What's Really Behind The Purge at AIMCo?
The decision by Alberta Investment Management Corp. (AIMCo) to launch operations abroad as it chased higher returns and the extent to which the investment manager should invest in Alberta were sources of tension with the provincial government in the months leading up to Alberta’s stunning decision this week to remove AIMCo’s entire board of directors and chief executive, according to several people familiar with what transpired.
In a news release Thursday, the Alberta government said the “reset” at AIMCo was driven by rising costs at the Crown corporation, including third-party management fees and salaries and benefits that were not matched by a corresponding return on investment.
But three pension veterans familiar with events said there was more going on behind the scenes than scrutiny of costs.
One of them described the stated rationale of costs as “smoke and mirrors” for a deeper agenda to reshape AIMCo.
“Cost-cutting is not a big issue here,” said the source, who asked not be identified because of sensitivities around recent events. “This is a deeply political situation.”
Another of the sources, all of whom spoke on condition of anonymity, pointed to efforts to expand investment capabilities by hiring expensive investment managers and opening offices in New York and Singapore this year and last as a point of tension.
But others said that was just one piece of the puzzle, and suggested the government is focused on driving investments in Alberta.
The shakeup at AIMCo comes as Alberta Premier Danielle Smith prepares to unveil her government’s plan to boost the size of the AIMCo-managed Heritage Savings Trust Fund, which, according to its website, “produces income to support government programs essential to Albertans.”
In February, Smith said she envisioned the fund, which was established in 1976 to collect a portion of Alberta’s non-renewable resource revenue to invest in projects that would improve life in Alberta and diversify the Alberta economy, to grow much larger by 2050 than the nearly $24 billion value it had June 30.
The Alberta government also announced plans last year to pull out of the Canada Pension Plan, and take its share of the giant fund with it, but that effort appears to have moved to the back burner.
“We’ll be releasing our plan to grow the Heritage Savings Trust Fund to $250 billion by the end of the year, with a focus solely on getting the best returns for Albertans,” Justin Brattinga, senior press secretary at Alberta’s Ministry of Treasury Board and Finance, said Friday.
Asked whether the government had concerns about AIMCo’s direction and wanted more investments, operations and jobs in Alberta, Brattinga did not directly address the question.
“AIMCo’s mandate is to be a low-cost investor,” he said. “Our concern was with the rapid and unacceptable increases to their operating costs without a corresponding increase in returns for their clients.”
On Friday, the Alberta government announced that its most senior public servant, deputy minister of executive council Ray Gilmour, would be interim CEO, put in place to “stabilize operations and ensure smooth operations during the transition period.”
That followed Thursday afternoon’s bombshell announcement that the government had rescinded all board directorships at AIMCo. Nate Horner, Treasury Board President and Finance Minister, said he had also relieved AIMCo CEO Evan Siddall of his duties.
Horner has been installed as chair and sole director for the next 30 days until a replacement can be found.
One source said they believed the government has found some support for its approach in a client group still reeling from a loss of trust following AIMCo’s stunning $2.1 billion loss in 2020 on a volatility trading strategy, when the COVID-19 pandemic was declared.
The Alberta Teachers’ Retirement Fund, one of the investment manager’s 30 or so clients, told members that the issue of costs had been raised with both the government and AIMCo prior to this week’s purge.
“Nothing that has happened with regard to the changes at AIMCo thus far has caused us concern about the status of our investments,” the ATRF said in a note to members posted on its website Thursday. “At the same time, we have in the past raised issues regarding costs at AIMCo with both the Government of Alberta and with AIMCo.”
The retirement fund for Alberta’s teachers was forced through legislation to turn management of its funds over to AIMCO in 2019. It was a contentious start for the relationship. Unable to reach an agreement on terms of the new arrangement, the outcome was imposed through a government order.
Despite the assertions of the teachers’ retirement fund and the government, industry sources say AIMCo’s costs are in line with industry standards, and that returns slightly below benchmarks reflected the risk profile of the investment managers clients rather than performance issues relative to peers.
AIMCo posted an overall return of 6.9 per cent in 2023, despite challenges in its real estate portfolio. The asset manager, which invests on behalf of pension, endowment, insurance and government clients in Alberta, ended the year with $160.6 billion in assets under management. The return, though positive, fell below AIMCo’s benchmark return of 8.7 per cent.
A longtime pension executive described the blanket dismissals as a “shock.”
Jim Leech, who ran the Ontario Teachers’ Pension Plan Board for six years, said Friday he doesn’t believe the wholesale clear-out of the boardroom and the dismissal of senior executives including the CEO can be solely about “a few basis points of performance or costs.”
