AIMCo Gains 5.2% in Q2 2021

Today, AIMCo released its second quarter results for 2021:

Q2 2021 Highlights

• 5.2% total fund net return
• 8.1% annualized 10-year total fund net return
• $2.1 billion in value-add compared to the benchmark return
• $123.4 billion assets under management

EDMONTON, AB, Aug. 18, 2021 /CNW/ - Alberta Investment Management Corporation (AIMCo) is pleased to announce continued outperformance of its investment benchmarks on behalf of its clients. For the second quarter of 2021, AIMCo earned a total fund return — reflecting a composite of its clients' portfolios — of 5.2% net of all fees relative to an aggregate benchmark of 3.4%. Total client assets under management ended the quarter at $123.4 billion.

As of June 30, 2021, AIMCo has earned a year-to-date total fund return of 7.3%, surpassing its benchmark by 3.5%. The annualized total fund returns over four and ten years are 6.9%, underperforming its benchmark by 0.1%, and 8.1%, outperforming its benchmark by 0.5%, respectively.

In addition to the release of its annual report each June, AIMCo will now issue a quarterly performance report. "We invest our clients' funds for the long term," said Evan Siddall, Chief Executive Officer. "Nevertheless, quarterly performance reporting demonstrates accountability to our clients and Albertans. It reflects a commitment to rigour and excellence that we owe to our stakeholders and we believe will promote stronger long-term results."

"Client portfolios continued to perform well amidst dynamic market conditions, generating $4.0 billion of value-add above benchmarks over the first half of 2021," said Dale MacMaster, Chief Investment Officer. "This outcome has been driven by solid performance in all asset portfolios, notably public and private equity. Despite rising yields during the early part of 2021, fixed income also contributed to AIMCo's strong second quarter performance."

By year end, AIMCo expects to substantially complete 30 action items stemming from a 2020 Board of Directors' review of risk management practices, with 18 fully completed by the end of Q2. However, a final item, the year end target for completed reviews of all products and strategies, has proven particularly time-intensive. As a result, while this work is progressing well, it will take several months longer to accomplish comprehensively.

The full Q2 performance report is available for download from AIMCo's Website. Read More

Highlights

Investments

• AIMCo, alongside CPP Investments, provided a $2.4 billion follow-on commitment to BAI Communications Read More
• AIMCo and OMERS sold a majority stake in Environmental Resources Management (ERM) Read More
• Iguá Saneamento S.A. (Iguá), a company in clients' Infrastructure portfolios, won the auction for a Brazilian water and wastewater services concession for $1.7 billion Read More

Responsible Investment

• AIMCo and its peers in the Investor Leadership Network (ILN) are using their collective voice to effect meaningful change in the investment industry when it comes to equity, diversity and inclusion (EDI) Read More

AIMCo Corporate

• Evan Siddall named CEO effective July 1, 2021 Read More
• Jim Keohane appointed to Board of Directors, Jackie Sheppard reappointed Read More
• Alison Schneider, Vice President of Responsible Investment, selected for a 2021 Clean50 Award Read More
• The AIMCo Foundation delivered $233,000 in grants and scholarships in 2020 Read More

About Alberta Investment Management Corporation

AIMCo is one of Canada's largest and most diversified institutional investment managers with more than $120 billion of assets under management. AIMCo invests globally on behalf of 32 pension, endowment and government funds in the Province of Alberta. 

You can read AIMCo's press release on Q2 results here and the full report here. 

Late this afternoon, I had a chance to talk to Dale MacMaster, AIMCo's CIO, to go over the quarterly report.

I want to thank Dale for taking the time to talk to me and also thank Dénes Nemeth, Vice President, Corporate Communications and Public Affairs, for setting up this call and sending me the relevant material.

I began by asking Dale why AIMCo began posting quarterly results.  

He told me some of their clients, like the Local Authorities Pension Plan (LAPP), report quarterly updates and they see a benefit of being "transparent, open and forthright" with all their clients. He also added: "If you're not part of the narrative, then someone else controls it."

Fair enough, even though I'm not a huge fan of quarterly and even mid-year updates at long-term pensions, they do manage billions and it's probably better to report often and be as transparent as possible to all their clients and stakeholders.

