Mark Wiseman on AIMCo's Next Move
As the onset of the COVID-19 pandemic sent markets crashing last March, board members of the Alberta Investment Management Corporation realized they had a problem on their hands.
A Crown corporation that manages nearly $120 billion in assets for pension, endowment and government funds, AIMCo had been pursuing a derivative strategy known as VOLTS that aimed to earn premiums from bets on volatility across multiple global equity markets.
It was one of dozens of “value-added” strategies managed internally by AIMCo’s public equities team, but when markets went haywire with a level of volatility last seen on 1987’s Black Monday, the risky strategy quickly magnified losses.
The board approved a decision to wind down the trades and lock in a $2.1-billion loss to avoid further carnage. It was an embarrassing failure of risk management for a fund that size — the loss erased about one-sixth of the investment returns generated by AIMCo for all of 2019 — and sparked questions of oversight, risk-taking and most of all trust with the more than 30 client organizations that park their money there.
“There’s no doubt that the VOLTS situation shook that relationship,” AIMCo board chair Mark Wiseman said in a recent exclusive interview with the Financial Post. “Our job is to regain the confidence of the clients in that relationship and I think it’s something we have to invest very heavily in.”
Wiseman, who was appointed to lead the board in July, after a review of the VOLTS fiasco landed, knows there is still a lot of work to be done and that the stakes are high: Alberta Premier Jason Kenney is actively considering withdrawing Albertans from the national Canada Pension Plan and to divert the savings to AIMCo, something that would boost its significance in the province.
Wiseman would not comment on the CPP decision, expected this spring, but he said AIMCo’s unique set-up requires a strong partnership with all clients, which range from the pension plans for Alberta judges, teachers, government, and university employees, to the province’s Heritage Savings Trust.
“It only works well when there’s a high degree of trust and collaboration between the client and the asset manager,” Wiseman said, in part because AIMCo works with each to determine an optimal asset mix given their obligations and risk tolerance, before investing accordingly.
Unlike other types of money management, however, most AIMCo clients can’t just take their money elsewhere if they are unhappy, a point made clear last year when Kenney’s United Conservative Party unilaterally moved a number of public sector investment plans including the Alberta Teachers Retirement Fund under AIMCo management.
“In most cases they can’t (opt out),” Wiseman said. “The rules are different (for each client), but for the most part they cannot, and that puts, in my view, a tremendous amount of responsibility on AIMCo to communicate, to be transparent, to be collaborative and to invest heavily in that relationship with our clients.”
Under Wiseman, a search is underway for a new CEO after current CEO Kevin Uebelein announced he would depart by June, before his contract expires.
In addition, a new position has been created to manage client needs and report directly to the CEO.
Another step taken in the wake of the volatility losses is the formation of a four-member “enterprise” risk committee, created last month to monitor and manage risks to the organization that are not strictly financial — including reputation. Wiseman is also a member as a result of his role as chair of the Crown corporation.
“That (committee) will be charged with overseeing the governance of enterprise risk for the institution — everything from operating risk, (to) reputation risk, (to) systems risk,” he said, adding that these were monitored but not in a coordinated or consolidated way. “We’ve just put it into a single committee, so it doesn’t get lost.”
Keith Ambachtsheer, a veteran pension consultant, said that with AIMCo at such a critical juncture, someone with Wiseman’s experience was a necessity to manage a range of governance, investing and political concerns.
At 51, Wiseman has been in the senior ranks of large institutional asset managers including the Ontario Teachers’ Pension Plan Board and New York-based Blackrock Inc.
He also spent four years at the helm of the Canada Pension Plan Investment Board, the country’s largest pension management organization — and, like AIMCo, a Crown corporation that operates at arms-length from government. That experience from 2012 until 2016 will undoubtedly help AIMCo should Kenney decide to extract Albertans’ share of CPP and create a home-grown version managed by the provincial asset manager.
While Wiseman’s career has not been without controversy — he joined AIMCo six months after stepping down from his position at Blackrock, the world’s largest asset manager, after failing to disclose he was in a relationship with a colleague as required by company policy — his investment management credentials may be unmatched in Canada.
“He will have strong views on what AIMCo needs to do to regain the trust of its clients,” Ambachtsheer said, adding that Wiseman would also be a good resource to help determine what attributes are needed in the Alberta asset manager’s next CEO.
Malcolm Hamilton, an actuary and former partner at pension consultant Mercer who specialized in the design and funding of public and private pension plans, said he expects AIMCo will ultimately recover from the damage done by the volatility strategy.