Last week, I covered the decision by Alberta's government to fire AIMCo's board of directors, CEO and three executives.
As you can imagine, thousands of people read my comment and it quickly shot up to number one on my most popular posts.
I received a lot of feedback but before getting to that, once again important to go over my second update from that comment:
Jordan Fleguel of BNN Bloomberg reports AIMCo board firing comes as fund has ‘a lot of unhappy clients’:
The Alberta government’s sudden decision to dismiss the entire board and CEO of the Alberta Investment Management Corp. (AIMCo) comes at a time when a number of the pension fund’s clients are “unhappy,” according to a business columnist with The Globe and Mail.
“I’m not actually completely surprised by this,” Andrew Willis told BNN Bloomberg’s Amber Kanwar in an interview Friday morning.
“AIMCo has been controversial for a couple of years and their performance hasn’t been that great… there is an underlying reason for this rather abrupt action from the government and it’s to do with the ability to keep these clients happy – there is a lot of unhappy clients at AIMCo.”
Willis said that what makes AIMCo unique as a fund is its structure as a crown corporation that manages capital for more than a dozen different groups in Alberta.
“That includes the heritage fund, but it also includes a number of different public sector pension plans,” he explained.
“The university professors in Alberta, for example, AIMCo runs their money, and over the last few years, those professors have been complaining about performance and they’ve been withdrawing their funds from AIMCo and giving them to other outside managers.”
In a statement on Thursday, the province’s Finance Minister Nate Horner said the decision to fire the fund’s board came down to management fees that were too high and a consistent failure to meet benchmark returns.
The Canadian Press reported on Thursday that Horner told reporters following the announcement that he had been watching AIMCo’s performance closely for some time and determined that necessary changes to the fund weren’t going to happen without a “major reset.”
Willis said that despite the government’s suggestion that the fund has been underperforming, their recent returns, though not outstanding, have been on par with most other large Canadian pension plans.
“There wasn’t a complete outlier in performance, they weren’t ahead of anybody else… but they certainly weren’t laggers,” he said.
AIMCo had encountered some setbacks in recent years related to volatility during the pandemic, Willis noted, but he said the fund’s management, led by chief executive officer Evan Siddall, had created a “credible turnaround plan” to resolve those issues.
“Their costs have been rising, they’re staffing up, they want to do more global investing, they want to get into more alternatives – that takes people, so that’s why the headcount was rising, and that’s one of the things that’s upset the government,” he said.
Ray Gilmour named interim CEO
Horner will act as AIMCo’s sole director and chair for the time being until a new chair is appointed, which the Alberta government says will happen within 30 days. The province has also appointed an interim CEO: Deputy Minister of Executive Council Ray Gilmour.
Willis said that Gilmour has “no investment management experience,” but is “clearly a trusted pair of hands” within the Alberta government.
He added that aside from who will ultimately run the fund, the biggest question AIMCo faces going forward relates to its mandate.
“Danielle Smith, the premier of Alberta has made it clear she wants to see more investment in Alberta from public money. She made the bid to get Alberta’s share of the Canada Pension Plan (CPP) managed in Alberta too,” Willis said.
“So, Danielle Smith I think looks at AIMCo as a bit of a cookie jar. The mandate that I think they might go to is something like what you’ve got in Quebec with the (Caisse de dépôt et placement), where there’s a mandate to primarily invest in Alberta, and I think that would be really dangerous.”
Alberta is Canada’s largest oil and gas producer, and while the province has made inroads in diversifying its economy in recent years, Willis said “there’s only one big industry, and it’s fossil fuels.”
“So, if you’re overweighting towards that industry, that’s a dangerous thing for Alberta pensioners,” he said.
A couple of quick remarks. First, to all those university professors who withdrew funds from AIMCo (didn't even know that was possible), how much are you paying in management fees and who will be tracking long-term performance of your money managers relative to that of AIMCo on a risk-adjusted basis?
Second, appointing Deputy Minister of Executive Council Ray Gilmour as interim CEO and possibly full-time CEO speaks volumes, they are turning the place into an extension of the civil service and that is the downfall of AIMCo (I mean it). Mr. Gilmour has no investment experience and is put there to cut costs and force the pension to invest more in Alberta.
That brings me to my third point, and here I agree with Andrew Willis who did a great job in this interview highlighting important points. It would be a completely bonehead move to force AIMCo to invest more in Alberta or adopt a CDPQ dual mandate in Alberta.