We then got into the nitty gritty of where the value-add and performance came from in Q2 and year-to-date:

• Private Equity is on fire at AIMCo: The PE portfolio at AIMCo is finally kicking into high gear. In Q2, it was up 30%, YTD up 47%. These monster gains are coming from taking Hayward Industries, a leading global manufacturer of residential and commercial pool equipment and industrial flow control products, public a few months ago. AIMCo acquired Hayward Industries back in 2017 along with its PE partner CCMP Capital Advisors. What else? AIMCo and OMERS recently sold sustainability consultancy ERM Group Inc.to KRR, realizing huge gains. But Dale was saying that in general, their PE portfolio is finally kicking into gear. They had hired Bain consulting back in 2015, focused more on mid market private equity and started investing and co-investing with top mid market funds. For the ten-year period ending June 30th, core PE (no venture or relationship investing) returned 16% versus benchmark of 11%. Also, a lot of the J-curve effects that detracted from the portfolio's performance were addressed and now they are focusing on secondaries and growth equities. Venture is also having a great year. Dale told me that March-April of last year were really "blips" for private equity given that their investments are not marked to market and he expects that portfolio to grow at AIMCo (currently stands at $7.5 billion) because it's still small relative to larger peers. As it grows, I expect they will invest and co-invest with larger funds.
  
• Public equities are on fire: The V-shaped recovery in the economy and financial markets helped propel public equities higher. Dale told me their smart beta program (more value tilt), alternative risk premium (hedge funds) and high conviction managers all added meaningful value-add. For example, emerging markets and global equities added 1% over benchmark, Canadian equities added 350 bps, small caps 62 bps. There are still three months left to go to close out the year but so far, Public Equities are doing very well at AIMCo (James Barber is now leading this group).
• Real estate, Infrastructure and private debt are doing well: Dale told me real estate is up 5% YTD and they added 2% over their benchmark there. Foreign real estate is up 2% and they are adding 1% over benchmark there. Infrastructure is up 68 basis points but because of valuation issues, we have to wait till the end of the year to see how well that portfolio performed. He did tell me that renewables now make up 17% of the Infrastructure portfolio. Interestingly, he told me that even though they are an Alberta based fund, they are engaging with traditional energy companies looking to lower their carbon footprint by adopting new technologies and other methods. He told me private debt is doing well but didn't offer details.
  
• Foreign currency gains and losses: Dale told me that unlike its competitors, AIMCo hedges most of its foreign currency exposure except n public equities, so there was minimal impact on overall performance based on foreign currency moves.

So, the big takeaway I got from my discussion with Dale is that big gains in private and public equities made up most of the $4 billion value-add that AIMCo generated year-to-date (as at end of June). Roughly $ 2 billion of total value-add came from PE and $1.4 billion from Public Equities. 

Lastly, Dale ended off by talking about markets and risks he sees ahead. He told me "everything is overvalued" here and they need to be careful managing risks.

Interestingly, for me at least, were his thoughts on the ongoing inflation-deflation debate.

Dale thinks a lot of the inflation we are seeing now is "sticky" and that's something to pay attention to, especially if it starts spilling over into wages. "Climate change is causing droughts which are causing food prices to soar, rents and home prices are going up, higher producer prices and there is more evidence of stickiness in inflation."

I told him that I remain more in the deflation camp but I am tracking strategists like Francois Trahan which I respect and his views are that inflation isn't transitory and it will take a bite out of multiples (the real earnings yield in the S&P 500 is back to mid 1970s levels when we had the worst bear market in history).

On the other hand, I find the market reacts more to any deflationary news coming out of China and the bond market certainly isn't worried about inflation as long bond yields remain near historic low levels.

Dale admitted "with so much negative-yielding debt around the world," Treasuries remain attractive but the Fed "is also buying $80 billion a month which helps keep yields low."

Still, what if there's a more systemic issue keeping long bond yields low? I know most fixed income portfolio managers are short the long end but I am finding it harder and harder to buy the sticky inflation story, especially with the US dollar gaining ground this year (the strength in the greenback will lower US import prices). 

Alright, let me wrap it up there, gave you plenty of insights to think about.

I thank Dale MacMaster for another illuminating discussion, he's a great CIO to talk to.

I also recognize that Evan Siddall just started as the CEO of AIMCo but let me give his predecessor, Kevin Uebelein, some credit for the results this year. I look forward to talking to Evan as soon as he settles in a little more in his new role. He has a solid leadership team backing him up.

I also want to give a shout-out to Mark Wiseman, Jim Keohane and all of AIMCo's board of directors as I think they're doing a great job supervising this fund. 

At the end of the day, what matters most at AIMCo and other large pension investment managers, is long-term performance and in that regard, it's in great shape:

Below, Wharton Professor of Finance Jeremy Siegel joins Closing Bell to discuss this week's markets. He's happy about how the market has bounced back from pandemic lows, but believes the market is ready for a bit of a pullback. 'Sticker shock,' in back-to-school shopping may propel a pullback, he adds.