UAPP Pulls Billions Out of AIMCo?

Lisa Johnson of the Edmonton Journal reports that a university teachers pension plan pulled out billions in assets from AIMCo management:

A pension fund for academics and professional staff at universities has dumped Alberta’s government-owned investment manager from control of $2.7 billion of its assets.

The board of the Universities Academics Pension Plan (UAPP) agreed in December to move its public equities portfolio, and has since withdrawn those assets from the Alberta Investment Management Corporation (AIMCo) while it searches for a new manager.

The move comes after AIMCo reported a $2.1-billion loss last April due to a volatile investment strategy that has since been scrapped, and as other Alberta teachers are set to see their public pensions move under AIMCo management.

UAPP board chair Geoffrey Hale said Monday some of the board’s concerns with AIMCo’s management have been addressed, but the board was not entirely satisfied with responses to what they see as problematic issues.

“While no one likes to see an investment manager blow 10 years of value-added as a result of poor oversight over a strategy, it went beyond that,” said Hale.

The total value of UAPP’s public equities fund was $2.7 billion — or about 46 per cent of a total $5.8 billion in assets — as of the end of last year, according to its annual 2020 report.

AIMCo chief executive officer Kevin Uebelein told a legislature committee meeting Friday that withdrawing assets from AIMCo is well within UAPP’s purview, but he disagreed with the strategy.

“The last time they did that, it did not serve them well … while I truly wish UAPP all the best in the decisions that they’re making, it is a well founded principle that chasing performance by moving from asset manager to asset manager rarely works,” said Uebelein.

Hale called that statement presumptuous and the board has done its due diligence.

“We have seen an adaptation on our fixed-income managers that has served us well,” said Hale.

Last year, the vast majority — or 77.5 per cent — of UAPP’s investments were managed by AIMCo, which includes separate portfolios that continue to be managed by AIMCo, including alternative investments.

Legislation passed in late 2019 made changes to the oversight of public sector pension funds, and required that teachers’ pension assets be moved under AIMCo management from the Alberta Teachers Retirement Fund by December 2021. After the government imposed an investment management agreement in January, the Alberta Teachers’ Association filed a legal challenge.

However, the UAPP is governed under different legislation than most other public sector plans, and has been jointly governed since 2001. It counts about 16,500 members who either contribute or are pensioners.

Kassandra Kitz, press secretary to Finance Minister Travis Toews, said in a statement Monday the government has no plans to change the legislation and regulations in place surrounding UAPP’s agreement.

“We are confident that public sector workers will continue to benefit from efficiencies achieved through AIMCo’s investment management,” Kitz said.

NDP Opposition labour critic Christina Gray said the UAPP’s ability to move its pensions to another manager put the hypocrisy of Bill 22 on full display.

“If you’re a university teacher, you get control, if you’re a K-12 teacher, (Premier) Jason Kenney gets control of your pension,” said Gray in a statement Friday.

In April, AIMCo announced a new CEO, Evan Siddall, will replace Uebelein in July.

With assets under management reaching $118.6 billion, AIMCo noted a 2.5 per cent overall return in 2020 — 5.4 per cent below its performance benchmark — and a 7.7 per cent annualized return over the last 10 years.

Let me begin by stating Kevin Uebelein, AIMCo's outgoing CEO, is absolutely right, chasing performance from asset manager to asset manager rarely works, especially in these markets.

With all due respect to the Universities Academics Pension Plan (UAPP) board chair Geoffrey Hale, they're playing with fire with their members' pensions and while I am sure they have a bunch of (high fee) consultants recommending asset managers to them, the truth is over the long run, their members are better served sticking with AIMCo.

How do I know? I've seen plenty of "blowups" at large Canadian pensions over the years, some make the headlines, some don't, but in all cases, these large, well governed pensions that invest across public and private markets all over the world have come back very strong. 

Case in point, CDPQ. It lost $40 billion back in 2008 and has since come back to not only make up the losses but become a global powerhouse in the investment world. 