Why? AIMCo already invests extensively in Alberta but more importantly, their number one industry is oil & gas so they should be doing more of what Norges Bank Investment Management is doing and invest outside their province to properly diversify their retirement savings across public and private markets all over the world.
Now, one pension expert lamented this about university professors taking money out of AIMCo at this time:
Regarding Alberta profs taking money out of their plans.
I do not know but this is likely people taking commuted lump sum in lieu of pension on the advice of fast talking brokers. We saw this in run up to tech bubble. Retirees took lump sum, invested it in Nortel and lost most of it. Stories are tragic. Many plans amended their terms to prevent retirees from blowing their hard earned savings.
My guess is that this is all about Danielle wanting control over a piggy bank to fund her latest whim.
It sure looks that way. The manner this was handled, so ruthless, so abrupt, no public consultations whatsoever, you have to wonder what the hell the Government of Alberta was thinking.
I know the Alberta Teachers' Retirement Fund has an axe to grind ever since the government forced them to have AIMCo manage their pension assets.
It put out this statement on changes to AIMCo:
ATRF members may have heard the Government of Alberta’s announcement regarding AIMCo on November 7, 2024.
We want to reassure ATRF members that their pensions remain secure.
ATRF continues to manage Alberta’s teacher pension plans and set the strategy for our investments, while AIMCo provides the day-to-day management of ATRF’s investments as required by provincial legislation.
Nothing that has happened with regard to the changes at AIMCo thus far has caused us concern about the status of our investments.
At the same time, we have in the past raised issues regarding costs at AIMCo with both the Government of Alberta and with AIMCo.
We look forward to working with Treasury Board and Finance and being part of determining the appropriate path forward.
The health of our pension plans and the security of our plan members’ pensions have always been our highest priorities, so we will continue to monitor this situation closely and, as always, will inform members if there are any impacts to the plans that they should be aware of.
I really wish the ATRF put out a public statement on what exactly these "cost issues" are because once again, we are talking peanuts here, a few basis points when the real cost US pension funds and others have is farming out more investments to outside managers without a strategy to reduce fee drag through co-investments.
Amazingly, I heard of one corporate pension expert who thinks the Alberta government did the right thing "firing them all" and that better returns can be achieved at a fraction of the cost.
What this person doesn't realize in his infinite wisdom is this isn't a cost issue, there's a deeper agenda in the background which will come out sooner rather than later and the ATRF and other clients of AIMCo are going to wish the government never did this.
Moreover, compensation/ renumeration matters because you need to attract top professionals to build relationships with top strategic partners and gain access to the best deals all over the world.
Opening up offices in London, New York and Singapore is part of running a global fund that invests all over the world, you need boots on the ground to build those long-term relationships with top strategic partners.
The easy part is firing the board, CEO, senior executives, closing offices.
The hard part is setting the right strategy going forward, one that is in the best long-term interest of AIMCo's members.
Admittedly, you need buy-in and one criticism I have of AIMCo is it failed miserably to properly communicate its strategy to some (not all) clients to convince them this is the right approach.
These clients weren't happy, they grumbled to the government which panicked and decided to take an axe to the place.
Not too bright, folks, not too bright.
I wish every other client of AIMCo's put out a statement on changes so we can know what they are thinking in the wake of these events.
What else? My former boss at the National Bank from over 20 years ago, Senator Clement Gignac, posted a comment on LinkedIn stating maybe it's time Canada learns from Australian regulators who are scrutinizing expenses at Australia pension funds:
Public Pension Fund Expenses and compensation! Is it time for Canadian regulators to be involved by asking more disclosure and transparency just like their Australian counterparts?
The Australian Prudential Regulation Authority (APRA) for the first time has just released data showing expenses for pension funds. Indeed, APRA has released in late October its inaugural publication of the fund level data on expenditure covering a broad range of categories, including investment-related expenses, as well as administration and other expenditure, such as advertising, sponsorship and payments to industrial bodies.
Part of the regulator’s push for greater transparency, it spans marketing budgets to executive renumeration and will used to help APRA monitor deficient practices and questionable expenditure.
It’s the next step in a concerted push by the watchdog to boost scrutiny on the nation’s A$3.9 trillion pensions industry and force funds to spend less when it identifies a clash with members best interests. It adds to the existing annual performance test, which measures funds’ performance and fees and has weeded out poor performing funds.
“We said from the outset that we would make this information public to deliver greater access and transparency of how trustees spend and invest members money, at both industry aggregate and fund level,” APRA Deputy Chair Margaret Cole said at an industry conference in Sydney prior to the data’s release.
