCo has managed its funds for eight years. If, after eight years, a pension board and co-owner of AIMCo concludes AIMCo’s performance is inadequate, the pension plan would give notice and transfer all or some of its funds to a new manager.
One final comment. A new CEO Evan Siddall has arrived at AIMCo with the task of improving client relations and investment returns. The agreement on the IMA with Alberta teachers suggests more responsiveness and there are signs that investment performance may be improving. However, the proof is not in words but in concrete actions. It’s hoped this report will stimulate discussion on this important public policy issue.
Q+A period
Highlights from a lengthy question and answer period included questions about the viability of an Alberta Pension Plan managedby AIMCo; government interference in the management of AIMCo; and how various political parties might respond to these recommendations.
Can-AIMCo-be-Fixed-SACPAcorrected