AIMCo Gains 10.6% in 2019

The Alberta Investment Management Corporation (AIMCo) released its results for 2019, gaining 10.6% last year:
Alberta Investment Management Corporation (AIMCo) announced today its financial results for the year ended December 31, 2019. On behalf of its 30 Alberta-based pension, endowment and government fund clients, AIMCo earned a total fund return of 10.6% net of all fees, representing approximately $11.5 billion in net investment income, with assets under management reaching $118.8 billion. The annualized total fund returns over four and ten years were 7.0% and 8.2%, respectively.

“As institutional investors we understand that even well-diversified portfolios are bound to deliver more favourable returns in some years compared to others,” said Kevin Uebelein, Chief Executive Officer. “While over the long-term, we are proud that AIMCo has earned its clients strong value-added investment performance across all asset classes — beating the benchmark in ten of the past twelve years at the total fund level — we acknowledge that in the short-term we have not met our clients’ expectations.”

“Despite all asset classes earning strong absolute returns, some did not outperform their respective market benchmarks in 2019,” added Chief Investment Officer Dale MacMaster. “Illiquid assets, for instance, which have consistently posted strong returns over the past few years, experienced more modest performance last year. On the public equities side, for active managers like AIMCo, it was a challenging year — the market was very narrow, with fewer stocks and fewer sectors exceeding their benchmarks. Remaining patient while being willing to innovate will ultimately serve our clients well, especially in this current investment climate.”

For the one-year period ending December 31, 2019, AIMCo’s total fund return is 0.5% below that of its benchmark. On a four- and ten-year basis, AIMCo continues to demonstrate strong value add, outperforming its benchmark by 0.5% and 0.8% for each period respectively.

While 2019 held its own challenges, 2020 is unparalleled with the global economic impact of COVID-19 and an oil price war causing virtually all asset values to be significantly repriced and investment markets to enter a period of sudden and unprecedented volatility. In extreme markets such as this one, where so many asset classes decline together, the typical benefits of portfolio diversification will be diminished in the short-term.

“Our team is responding decisively in an effort to protect our clients’ liquidity and assets in the near- and medium-term, while still identifying longer-term investment opportunities that will come out of these challenging market circumstances.” said Uebelein. “We know the impacts to their portfolios during these times of market uncertainty will be significant, and we are committed to accountability and full transparency to our clients as we navigate these conditions together.”

Detailed performance information will be available in AIMCo’s Annual Report to be released in June 2020


AIMCo is one of Canada’s largest and most diversified institutional investment managers with $118.8 billion of assets under management, as at December 31, 2019. The organization’s mandate is to maximize risk adjusted net investment returns in a manner responsive to the needs and expectations of its 30 Alberta-based pension, endowment, government, and specialty fund clients. Balanced fund pension and endowment clients account for $100.0 billion of assets under management, and are most representative of AIMCo’s overall performance, as they utilize the full range of the organization’s asset and style capabilities. Government and specialty fund clients account for $18.8 billion of assets under management, and largely rely on AIMCo for its expertise in managing fixed income assets and for liquidity management. Established as a Crown corporation on January 1, 2008, AIMCo is operationally independent — operating on commercial principles and at arms length from the Government of Alberta — yet strategically aligned with the Province as shareholder. The organization is committed to the highest standards of corporate governance including an independent, highly-qualified and diverse Board of Directors that draws on global experience to provide meaningful guidance and oversight to the organization.

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Given that the annual report needs to be approved by Alberta's legislature and won't be available till June, I cannot refer to it here.

However, this afternoon, I spoke with Dale MacMaster, AIMCo's CIO, and we went over some key points. Before delving into that discussion, I'd like to thank Dénes Németh, Director, Corporate Communication, for setting up this call.

Now, Dale and I chatted for a good 30 minutes and we went over last year's results as well as what is going on in markets this year.

In 2019, AIMCo gained 10.6% net, 50 basis points less than its benchmark. Dale told me the Balanced Fund which is more representative of how AIMCo manages its big clients, gained 11.8% vs a benchmark of 12.5%.