Here in Canada, it is worth noting that Alberta finance minister, Nate Horner, has fired earlier this week the entire AIMCo board and CEO due to lack of appropriate governance and costs control ( including top management compensation)! Ouch!
My reaction: Make no mistake, almost all of big Canadian public pensions funds release already a lot of information in their huge annual report.
However, we could ask ourselves if our Canadian federal (OSFI) and provincial regulators should be more involved by asking similar transparency with much more details like their Australian counterparts! After all, some of our Canadian public pension funds have succeeded to post impressive annual return (and pay huge performance bonuses) by using leverage (issuing bonds at low rates, thanks to federal or provincial high credit rating)!
Bottom line: Time will tell if Federal Finance Minister Chrystia Freeland and her provincial counterparts will follow the path set by Australia by asking to their respective regulator to have a closer look on that « sensitive » file! Food for thought!
To access to the APRA report, click on this link here.
That prompted me to reply:
Here are some quick thoughts, Canada’s public pension funds already disclose executive compensation but that doesn’t include executives at subsidiaries. They probably can disclose more but what is really needed is an independent performance audit (by OSFI) on their benchmarks and risks they’re taking. That requires expertise and reports should be make public every three years (doesn’t need to be annual). Should we follow Australia? I have to examine this closely, not sure we need to.
I want to add something important here. Too much attention is being paid on Alberta Investment Management Corporation (AIMCo)’s cost structure and compensation but it’s in line with what other Canadian pension funds pay and probably less. All of Canada’s large pension funds manage most of the assets internally to lower costs and add to long term performance. Moreover, if you read Barbara Shecter’s article, the real reason the Government of Alberta did what it did was to control investments and have more money invested in Alberta (AIMCo already invests enough in its home province).
Again, they broke the governance model to put their hand in the pension cookie jar and that never ends well.
Another former pension fund manager told me they are not too surprised because AIMCo and others are investing with a well-known Canadian real estate manager where they're "paying high fees even for core real asset strategies."
The person added:
Many investors have accepted these fees given the “track record” and relationships with the founder (I will omit their name). While I agree that government should not interfere with investing, the members are right to challenge strategies that should reflect the return profile.Now, I cannot substantiate any of these claims but it just proves my point, the same one I made to Senator Clement Gignac, we need better accountability at these large pension funds and without an in-depth performance audit by independent experts, anyone can claim whatever they want but nobody really knows whether the fees, renumeration, etc are commensurate with the risks being taken.
If anything, the bombshell approach at AIMCo would have been averted had we had independent experts with public reports doing a solid performance audit and auditing costs properly.
I know, the teachers have their own consultants as do other clients but I don't trust these consultants as they have their own agenda.
What I trust is rigour, independence and transparency, the rest is bullshit (sorry, it really is).
As I keep stating, there are tremendous risks out there, economic, financial, geopolitical and people are being fooled by the outright euphoria in the stock market following Trump's victory last week into thinking a new bull market is upon us.
What's going on is they are frontloading future returns into one week/ month and when the music stops, it will turn ugly.
Shocking stat of the day:
— The Kobeissi Letter (@KobeissiLetter) November 11, 2024
The S&P 500 has closed at 50 all time highs this year and we still have 7 weeks left.
This means the S&P 500 has seen TRIPLE its average number of all time highs in a year.
What happened the last time we saw 50+ all time highs in a year?
(a thread)
Lastly, and I keep coming back to this, I wonder if the government and AIMCo's clients are thinking about how the employees at AIMCo are feeling after all this. Their CEO, board and senior execs fired, a government bureaucrat was appointed interim CEO and the finance minister is chair for now.
Not exactly the most inspiring place to work knowing you can be fired at any time and god knows what is coming next.
Again, the government and clients could have legitimate concerns but there's a better way to go about things than the nuclear approach.
I hope I am dead wrong, I just don't see how AIMCo will survive this over the long run but who knows, maybe they will come out of this stronger (hope so for the sake of beneficiaries).
Below, Andrew Willis of The Globe and Mail talks to BNN Bloomberg about Alberta firing AIMCo's CEO and board. Take the time to listen carefully to his comments, he's spot on.
Update: Naimul Karim of the National Post reports here's how AIMCo's performance stacked up before last week's ‘shocking’ purge:
The Alberta government fired the chief executive and entire board of directors of Alberta Investment Management Co. (AIMCo) last week, citing rising costs without an equivalent increase in returns at the $160 billion investment manager. But were AIMCo’s results and costs out of line with other major Canadian investment managers? The Financial Post’s Naimul Karim explores the question.
