AIMCo Releases its Mid-Year Results, Beating Its Benchmark

David Milstead of the Globe and Mail reports that Alberta pension manager AIMCo loses 4 per cent in second quarter:

Alberta Investment Management Corp. reported a 4-per-cent loss in the quarter ended June 30, leading to a 6.8-per-cent loss totalling $9.8-billion in the first six months of 2022.

AIMCo is the latest Canadian pension plan to detail how roiling world markets so far this year have dented its portfolio. But for the pension plans, it could have been worse: Royal Bank of Canada’s RBC I&TS All Plan Universe saw defined benefit pension plan assets – as measured by a typical mix of publicly held stocks and bonds – shrink by 14.7 per cent through June 30.

AIMCo said its performance beat the performance of its benchmark – a portfolio of similar assets it uses to measure its performance – which showed a 5.3-per-cent loss for the quarter and a 7.9-per-cent loss for the six months.

“Often when the stock markets take a hit, there is shelter in the bond markets, but this was not the case the first half of this year,” AIMCo chief investment officer Sandra Lau said in an e-mailed statement. “As we go into the second half of 2022, we expect markets to remain volatile. Even though we have seen a significant pullback in both equity and bond valuations, it may still be too soon to position for a full rebound in risk assets without clear signs that inflation is easing.”

The manager closed the books June 30 with $136.6-billion in assets.

In the first six months of 2022, Ontario Municipal Employees Retirement System, or OMERS, said it posted a loss of 0.4 per cent. Ontario Teachers’ Pension Plan reported a gain of 1.2 per cent and Caisse de dépôt et placement du Québec lost 7.9 per cent over that period.

The Canada Pension Plan Investment Board lost 4.2 per cent in the quarter that ended June 30.

The funds’ varying returns for the first half of 2022 were driven by differences in their portfolios.

The Caisse had 75 per cent of its assets in equities and fixed income at June 30. By contrast, OMERS had about half of its portfolio in public equities, bonds and credit investments at June 30. Ontario Teachers’ had a little less than half of its assets in equities and fixed income, with roughly 20 per cent of its portfolio in what it calls “inflation sensitive” assets, designed to perform better in inflationary environments.

AIMCo entered 2022 with 37 per cent of its portfolio in public equities – stocks traded on exchanges – and 35 per cent in fixed income, including bonds. The remainder, 28 per cent, was in illiquid investments such as infrastructure, real estate, renewable resources and private equity.

As of June 30, market losses helped that mix change to 31 per cent public equities, 33 per cent fixed income and 36 per cent illiquid investments.

AIMCo’s 10-year annualized rate of return through June 30 was 7.4 per cent.

The fund manager lost $2.1-billion on trading strategies linked to market volatility in the spring of 2020, when the early stages of the COVID-19 pandemic rocked markets. AIMCo significantly underperformed peers and its benchmark that year by posting an overall 2.5-per-cent return.

AIMCo subsequently recruited a new team, starting with chair Mark Wiseman, former chief executive officer of Canada Pension Plan Investment Board. After Mr. Wiseman arrived, AIMCo hired Evan Siddall, the former CEO of Canada Mortgage and Housing Corp., as its new CEO.

AIMCo’s 14.7-per-cent return in 2021 ranked as the second-highest figure among the five plans that report returns on a calendar-year basis, behind OMERS’ 15.7 per cent.

The Alberta Investment Management Corporation (AIMCo) released its Q2 results stating it delivered above benchmark returns in challenging first half of the year:

Inflation, slowing global economic growth, lingering supply chain and energy issues have created tumultuous conditions for investors so far this year.

Despite unprecedented market headwinds, Alberta Investment Management Corporation (AIMCo) outperformed its investment benchmarks for both the second quarter and the first six months of 2022.

As a long-term institutional investor, focused on delivering superior returns, AIMCo’s annualized total fund returns over four and ten years are 4.8% and 7.4% with both measures outperforming their benchmarks.

"Our focus is, as always, on the long term to help our clients secure a better financial future for the Albertans they serve. Our diversified portfolio is designed to create value over the long term, as is apparent in both our 4- and 10-year net returns,” said Sandra Lau, co-Chief Investment Officer.

You can read AIMCo's Q2 report here for more details.

I normally do not cover these quarterly results but will make some brief comments below.

First, AIMCo's asset mix explains the negative return during a challenging first half of the year.

As stated above, AIMCo entered 2022 with 37% of its portfolio in Public Equities, 35% in Money Markets and Fixed Income and 28% in Illiquid Markets (Infrastructure, Real Estate, Renewable Resources, Private Equity).

