Alberta Threatening to Exit CPP Once Again?
In the span of eight months, the pension manager for Canada’s wealthiest province fired its entire board, shuttered new offices in Singapore and New York and cut more than two dozen jobs.
If Premier Danielle Smith has her way, that’s just the start of sweeping changes for the C$180 billion ($131 billion) Alberta Investment Management Corp. — and perhaps Canada’s entire pension system.
The populist leader is seeking to overhaul how the oil-rich province handles its retirement savings and wealth, with a focus on slashing costs, curbing DEI initiatives, building up a homegrown fund and possibly reducing its exposure to private equity. The moves stand to upend the widely admired “Canadian model” of pensions operating with independent governance through sophisticated in-house management and partnerships with global firms.
Smith is also setting up a more radical move: a potential vote to pull her province out of the Canada Pension Plan, the C$714.4 billion fund that’s financed by compulsory contributions from most employers and workers. The premier describes the CPP as badly managed, inefficient and financially skewed against Alberta, with environmental objectives that discriminate against the province’s oil and gas industry.
“If we do end up putting it to a vote of whether we should have our own pension plan, I’d vote yes, and I’ve been pretty clear about that myself,” Smith, 54, said in a June interview in Calgary. “But it’s up to Albertans to decide.”
She’s now gauging interest in the plans through a program called “Alberta Next,” a series of town halls to discuss strengthening the province’s autonomy. Smith’s public information video on the pension issue criticizes the CPP’s “bloated” operating costs and says pulling out could mean leaving behind “ideological decision-making.”
It’s a familiar sentiment in Alberta, where many decry the federal government as being run by distant elites who exploit the western province while holding back its potential.
At its most extreme, that has fueled separatist calls for Alberta to exit Canada altogether. After Prime Minister Mark Carney’s electoral victory this year over Pierre Poilievre — a Calgary-born conservative once seen as a shoo-in to become the nation’s leader — tensions have resurfaced in sharper form.
Smith says she’s not a separatist, but that she understands why some people are. Without major policy changes to loosen federal constraints on Alberta’s energy, the independence movement is likely to strengthen, she warns.
“The lesson for Ottawa should be that if they keep on antagonizing Albertans, and prevent them from developing the resources and prevent them from developing their economy, then you’re going to see that sentiment rise,” she said. The premier has list of nine specific demands, including repealing a federal cap on greenhouse gas emissions from the oil and gas sector.
Her aggressive rhetoric is an attempt to channel — or exploit — the post-election frustration of conservative-leaning voters in Alberta.
“We wouldn’t be hearing about this if Pierre Poilievre was prime minister,” Duane Bratt, a political science professor at Mount Royal University in Calgary, said of the CPP separation movement.
Confronting the CPP means challenging an institution that Canadians trust with their retirements. The plan is cited as a model for pension governance, with a board of businesspeople who act as a buffer against political interference in investments. Alberta’s plan to go it alone would sever one of the economic ties binding the country, potentially weakening a system that tens of millions rely on for financial security.
In a public opinion survey undertaken in 2023, nearly two-thirds of Albertan respondents were opposed to leaving the CPP. But Smith is intent on bringing the public around — and more recent polling her government commissioned shows “we actually have more people who say yes than no.”
Leaving the CPP would mean Alberta’s government is fighting “every Canadian who pays into or receives money” from the plan, Bratt said. “And there are Albertans that want that fight. They also want their own country. And again, this is all part of the separatist agenda. Maybe we don’t get separatism, but we get this.”
Aimco Upheaval
Smith, a former talk-radio host and lobbyist, gained prominence by challenging Alberta’s conservative establishment as leader of the upstart Wildrose Party. She left the party in 2014 and the conservative movement in Alberta was split, allowing the left-leaning New Democratic Party to win an election, breaking an 80-year stretch of right-of-center rule in Alberta.
After the right pulled together again, Smith won the leadership of the United Conservative Party in 2022, becoming premier with a plan to create more distance between Alberta and the rest of Canada.
Departing the CPP is just one way in which Smith wants to change the Canadian federation, which she says is rigged against her western prairie home. She agitates for more autonomy, saying in a recent video: “Alberta’s biggest threat to our prosperity and growth has come from our own nation’s capital.”
The province’s robust economy — the second-biggest contributor to Canada’s GDP growth last year, after Ontario — underpins Smith’s case for pension independence. Individual Alberta workers contribute to the fund based on the same formula as workers in other regions. But because the province’s workforce is younger and better paid, and more of the population is employed, in total Albertan residents pay more into the CPP than its retirees receive in benefits.