“One bad year or one bad mistake is never fatal for a public sector pension plan,” Hamilton said. “You acknowledge your mistake, learn from it … then you move on.”
But not everyone is happy.
A private members’ bill introduced by Alberta’s NDP finance critic in December sought to get AIMCo clients a seat at the boardroom table, and better access to the investment manager’s governance and how investment decisions are made.
Defeated along party lines at the committee stage last week, the bill sought to boost the 11-member board to 15, with four representatives from AIMCo’s public sector clients. A statement posted by the NDP Caucus said another purpose of the bill was to remove the ability of the province’s finance minister to issue investment directives to AIMCo.
And that is only part of a far-more politically charged environment Wiseman finds himself in.
There is also discontent at the Alberta Federation of Labour, which has accused the UCP government of beefing up AIMCo with funds — from the pensions pushed under its umbrella to the potential standalone Alberta replacement for CPP — with the intent of pressuring the investment manager to prop up the oil-and-gas industry as global investors turn to more environmentally friendly alternatives.
Wiseman acknowledged that investment managers benefit from size and scale, but he said AIMCo already has those attributes as one of Canada’s largest institutional investment managers.
“My view for AIMCo is that very simply, Albertans — regardless of what assets are managed by AIMCo, whether that’s expanded or not — deserve a world class public asset manager for the province that can benefit from all the scale and scope benefits that are set forth in the Canadian model,” he said.
A large part of that model, established at institutional investment managers such as CPPIB and the Ontario Teachers’ Pension Plan, is independent governance, meaning decisions are free from political interference and left entirely to the board, he said.
AIMCo’s relationship with Alberta’s government, too, has been established at arms-length, and while the terms could be tweaked to reinforce independence — not just arms-length but “orangutan arms” as Wiseman put it — the investment manager has made all decisions independently since he joined the board.
That includes implementing “changes to the culture” and other recommendations called for by outside experts that assessed what went wrong with the VOLTS volatility strategy that was first undertaken in 2013 and got increasingly risky after 2018, with a “legacy” risk-management system that didn’t spot the problem until it was too late.
“I can tell you unequivocally, in my eight months as chair, there has been zero interference, attempt of interference at my level, or as far as I know at the level of management at AIMCo,” Wiseman said. “And more to the point, I believe the government of Alberta is fully aligned with the Canadian model…. That’s what they’ve asked me to help them do.”
He said the independent governance model is a big factor in the investment returns generated by Canada’s large pension funds, which remain among the top-10 in global rankings such as the 2020 Mercer CFA Institute Global Pension Index.
It is so important to him that Wiseman pledged to leave AIMCo if the government ever abandons the arms-length relationship with the asset manager.
“If it’s no longer the case, I won’t be chair of the board,” he’s said, “because, very simply, I believe in strong, independent public asset management.”
Wiseman said decisions around oil and gas and the energy transition to a lower carbon economy will likewise be made based on investment potential rather than politics, and he sees a “massive investment opportunity” in alternative energy.
“I actually think AIMCo can play, potentially, a really, really unique role because physically of where we sit… in terms of the information flow about these topics,” he said.
“Some of the best technology, some of the best innovation, some of the best thinking in the world, obviously as they relate to energy in particular, are coming out of Alberta.”
He said he believes the organizations whose money AIMCo manages, for the most part, also recognize there is a “home-field” advantage over institutional investors outside the province and the country when it comes to the energy transition.
“I think the clients are laser focused on being a fiduciary to their beneficiaries,” he said. “That decision is being made purely from an investment point of view, not a political point of view.”
Great interview with Mark Wiseman, AIMCo's Chair, on the organization's next move.
Let me begin by stating I agree with pretty much everything Mark states in this article.
One little caveat, however, on this whole VOLTS fiasco.
A year after markets plunged and volatility spiked, markets have mended significantly and the Wall Street VIX 'fear gauge' has slipped to fresh pandemic lows:
The Cboe Volatility Index, known as Wall Street's "fear gauge," slipped to a fresh COVID-19 pandemic low on Tuesday, as U.S. stocks soared to new highs on expectations that fiscal stimulus and signs of progress in a countrywide vaccination drive will spur a broader economic rebound.
The VIX was recently down 0.54 points at 19.49, its lowest since Feb. 21, 2020, days before the World Health Organization declared the coronavirus outbreak a global pandemic.