How has AIMCo performed?
AIMCo reports both its overall results and those of its balanced fund. The total fund reflects the aggregate of all client accounts, including those who exclusively choose fixed-income and money market investments to achieve their objectives. The balanced fund, meanwhile, only includes client accounts that invest across a range of asset categories, requiring AIMCo to seek higher returns.
In 2023, AIMCo delivered an investment return of eight per cent or $8.9 billion on the balanced fund. While this was lower than its benchmark of 9.3 per cent, the fund’s former chief executive Evan Siddall — who was among those purged last week — described the performance as a “notable accomplishment” in AIMCo’s annual report, considering the “non-stop geopolitical crises,” high inflation and interest rates uncertainty. AIMCo’s total fund reported a return of 6.9 per cent for 2023, which also came up short of the benchmark of 8.7 per cent.
The longer-term performance of AIMCo’s balanced fund has been better relative to its benchmarks: Its 10-year return of 7.3 per cent has outperformed the 6.9 per cent benchmark while the five-year net return of 6.6 per cent also topped the benchmark of 6.5 per cent.
In the first half of 2024, the balanced fund has so far returned 5.6 per cent and the total fund 5.4 per cent
How does that compare to other major pension funds?
On an absolute basis, AIMCo’s five- and ten-year returns appear to be on the low side compared to other large Canadian pensions, but not dramatically so.
For instance, at the end of their 2023 fiscal years, the Canadian Pension Plan‘s (CPP) five-year net return was 7.7 per cent and its 10-year net return was 9.2 per cent. The Ontario Teachers’ Pension Plan posted returns of 7.2 and 7.6 per cent; the Caisse de dépôt et placement du Québec clocked in at 6.4 and 7.4 per cent; the Public Sector Pension Investment Board reported returns of 7.9 and 8.3 per cent; and the British Columbia Investment Management Corp. reported net returns of 7.5 and 7.8 per cent.
While most of the funds posted better absolute returns than AIMCo, some analysts cautioned that funds have different strategies that depend upon the needs of their members.
“For example, a fund like CPP will have a fairly aggressive portfolio allocation with close to 70 to 80 per cent invested in equities,” said Sebastien Betermier, a finance professor at McGill University. “But Ontario Teachers, which manages the liabilities for the teachers in Ontario, may tend to take on less risk by investing more in bonds.”
Relative to their benchmarks, the results are more nuanced. Ontario Teachers’, for example, missed its five-year benchmark of 8.5 per cent, while the Caisse was well ahead of its benchmarks of 5.9 per cent and 6.5 per cent.
AIMCo also had a terrible year in 2020, when its total fund reported a net return of 2.5 per cent, compared to its benchmark of 8 per cent, something that still drags on its longer-term tallies.
“They reported outsized losses related to a volatility trade … that was unusual and something that we had not seen across the peer group,” said Dafina Dunmore, a senior director at Fitch Ratings.
What about the cost increases?
Alberta attributed its decision to clean house at AIMCo to rising costs at the investment manager.
“The corporation has seen significant increases in operating costs, management fees and staffing without a corresponding increase to return on investment,” it said in a news release, adding that from 2019 to 2023, AIMCo’s third-party management fees increased by 96 per cent while salary, wage and benefit costs increased by 71 per cent.
Over the same period, it said, AIMCo managed a smaller percentage of funds internally but saw employee count rise by 29 per cent.
According to its annual report in 2023, the broader AIMCo team grew by 17 per cent that year alone.
Not all asset managers report expenses the same way, but others showed a general increase in expenses over the same time period.
Operating expenses at CPP Investments, for example, rose to $1.54 billion in fiscal 2023 from $1.2 billion in 2019, an increase of approximately 28 per cent, while personnel costs rose by 29 per cent to $1.038 billion.
At the Ontario Teachers’ Pension Plan, administrative expenses for investing rose to $829 million from $615 million, or 34.8 per cent over the same time frame.
Betermier urged caution when analyzing the costs and compensation at Canadian funds, which in general have a reputation for efficiency.
“The fact that AIMCo has paid managers high salaries, well, that’s something that you see across the board,” he said. “That’s something that has been associated with high performance, because you have very (highly) talented managers steering the ships, these costs would be even higher if you were to externalize to third party private equity managers.”
What are experts saying?
Adam Hardi, an analyst at Moody’s, said he wasn’t surprised at Alberta’s decision considering that the government has been making a “concerted effort” to close ranks with Crown entities or organizations that run independently but are technically controlled by the government.
But he said that the magnitude of the change was a bit surprising.