As at June 30th, AIMCo's Total portfolio had 31% in Public Equities, 33% in Money Markets and Fixed Income and 36% in Illiquid Markets (Infrastructure, Real Estate, Renewable Resources, Private Equity).

At the end of the first half, AIMCo's Balanced Funds portfolio had 40% in Public Equities, 25% in Money Markets and Fixed Income and 35% in Illiquid Markets.

Given its higher exposure to Public Equities, the Balanced Funds portfolio was down 8.3% in the first half of the year whereas the Total Fund was down 6.8%.

AIMCo Total portfolio beat its benchmark for the second quarter (-4% vs -5.3%) and for the first half of the year (-6.8% vs -7.9%).

There is no detailed breakdown of the asset class returns in AIMCo's quarterly reports but given that stocks and bonds sold off hard during the first half and most Canadian pension plans were down 15% during this period, it's fair to assume that the performance of Real Estate, Infrastructure and Private Equity helped overall results.

In fact, the second quarter synopsis states this:

• Global equity markets posted the largest quarterly decline since the COVID crisis. 
• Bond markets sold off significantly in response to central banks’ efforts to address inflation. 
• Demand for inflation-sensitive private assets remained high and mid-year valuations in private equity, real estate and infrastructure were favourable for AIMCo client portfolios.

I recently covered AIMCo's Private Equity activity in 2021 here and went into detail on how the PE team led by Peter Teti delivered a record 66% gain last year. 

While PE performance will undoubtedly cool this year, mid-year valuations remain favorable and that portfolio is solid as it matures.

Given that other large pension funds reported decent returns in Real Estate and Infrastructure during the first half of the year, it wouldn't surprise me these Real Assets are on track for a solid year.

Paul Mouchakkaa, Senior Managing Director, Head of Real Estate and Ben Hawkins, Head, Infrastructure, Renewables & Sustainable Investing and their respective teams are doing a great job bolstering these portfolios. 

Here are some of the investment highlights for Q2:

• AIMCo invested in Haddington Ventures which is set to develop the world’s largest green hydrogen production and storage platform Read More 
• AIMCo and Ridgeback acquired a portfolio of build-to-rent assets in the U.K. Read More 
• The sale of Eolia was successfully completed, resulting in a phenomenal return for clients Read More

The sale of Eolia is worth highlighting:

I covered the AIMCo's build-to-rent assets in the UK here and its investment in Haddington Ventures which is set to develop the world’s largest green hydrogen production and storage platform here. 

More recently, I covered AIMCo's acquisition of Cando Rail & Terminals and mentioned its joint acquisition with Raipen of a 94% stake in Constantine Energy Storage and its new follow-on commitment to BAI Communications (BAI).

These are all great long-term deals for AIMCo's clients and during a challenging year, these are the type of deals you want to see being realized. 

Here are all the highlights for Q2:

On the corporate front, it is worth noting Krista Pell was appointed Chief Human Resources Officer and Denise Man was appointed Chief Technology Officer. 

I also note Jason Chang was appointed Senior Managing Director, Fixed Income, adding deep experience to this team.

And take the time to read AIMCo CEO Evan Siddall's comment outlining how the organization is changing the manager-employer relationship and supporting a results-only work environment.

Evan has been in charge at AIMCo for a little over a year and it's been a busy year. 

He has tremendous experience and understands the importance of building the right culture based on trust and merit.

Lastly, the most important thing to keep in mind is AIMCo's long-term performance remains solid over four (4.8%) and ten years (7.4%) and the Fund is adding significant value over its benchmarks:

"Our focus is, as always, on the long term to help our clients secure a better financial future for the Albertans they serve. Our diversified portfolio is designed to create value over the long term, as is apparent in both our 4- and 10-year net returns,” said Sandra Lau, co-Chief Investment Officer.

Sandra Lau is right, AIMCo's diversified portfolio is designed to create value over the long term, and she and James Barber, her co-CIO, are very much focused on making the portfolio more resilient over the long run.

This is why you shouldn't get caught up in quarterly or even mid-year results and focus more on long-term results. 

This is a short comment, AIMCo doesn't discuss quarterly results in detail but I wanted to cover them to highlight that despite the challenging first half of the year, AIMCo is delivering above benchmark returns and maintaining a solid long-term performance.

This demonstrates the value of diversifying the portfolio into private markets and having a solid team delivering active management across public and private markets.

Below, the Alberta Investment Management Corp. (AIMCo) came off a record year with a total fund return of 14.7 per cent, resulting in an annual value-add of $7.7 billion. James Barber, co-chief investment officer and head of private investments with AIMCo, joins BNN Bloomberg to discuss the institutional investor's investment outlook amid global inflation (recorded in late April).