I'm sure back then if Quebec teachers could have pulled their money out, they would have and it would have cost them dearly over the next 13 years. 

I don't like irrational, shortsighted decisions when it comes to pensions. 

I understand, UAPP was concerned about the now infamous AIMCo vol blowup that occurred last year. 

I have written on AIMCo's vol blowup in detail on this blog:

I also discussed Kevin Uebelein's departure and was tough but fair in my comments.

In particular, I think it's a shame that people (including well known reporters) are so stuck on AIMCo's vol blowup and didn't pay attention to the totality of how Kevin Uebelein has changed the organization for the better over the years.

Was he perfect? No, he will be the first to admit he made mistakes, we all make mistakes, but he didn't hide from them and he faced the music when it hit the fan.

That's what leaders do, they don't hide when the going gets tough, they step up to the plate and take full responsibility for mistakes that were made.

Again, AIMCo wasn't the only large Canadian pension investment manager selling volatility, its risk management wasn't up to par, they lost $2.1 billion but between you and me, they could have limited those losses if this didn't make the newspapers (markets had a ultra V-shaped recovery and volatility collapsed).

Still, it happened and major risk lapses were highlighted so it was a good thing this came out because it forced them to address the matter which they did (they shut it all down).

AIMCo recently appointed former CMHC head Evan Siddall as next CEO.

Mr. Siddall is known to take risk management very seriously but he also needs to navigate the politics in Alberta, which I am sure he will do very well. 

As the former head of the CMHC, he's all too familiar with politics and I'm sure they are preparing him before he begins his new mandate on July 1st.

By the way, AIMCo is beefing up its risk management department:

Back to UAPP's decision, I would warn them this isn't the time to pull out of AIMCo and they really need to reconsider.

Changing managers is easy, they might even look smart over one or two years, but 10 or 20 years down the road, they will regret this decision, that I'm certain of.

And where will UAPP board chair Geoffrey Hale be then? Long gone, nobody will properly tally up the cost of leaving AIMCo and that's what really irks me. 

AIMCo is a large, well governed pension investment manager managing assets of many clients. Its Chair is Mark Wiseman who formerly ran the country's largest pension fund and has a clear vision of where AIMCo is heading.

He also headed the committee which wisely chose Evan Siddall as the next CEO.

I suggest people stop the petty politics and trust the governance at this organization. 

Below,  Mohamed El-Erian, Allianz chief economic adviser and former PIMCO CEO, joins 'Closing Bell' to discuss his views on the market.

And David Rosenberg from Rosenberg Research joins 'Closing Bell' to digest this morning's CPI data and what it means for the economy and the Fed.

Lastly, Josh Brown, Ritholtz Wealth Management, joins 'Closing Bell' to discuss the volatility in the markets that's leading to a third-straight day of losses. 

My take? A year from now, this will be another inflation blip, but people do not realize the base effect is large because of the pandemic and lockdowns that took effect last year. 

If you look at the long term chart of annual inflation rates in the US, you will understand why this number is very normal and nothing to worry about:

What worries me is what happens if markets crash and we get a huge financial dislocation that spreads to the real economy? Then we will all be worrying about deflation, not inflation, and good luck if you're not part of a large well governed pension plan over the next decade(s).

Update: AIMCo’s Chief Investment Officer is providing an improved outlook for the Alberta Heritage Savings Trust Fund, as the markets continue recovering from the initial shock of the COVID-19 pandemic. Dale MacMaster spoke during a meeting of the fund’s Standing Committee Friday regarding investment performance between October and December 2020. 

A transcript of the meeting is available here and a video of the meeting is available here. You can also read AIMCo's press release here.

MacMaster acknowledged that the fund’s investment performance struggled earlier in 2020, but long-term results must not be forgotten.

“AIMCo has outperformed its benchmarks 7 of the last 11 years, and prior to 2020, which I will give you was a dreadful year — it was a dreadful year for many investors — AIMCo was a top quartile performer over all periods,” he said.

“We expect to be back into the first-quartile zone again as we move into the future.”