“The government has been quite critical, I think, on management, the cost escalations and the lack of what they perceive as sufficient return,” he said.
Keith Ambachtsheer, director emeritus of the International Centre for Pension Management (ICPM), noted that after the volatility fiasco, AIMCo went through a major transformation at both the board and executive levels, changes that led to the addition of “many good people.”
He described the government’s decision to fire the board as “shocking” and said the government needs to provide more context instead of just making “broad statements” about high costs.
Ambachtsheer said that the reasons stated by the government of Alberta for the changes “don’t make any sense,” because the entire executive leadership team was relatively new.
“To suddenly fire them all is just beyond comprehension,” he said. “It’s way too early to make any judgment unless they really, you know, unless they were really misbehaving.”
Betermier, who is also an executive director at the ICPM, said he was concerned because Canadian pension funds are among the strongest performers in the world and a big reason for that is because they operate like the private sector and run “at an arm’s length” from governments.
He said that the government had fired a talented team at AIMCo and noted that the leadership team of the fund had been changed multiple times in the past several years.
“When I see governments suddenly firing the whole board and the management team without necessarily understanding the deep reasons, well, that bothers me,” he said. “Because that’s a form of interference that will prevent the funds from investing in the long term and ultimately delivering on that long-term value to the pensioners.”
Couldn't agree more with Keith and Sebastien and it's also worth noting AIMCo's asset mix is more titled to public equities than its large peers so a direct comparison of long-term performance isn't fair, but it's still in the ballpark even with the vol blowup of 2020.
As far as benchmarks, AIMCo is completely transparent as it is on costs.
On my comment, now former AIMCo board of director and former CEO of HOOPP Jim Keohane posted this on LinkedIn yesterday:
Hi Leo. I would start by saying that I think highly of Clement Gignac but I think he is a bit off base with his comment. The Australian retirement system is much different from the Canadian system. All Australian workers have to be in a workplace pension plan. Those plans are DC plans and each worker can select the manager of their funds. So it is a bit like picking a mutual fund manager so knowing the costs and performance history of the manager is important in making that selection. It would be my opinion that the Australian regulators are following the standards set by Canadian pension plans where very detailed information around costs and performance is provided in their annual reports. Canadian funds rank very highly on the CEM Transparency Index. Every fund also has either a federal or provincial regulator already. We should be very careful not to over-regulate. Just look at the Netherlands. Over regulation has turned one of the best pension systems into a complete shambles.Jim is right, Canadian funds are managing assets of DB plans and already disclose a lot so Australia is following our lead here.
However, on regulations, I will add some points here. I agree with him that Dutch regulators completely bungled it up and that's an example we want to avoid but there are ways to improve governance at Canada's major pension funds by following other examples in the world to improve transparency (NBIM for example) and even though Canadian pensions are regulated, no independent body performs a detailed, comprehensive performance audit every three years (the auditor generals reports are not performance audits).
Asking to operate at arm's length from the government and then say "trust us, we know what we are doing" while you dole out millions in compensation invites all sorts of skepticism and quite frankly seems arrogant, which pisses off clients and governments.
David Wexler, board member, notes this on LinkedIn:
I wonder, Leo if other large public pension plans in Canada aren’t looking over their shoulders. I remember clearly the migration of CPPIB’s investment strategy from using 3rd party partners to moving investing in house with the promise of similar returns at fewer basis points of costs . And other pension plans soon followed CPPIB (and investing pioneer, OTPP). Well, pension plan costs have risen over the years and external investment partner costs have come down so perhaps this represents a potential reversion to the former model.
I replied:
Hi David, not sure I agree here. The strategy at CPPIB was to shift more assets into private markets like real estate and especially private equity where they co-invest alongside strategic partners to reduce fee drag. More recently, they added private credit to the mix. The strategy has worked exceptionally well over the long run. AIMCo was definitely on the right track and it’s a shame this happened.
Lastly, someone privately shared with with me on LinkedIn:
Leo, good stuff covering the AIMCo debacle. A thought I would share (not for attribution of course, so add me to the list of people asking to remain anonymous) - I got to know Evan a bit when I worked at a political job a decade ago.
He is politically very astute, understands the role of elected officials and is not someone who tries to undercut them. Remember, he was appointed as head of CMHC under Harper and yet stayed on under the first Trudeau term to lead their expansion on housing programs. Harper and Trudeau couldn’t be more different on housing but is well regarded by both sides. He knew how to manage all the different stakeholder requests and interests. All this is to say this is a guy who, if the government claims they had been “expressing concerns” for months, would have known how to diffuse those issues and address their concerns. Doesn’t add up with the mass firing
A few months back he wrote an op-ed in the Globe saying how bad an idea it would be for the feds to require more domestic investment from pensions; in hindsight it looks like maybe it was actually aimed at the Alberta gov. Worth re reading in light of the AIMCo news.