Here are the main points we covered concerning last year's results:
  • "Last year was a great year to invest. There were trade issues but growth was decent and interest rates were accommodative. Every asset class performed well, you couldn't go wrong. "
  • Nonetheless, even though Public Equities performed well, "the market was even more narrow than in 2018". Dale told me "five stocks -- Apple, Amazon, Facebook, Google and Microsoft --  accounted for 17% of the gains in the S&P 500, adding 3% to the overall return."
  • In Private Markets, returns came down. Real Estate went from 12% in 2018 to 4% in 2019. Private Equity went from 20% in 2018 to 4.5% in 2019. And Infrastructure went from 12% in 2018 to 4.4% in 2019. 
  • Dale told me the PE strategy shifted five years ago, they are still ramping up fund investments and co-investments "which is why our program is more volatile than more mature PE programs of our peers, we still have J-curve effects." The PE program is only $3 billion and growing.
  • He said in private equity, they focus on middle market funds where they can be a more influential/ larger partner. However, he did admit that middle market funds have more operational and key man risks and require more due diligence since they lack the size and depth of larger funds. ("we make sure carry is distributed across the organization”).
That was the extent we discussed last year's results. We then got into a discussion of what is going on this year:
  • Going into 2020, he said valuations were high but not stretched, things looked good, the economy was strong, and then all hell broke loose.
  • He said he’s been in this business a long time and notes "in the last 12 years, I've seen two 1 in 100 year events."
  • "Initially it looked like SARS, we thought it would be a V-shaped recovery, and then as it got a lot worse, the bottom in equities fell out, stocks collapsed, the VIX spiked to levels not seen since 1929 or 1987, and even bond volatility exploded. Hedge funds, ETFs, mutual funds, risk parity funds all exacerbated volatility."
  • He said: "It became evident it would be a U-shaped or Nike swoosh shaped recovery, and now with the unprecedented monetary and fiscal stimulus, it looks like a V-shaped recovery but who knows. The world has changed, people are adapting, working remotely, home schooling their kids, practicing isolation and social distancing, it's a whole new world."
  • I sensed Dale was cautiously optimistic. "In 2008, the financial system was going to implode, the Fed took its time to ramp up QE. Now, the Fed and other central banks have responded more forcefully and quickly and governments have also responded quickly on the fiscal front. It's the 2008 playbook on steroids. We are dealing with a pandemic, governments have closed economies for health reasons, they will eventually open them up again -- 50, 60 or 70% -- and we will recover. Of course, some sectors will recover more quickly than others as people assess the health risks of flying, going to restaurants, etc. But I see millennials going out once the lockdown is eased. "
  • He said central banks and governments "don't care about the size of their balance sheet". The US economy was $21 trillion before this happened and "they already spent $2 trillion and will spend another $2 trillion in May." 
  • He added "central banks are providing liquidity and programs buying up troubled spots in credit markets" like high yield, CLOs, and covenant-lite and uni-tranche loans which were experiencing difficulties before this occurred.
Nevertheless, Dale was a lot more cautious on private markets:
  • There are real challenges in real estate. "Malls are closed, most tenants aren't paying their rent (except for anchor ones) and many won't survive and will likely file for bankruptcy."
  • He said multi-family and industrial are doing alright and will likely continue to do well.
  • I told him that I see many companies will likely stop leasing expensive real estate office space in downtown cores after this pandemic and keep people working remotely. He admitted "behaviors will change" and said a lot of things need to be revisited, like open office space.
  • He said unlike 2008, "today we are marking private markets more regularly and conservatively."
  • He expects vintage 2020 to be a great year for private equity, "just like 2008".
In terms of his focus now, he highlighted four areas:
  1. "Ensuring our employees are safe and working well remotely."
  2. "Ensuring we meet all our liquidity needs (collateral commitments and private market ones).
  3.  "Triaging assets"
  4. "Assessing opportunities in credit markets, listed real estate and infrastructure, REITs, and other potential distressed listed securities they can co-invest with their partners."
Lastly, and most importantly, Dale told me most of their pension clients are fully funded and they remain committed to their long-term asset allocation.

Once again, I thank Dale MacMaster for taking the time to speak to me, he made me feel a bit more optimistic (but I remain more bearish than him).

Markets are closed tomorrow and I'll try to go over a lot of market stuff I couldn't cover here.

Below, Kevin Uebelein, chief executive officer at Alberta Investment Management Corporation (AIMCo), talks about how one of Canada's largest pension funds is managing the shock waves from COVID-19. He says with the oil crash, energy companies need to keep being competitive so that the forward momentum doesn't stop. Click here if it doesn't load below.