A government-commissioned report in 2023 claimed Alberta could be entitled to as much as C$334 billion in assets, or more than half the CPP’s total at the time, if it left. That conclusion was widely disputed by economists and Canada’s chief actuary.
Smith’s moves follow long-simmering frustrations in the province about federal policies working against its energy sector and how much money Albertans contribute to the rest of the country, said Kim Moody, founder of advisory firms Moodys Private Client and Moodys Tax in Calgary.
“I think it’s right to at least question it,” he said of the CPP. The changes and proposals for a new pension plan, the Aimco board, as well as other proposed reforms on issues such as policing need to be considered “as part of a bigger dissatisfaction,” Moody said.
Within Aimco, Smith has already intervened in unprecedented ways. The November purge replaced the pension fund’s board, chief executive officer and other executives. The money manager recently appointed Justin Lord as it its new chief investment officer. The previous CIO, Marlene Puffer, departed less than two years into the job and took away several million dollars in severance.
Smith said she is “feeling more and more confidence that Aimco is returning to its original mandate from us.”
So far, Aimco has eliminated about 30 positions and frozen 25 vacant jobs since the beginning of the year, including the role responsible for its diversity, equity and inclusion program.
The fund’s prior regime had its critics. Aimco’s ousted CEO, Evan Siddall, had little in common with Alberta’s conservatives. He boosted DEI initiatives and hired dozens of back-office employees.
Costs went up as he championed growth, opening Aimco’s first Asia office and taking space at Manhattan’s swanky One Vanderbilt tower. Siddall paid millions of dollars to BlackRock Inc. for its portfolio management software Aladdin, a program that contributed to higher technology and data expenses.
Aimco has now shuttered those new offices. Smith said management has ended what she calls the “alphabet soup” of policies on DEI and ESG to focus on returns.
It “was important to us as a government that we think when you’re investing pension money, you should be focused on the highest returns,” she said. Aimco and the Canada Pension Plan Investment Board invested too much in private equity, the premier said, contributing to higher management fees with “middling results.”
Some insiders have described the new environment as more akin to working in a government department than a money manager striving to maximize returns and investing around the globe. The new management’s mandate of cutting expenses has baffled some employees who say it lacks a clear direction, particularly as Aimco’s costs were close to peers in the so-called Maple Eight pension funds.
“Aimco continues to operate independently as one of Canada’s largest institutional investment managers,” spokesperson Carolyn Quick said by email. “Our primary focus is our fiduciary duty to our clients, prudently managing our costs and delivering risk-adjusted net investment returns with excellence. To suggest otherwise is incorrect.”
Bob Baldwin, a former board member for Canada’s Public Sector Pension Investment Board and former chair of the CPP Advisory Board, said government overreach worried him for the risk of instability at the Alberta fund.
“The worst thing is political authorities sticking their nose into the operation of a pension fund, and creating disturbance and uncertainty, both for plan members and for investors,” he said.
The upheaval comes amid a broader reassessment for Canada’s major public pension plans. The Maple Eight are grappling with a tricky investment environment. Rising interest rates gutted their returns in 2022, and elevated borrowing costs have hindered private equity owners from exiting assets. Now some pension managers are reviewing whether they’re too exposed to illiquid private markets.
Smith remains a skeptic of the pensions’ dive into private equity. In Aimco’s case, the strategy has led to relationships with some of the biggest names in finance: Its list of “fund partners” includes Blackstone Inc., KKR & Co., TPG Inc. and Clearlake Capital.
“If you’re going to have an activist investment strategy, make sure you can demonstrate that it is paying dividends over a passive strategy,” Smith said. But the returns on Aimco’s private equity holdings have been pretty good lately.
The premier’s plans for deploying Alberta’s financial muscle go well beyond reform of Aimco, however.
In the mid-1970s, then-Premier Peter Lougheed set up the Alberta Heritage Savings Trust Fund to help save and manage its oil wealth. But rather than letting it compound, provincial governments have withdrawn from it to help pay expenses.
The result is that even as Alberta’s crude production has soared, the Heritage fund remains tiny compared with the petrofunds of the Middle East, or Norway’s $2 trillion Norges Bank Investment Management.