I thank this person for sharing this and agree with him, it doesn't add up just like a lot of other things don't add up here which is why I maintain there's another agenda in the background.
Update #2: Sarah Rundell of Top1000funds reports chaos as politicians take control:
In a dramatic purge in a pension sector renowned for its stable governance, the government in Canada’s western province has removed the entire board of the $160 billion Alberta Investment Management Corporation (AIMCo) and sacked its CEO, citing rising costs and poor returns.
The province’s finance minister conservative Nate Horner, who has been in the position since June 2023, has been appointed the sole director and chair for AIMCo on an interim basis. Before being elected to parliament in 2019 aged in his mid-30s, Horner was a rancher with a cow-calf mix farm operation.
The abrupt departure of AIMCo’s chief investment officer Marlene Puffer earlier in September foreshadowed the most recent turmoil. Puffer joined AIMCo in 2023 from Canada’s railway pension fund CN Investment Division and was part of a new management team put in place to shore up governance at the asset manager after 2020 losses.
“Last week’s wholesale dismissal of AIMCo’s new board and senior management team is difficult to understand,” Keith Ambachtsheer, University of Toronto Rotman School of Management executive in residence and pension system luminary, told Top1000funds.com. “Was there something in the benchmarking process that triggered the Alberta government’s actions? If not, was fraud or major conflicts of interest detected? Also, what makes the government think it can improve on the high quality of the board and executive team it just fired?”
Another industry insider called the sacking “sensational” noting noone in the wider industry “saw it coming.”
“Most of the major commentators agree that this was unprecedented,” they added.
A new board chair will be appointed within 30 days, Alberta United Conservative Party premier Danielle Smith said in a statement.
Meanwhile, the ousted board included pension veterans like interim chair Ken Kroner and Jim Keohane, the former chief executive of the Healthcare of Ontario Pension Plan.
AIMCo’s chief executive officer, Evan Siddall, in the role since summer 2021, was also fired. Ray Gilmour, deputy minister of executive council, a senior public servant in Alberta, has been appointed interim CEO.
Pressure to invest more at home
One rationale for the board overhaul could be a push by policy makers to get the fund to invest more at home. Alberta’s premier Danielle Smith has made it clear she wants the pension fund to put more capital to work in Alberta.
Some stakeholders have already voiced concerns that this could mean more investment in fossil fuels.
Like Alberta Federation of Labour (AFL) president Gil McGowan who said the billions of dollars of pension assets controlled by AIMCo belong “to workers, not the government,” continuing, “workers with money in pensions need to know they are secure. They remember Danielle Smith musing about using pension funds to prop up oil and gas companies that couldn’t otherwise get financing. They remember Danielle Smith musing about setting up a sovereign wealth fund, but she hasn’t been clear where the money would come from. Albertans are jittery. Rightly so.”
The encroaching politicisation of Canada’s $4.1 trillion Canadian pension industry was front of mind at FIS Toronto earlier this year. Ambachtsheer and the former chief executive of CPP Mark Wiseman warned the founding principles that have made Canadian funds exemplars around the world are under attack.
“The Canadian model is under threat today,” Wiseman said. “When you see trillions of dollars in assets, when you see a government that is running deficits, when you see economic malaise – and we’ve seen this in other jurisdictions –this is the time when pension assets get raided. And I’ll use that term, because that is the risk that I think the Canadian model faces today.”
Wiseman warned that the issue is “much more acute than people think”.
“It will come under a different guise, it’ll be said, ‘you should invest more in Canada’, ‘you should invest more in infrastructure’, ‘we should let people have access to their capital earlier’, or whatever excuse may be the fact of the day.”
Rising costs and struggling returns
AIMCo posted an overall return of 6.9 per cent in 2023 despite challenges in its real estate portfolio. The return, though positive, fell below its benchmark return of 8.7 per cent and policy makers, including Minister Horner, cited rising costs and poor returns as a key rationale for the re-set.
According to a statement from the government, between 2019 to 2023 AIMCo’s third-party management fees increased by 96 per cent; the number of employees jumped by 29 per cent and wage and benefit costs increased by 71 per cent. AIMCo has around 600 employees spread across seven offices in Canada, London, New York and Singapore.
