United Conservative Party Leader Danielle Smith addresses party members at their annual meeting in Red Deer, Alta., on Nov. 2.Jeff McIntosh/The Canadian Press
A generation back, Alberta’s own Joni Mitchell had words of wisdom for the folks running pension plans in the Prairie province.
“Don’t it always seem to go/That you don’t know what you’ve got/Till it’s gone,” the native of Fort Macleod sang in her 1970 hit Big Yellow Taxi. For pension-plan clients who have spent years complaining about costs and performance at the now-leaderless Alberta Investment Management Corp., or AIMCo, the line is haunting.
AIMCo customers, many of whom are forced to commit retirement savings to the $169-billion asset manager, lobbied politicians for changes in leadership. Several pension plans sued over COVID-19-era losses. The university professors’ retirement fund pulled most of its money. Alberta’s teachers went to court in an unsuccessful bid to keep their pensions out of AIMCo’s hands.
Alberta’s government paid attention to the bellyaching.
Earlier this month, provincial Finance Minister Nate Horner swept aside the long-established tradition of independence at public-sector fund managers. He pulled four senior AIMCo executives – including chief executive officer Evan Siddall – out of an offsite meeting at the Westin Edmonton hotel and sacked them. The move came across as intentionally humiliating. Mr. Horner also dismissed the entire board.
Mr. Horner said he was forced to act because costs soared at AIMCo, while performance lagged. The asset manager’s financial reports say otherwise. AIMCo salaries and other overhead are in line with those at peers. In recent years, its portfolios exceeded benchmarks.
Alberta’s purge at AIMCo followed a clash of visions, complaints about leadership
Setting aside the government’s weak case for change, it is clear politicians are now calling the shots at AIMCo. Mr. Horner is the asset manager’s chair, and will hand-pick a new board. Premier Danielle Smith can push an Alberta-first agenda on a money manager previously committed to generating the best-possible risk-adjusted returns.
Most AIMCo clients have no choice but to live with the results. Provincial legislation prevents them from withdrawing their money. The few funds that can withdraw money – including the Universities Academic Pension Plan, or UAPP – will continue to do so if the turmoil persists.
The UAPP invested roughly 80 per cent of its assets with AIMCo prior to 2020. After the asset manager took a $2-billion loss that year on a poorly executed derivatives-based strategy, UAPP cut its holdings to 34 per cent of a $6.6-billion fund. Allowing some clients the freedom to pull their savings, while others are essentially AIMCo captives, is another factor contributing to the lack of customer support for the asset manager.
How will chaos at AIMCo play out in the lives of Albertans? Consider the good fortune of nurses and librarians who are members of the fund manager’s largest client, the Local Authorities Pension Plan, or LAPP.
LAPP is a $63-billion fund run for more than 304,000 public-sector employees. In five of the past seven years, AIMCo’s strong performance allowed LAPP to cut pension contributions from its members, increasing their take-home pay. AIMCo effectively gave raises to LAPP’s members, at a time when inflation was taking a bite out of their paycheques.
The day after Mr. Horner marched AIMCo executives out the door, LAPP put out a press release to say that “your pension remains safe and secure.” LAPP executives declined further comment.
Opinion: Alberta owes its public pensioners real answers for sacking AIMCo board and CEO
At best, the pension plan’s “safe and secure” line is wishful thinking, as no one knows where AIMCo’s investment performance is headed.
At worst, LAPP has contributed to regime change that undermines future performance and makes it far harder to cut costs for members. LAPP is one of the pension plans suing AIMCo for $1.3-billion over losses sustained in 2020 on a derivatives strategy known as VOLTS.
AIMCo is a creation of previous conservative governments, founded in 2008 to give relatively small pension plans such as LAPP and endowments such as the $23-billion Heritage Fund the scale and professionalism needed to generate superior performance. The theory is sound – just ask any retired Ontario teacher about their gold-plated pension.
Edmonton-based AIMCo struggles to attract the best and brightest investment professionals. Yes, the city has the Oilers. However, if offered the choice between running a bond fund in Alberta’s capital or Miami, guess what most portfolio managers will pick. The current round of instability can only add to AIMCo’s recruiting challenges.
The country’s largest public-sector asset managers – AIMCo and the rest of the Maple Eight – are seen internationally as an example of how to do retirement right. What’s now playing out at AIMCo is an example of how to do governance wrong.
Client complaints helped trigger a purge in AIMCo leadership. Pension plans such as LAPP need to take another listen to Joni Mitchell, and realize what they’ve got in an independent global asset manager, before it’s gone.