A pandemic-fueled tumble that shaved about a third of the value off the S&P 500 last March pushed the VIX index to a near-record high of 85.47, a level it only topped during the global financial crisis.
The index has retreated since then, as the S&P 500 rallied 80% from its March lows to hit a fresh high on Tuesday, led by technology stocks.
Investor appear to have become more optimistic over the pandemic’s trajectory in recent weeks, as a vaccine rollout in the U.S. expands. The United States has administered 110,737,856 doses of COVID-19 vaccines and distributed 142,918,525 doses in the country as of Tuesday morning, according to the U.S. Centers for Disease Control and Prevention.
Fund managers in a monthly survey from BofA Global for the first time in a year did not name COVID-19 as the market’s top “tail risk,” citing inflation instead.
Still, the VIX remains above the 15.4 average seen for 2019.
And volatility futures expiring further out in time still remain relatively elevated, a sign that some investors continue to maintain a cautious stance.
"The coronavirus volatility spike is still lingering in investor’s memories," Susquehanna International Group’s Chris Murphy said in a note. "Although near term volatility has decreased, the scars from Covid likely leave investors hesitant to bring down medium and longer term volatility. We saw something very similar after the great financial crisis," Murphy said.
That article was last week, on Monday long bond yields dropped and the VIX declined below 20 after a volatile week last week:
Looking at the above, it makes you wonder what if AIMCo didn't pull the plug on VOLTS when it did? What if they held on a little longer to allow fiscal and monetary policy to work its magic?
Well, if they weren't outed by their clients and held out longer, then they would have looked like heroes, Peter Pontikes and David Triska would still be there, Kevin Uebelein wouldn't have had to resign, and Dale MacMaster and his public markets team would have remained intact.
Of course, hindsight is 20/20 but my point is you really need to take the long view in both private and public markets and trust the judgment of your senior investment staff managing your assets.
I'm not saying they were wrong in closing VOLTS and wrapping it up because there were obvious risk management issues that were never appropriately addressed, but you see how luck plays an important part in managing assets.
If you get the timing wrong or if something blows up right before you report, you're basically screwed as every Monday morning quarterback will crawl under their rock to criticize you for your lack of fiduciary duty (isn't it also a lack of fiduciary duty when you miss big gains? How much money would VOLTS had made if they didn't shut it down? We will never find out).
Anyway, enough about VOLTS, it's over, it's done with, let me move to Mark Wiseman's comments above.
Keith Ambachtsheer, a veteran pension consultant, said that with AIMCo at such a critical juncture, someone with Wiseman’s experience was a necessity to manage a range of governance, investing and political concerns.
I agree, Mark has seen it all, he formerly led the country's largest pension fund and then moved on to BlackRock where he served as Global Head of Active Equities and helped them set up their long term private capital group (LTPC).
He left BlackRock under difficult circumstances but assumed full responsibility for failing to disclose a 'consensual relationship' and has turned the page.
Last June, Mark was appointed the Chair of AIMCo in a move largely seen by most industry observers as a move to bolster confidence in Alberta's largest and most important pension fund.
Perhaps the biggest step taken in the wake of the volatility losses is the formation of a four-member “enterprise” risk committee, created last month to monitor and manage risks to the organization that are not strictly financial — including reputation. Mark Wiseman is also a member as a result of his role as chair of the Crown corporation.
“That (committee) will be charged with overseeing the governance of enterprise risk for the institution — everything from operating risk, (to) reputation risk, (to) systems risk,” he said, adding that these were monitored but not in a coordinated or consolidated way. “We’ve just put it into a single committee, so it doesn’t get lost.”
I not only agree with the creation/ purpose of this committee, I think it's a critical part of AIMCo now and I would encourage every major Canadian pension to create a similar committee if they have not already done so.
Large Canadian pensions are basically large conglomerates with many business lines, you need a committee to help oversee all risks, not just investment risks, but also reputation, operational and systems risks.
Now, I also agree with Malcolm Hamilton, an actuary and former partner at pension consultant Mercer who said he expects AIMCo will ultimately recover from the damage done by the volatility strategy.
“One bad year or one bad mistake is never fatal for a public sector pension plan,” Hamilton said. “You acknowledge your mistake, learn from it … then you move on.”
AIMCo has already moved on, but it seems like some of its clients haven't and this includes its new clients, Alberta's teachers.