One reason for rising costs has been the push into alternatives. Like the growing $7 billion private credit portfolio where the organization has recently expanded its talent base with new hires in New York and a strategy to push into large cap partnerships and deal flow out of the US.
The investor has also attracted criticism in recent years from some of its member funds. AIMCo manages assets for 17 pension funds and organizations, a more complex job than overseeing one single pool of capital. Speaking at FIS Toronto earlier this year, Puffer explained the complexities of running money over 32 pools of capital and paying attention to each client individually.
“We need to make sure we’re delivering what each client actually needs. Not just at the total portfolio or total fund level,” she said.
And hot off the presses this evening, Canadian prime minister Harper is being eyed as Alberta pension chairman:
Alberta’s government has considered hiring former Canadian Prime Minister Stephen Harper to oversee its public pension fund manager, which is without a permanent board after all of its directors were fired last week, according to people familiar with the matter.
Harper’s name has been circulating as a potential chair for Alberta Investment Management Corp. for a number of months, the people said, asking not to be named discussing private matters.
The role would give Harper influence to reshape an organization managing some C$169 billion ($121 billion) of public pension and other government money and with offices from Edmonton to London and New York. The former Conservative politician governed Canada from 2006 to 2015 and lives in the western province.
Alberta Premier Danielle Smith’s government is seeking major changes at Aimco and sacked Chief Executive Officer Evan Siddall and the board last week, saying the firm’s headcount and costs have swelled even as it managed a smaller portion of funds with its own staff. Aimco has more than 200 investment professionals and more than 600 employees in total, according to publicly available information.
Finance Minister Nate Horner is temporarily acting as Aimco’s chairman and sole director, and long-serving bureaucrat Ray Gilmour is interim CEO of the firm, which invests for dozens of pensions and government accounts, including the province’s sovereign wealth fund.
“Alberta’s government will be announcing the new chair of Aimco within the next couple weeks,” Ashley Stevenson, a government spokesperson, said in an emailed statement without commenting further.
Harper now runs Harper & Associates, which provides advice to businesses in the financial services, technology and energy sectors. The firm touts access to Harper’s global network and his experience as a former Group of Seven leader, according to his website. His office did not immediately reply to requests for comment.
Aimco has been through several significant changes in recent years. The firm began a leadership overhaul after a bad bet against market volatility cost it C$2.1 billion when the pandemic roiled markets in 2020. The changes included appointing former BlackRock Inc. executive Mark Wiseman as chair later that year.
Wiseman then led the recruitment of new leadership, including Siddall as CEO. Wiseman stepped down at Aimco at the end of 2023. Chief Investment Officer Marlene Puffer left in September after less than two years in the job.
Under Siddall’s watch, Aimco’s investment team beat its benchmark in the three-year period ended Dec. 31, with its balanced fund returning 6.2% annualized, according to its annual report. The firm outperformed its benchmark in 2021 and 2022 but underperformed last year.
Aimco’s balanced fund earned a 5.6% net return in the first six months of this year.
Harper was first elected to Canada’s House of Commons in 1993, then later left politics to run a conservative organization before returning to seek the leadership of the Canadian Alliance party. That group later merged with another right-leaning party, and Harper ultimately led the Conservative Party of Canada to three straight election victories.
Siddall said on LinkedIn that he is “tying up loose ends, smelling wildflowers, reading, writing, playing guitar (badly), restoring my health and focusing on Sonia, our family and friends.” Siddall is married to Sonia Verma, a prominent Canadian journalist.
I must have missed Evan's comment on LinkedIn because I couldn't find it but on Stephen Harper, I didn't mince my words:
I have nothing against Harper but Chair of Alberta Investment Management Corporation (AIMCo)? Really? Come on! Talk about politicizing a global investment organization and having it run by government and former government bureaucrats. This is like the a horror show, going from bad to worse. AIMCo's strong governance going to hell!
Imagine, you're going from Mark Wiseman who used to run the biggest pension fund in the country to Stephen Harper who is a former prime minister of Canada and has never ran any investment fund whatsoever.
What's next? Appoint Justin Trudeau to be chair of AIMCo?
I'm being facetious as Premier Danielle Smith and most Albertans detest Trudeau but my point is simply this, let's try hard to keep politics out of our large pension funds.
The minute politicians start meddling in our pensions, those global pension rankings which score governance will see Canadian pensions go down, not up.
Pensions are for members, not governments, let's all remember that.
Update #3: Read my latest on why Alberta owes its public pensioners real answers for sacking AIMCo board and CEO and must resist the temptation to treat the fund as the province’s cookie jar here.
Comments
Post a Comment