The CBC recently reported that Alberta Teachers' Association and an Edmonton school principal have filed a lawsuit against the provincial government about an order they say wrests more control of pension funds away from teachers:
The association, and Greg Meeker, who was president of the Alberta Teachers' Retirement Fund (ATRF) for 10 years, claim a December ministerial order conflicts with the law. They say it also contradicts public statements by Finance Minister Travis Toews, who said current and retired teachers would retain control of how their pension fund is invested.
"[Teachers and the government] should both be interested in the best, cost-effective investment return possible," Meeker said on Friday. "But that does not seem to be the case. And it seems to be that one of those two parties is making some arbitrary decisions about how that's going to roll out for the next 40 or 50 years."
At issue is control of the $19.3-billion teachers retirement fund, which has nearly 84,000 members.
In 2019, thousands of teachers were outraged when the United Conservative Party government passed a bill requiring the ATRF to use the Crown corporation Alberta Investment Management Corporation (AIMCo) to manage investment of the fund.
The government, which pays about half of teachers' pension contributions, said the move would save investment management fees. Toews has said that ATRF would retain ownership of the fund and keep its ability to decide the strategy of how the billions of dollars should be invested.
The $19 billion is gradually being transferred to AIMCo's control, and that transfer is supposed to be complete by the end of 2021. But to complete that transfer, the teachers' pension fund board and AIMCo have to reach an investment management agreement.
When those talks stalled last fall, the government passed a ministerial order, which took effect in January. It allows AIMCo to veto the teachers' fund investment directions in some cases, and says AIMCo will be the arbiter of any disputes between the parties.
In January, a government spokesperson said the order was intended to be temporary until AIMCo and the ATRF could reach an agreement. They said none of the changes affect the benefits paid to retired teachers.
The ATA and Meeker allege it contradicts the Teachers Pension Plan Act and public statements by Toews.
AIMCo's decisions have been under additional scrutiny since a risky investment strategy cost its clients $2.1 billion last year. The shakeup prompted an external review and turnover of senior leaders.
Meeker said if AIMCo underperforms while investing public-sector pensions, younger teachers and the government will face rising contributions to prop up the plan.
"If we get solely betrothed with an investment manager that doesn't perform as advertised, that could be a real problem for costs," he said.
Toews's press secretary, Charlotte Taillon, said Friday the government cannot comment on the legal action.
"We are confident that ATRF and AIMCo will be able to come to an agreement," she said in an email. "Once the parties agree to a final investment management agreement the Ministerial Order will no longer be in effect."
I completely disagree with Greg Meeker and the Alberta Teachers' Association on this issue, I honestly think they don't have a clue of how lucky they are AIMCo is now managing their assets and the sooner they move on from this, the better off they will be (ATRF will be amalgamated into AIMCo, it's a done deal).
Greg Meeker is stirring up a hornet's nest. For what? I don't know.
All I know is Mark Wiseman is the Chair of AIMCo and they are moving on, with or without the blessings of Meeker and other critics (preferably with but they need to focus on their mandate).
Importantly, AIMCo has top-notch governance (see here and here), scale and is diversified across public and private markets internationally and has important advantages over ATRF because of its size and clout.
And if it's one thing Mark Wiseman holds dear, it's the governance at the center of the Canada pension model. He rightly thinks others can learn a lot from this model.
What else? I'm on record stating that Alberta shouldn't opt out of the Canada Pension Plan, it's a totally bonehead move that will cost the province significantly over the long run.
These are my opinions, not Mark Wiseman's, so please do not ascribe my views to him.
Lastly, the search for AIMCo's next CEO continues.
As I've stated, there's no doubt André Bourbonnais, PSP's former CEO and close friend of Mark Wiseman's made the short list.
Now we can also add Mark Machin to the list after his abrupt departure from CPP Investments although I doubt Mark (Machin) will warm up to Edmonton and I have a feeling he is being solicited by every major executive recruiting firm on the planet right now (Mark is the best, guys like that are highly recruited continuously).
And that leaves my top pick to run AIMCo, Mark Wiseman himself.
He's been the Chair of the Board for eight months, knows the organization very well, and he can easily take over at the top spot and run it over the next five or ten years.
I honestly can't think of a better person to succeed Kevin Uebelein who I think did a great job leading this organization since he took over (never mind VOLTS, like I said, if they held on longer, it would have been a different story).
Below, Mark Wiseman, chair of AIMCo talks about "an emerging retirement income
crisis" thanks to record low interest rates and decreased economic
activity as a result of the pandemic. He talks about what can be done to
ensure the strength and success of the Canadian pension model in this
environment and how we can grow the economy. Click here to view it if it doesn't load below.
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