Smith wants to change this. In July, her government injected C$2.8 billion from a recent budget surplus to push Heritage fund assets to C$30 billion. She wants to grow it to C$250 billion by 2050, which would require compound annual returns of about 9%.
As the fund scales, it should find better opportunities, the premier said. “When you’re a $20 billion investor or a $100 billion investor, you get different deals, club deals, that are presented to you.”
If Smith and her successors stick with that plan, eventually Alberta may find itself with a store of wealth that would far exceed any other Canadian province, giving it outsize influence — which is exactly what the premier wants.Since replacing Justin Trudeau as prime minister, the more business-friendly Carney has cut taxes and said he’s open to new energy projects, including an oil pipeline. The government rapidly passed a bill to help fast-track major projects.
Smith has praised some of Carney’s early moves as positive. Still, she previously threatened a “national unity crisis” if the federal government doesn’t satisfy her demands, largely based around unleashing Alberta’s resources.
Separation Vote
Just days after the Liberals won the April national election — the Conservatives earned 65% of the popular vote and 92% of seats in Alberta — Smith announced her province would lower the threshold for citizens to trigger referendums.
Just 178,000 signatures on a petition are needed to advance a question, making it more likely that Albertans will see a ballot on leaving Canada altogether.
Pending the Alberta Next consultation, they could also vote on exiting the CPP next year.
The 2023 report the government commissioned said leaving the national pension fund “would be an extremely large and complex endeavor.” The province would need to provide three years’ notice and set up a plan with comparable benefits, which would require upfront costs.
The National Association of Federal Retirees argues that it would take several years and potentially billions of dollars in expenses for the CPP Investment Board to pay out a province that left the plan. “It would thus put all Canadians’ retirement security at risk,” the group said.
Smith, on the other hand, points to Quebec, the only province to never join the CPP. It has its own well-regarded public manager for the Quebec Pension Plan and has managed to sort out issues like the portability of benefits.
“We fully respect the premier’s right to explore what is within the rights of the province of Alberta, including an alternative to the CPP, and we benefit from our continued engagement with officials who are looking out for the best interests of pensioners,” said Michel Leduc, CPPIB’s global head of public affairs.
There are also future risks, like an erosion in Alberta’s current demographic edge. That happened in Quebec, which was younger than the rest of the country in the 1960s when it declined to join the CPP, but now is older. There’s a legal path to leave the CPP, but nothing yet to rejoin. Smith’s “Alberta Next” video makes its own point: Ottawa could offer a worse deal to an independent plan because it is “notoriously anti-Alberta,” it said.
Trevor Tombe, an economics professor at the University of Calgary, said an exit from the CPP may have financial benefits for Alberta workers and companies. But a province’s circumstances can change. Its population can age. It can lose its economic advantages.
“These should be important risks to consider, because this a policy choice with extremely long-lasting implications for Albertans,” he said.
Great article to publish at the end of July when most people are on vacation and it's worth going over it here.
First, let me tell you flat out what I believe, namely, Alberta will never separate from the rest of Canada nor will it depart the Canada Pension Plan to start an Alberta Pension Plan.
Having said this, and I want to be crystal clear here, Premier Smith is absolutely right that the federal government has hampered Alberta for far too long, stopping all new investments in resource extraction.
The frustration in Alberta is real and it's 100% legitimate so it's up to Mark Carney and his entourage -- Tim Hodgson, Michael Sabia, Marc-Andre Blanchard and others -- to figure out ways to build new pipelines so we can secure Canada's energy independence and help our country grow.
The demands Premier Smith has are reasonable and they're not only good for Alberta, they're good for the country.
Every citizen of Canada needs to think long and hard about what is in the best interest of the country, now more than ever.
And it's starting to resonate.
In fact, most Canadians (including Quebecers) now agree that we need to build more pipelines east to west, something which was unheard of a few years ago.
So, stop antagonizing Alberta and get to work on infrastructure projects that benefit everyone.
Next, AIMCo, a lot has happened there since the "purge" but lately I see rays of light as Sandra Lau rejoined the organization as a board of director and Justin Lord was appointed the new CIO, replacing Marlene Puffer who left the organization and received over $6 million in severance (part was her compensation).
The point I'm trying to make here is I think AIMCo is finally turning the corner and can focus its attention on investments.
It concerns me when I read this from the article above:
Some insiders have described the new environment as more akin to working in a government department than a money manager striving to maximize returns and investing around the globe. The new management’s mandate of cutting expenses has baffled some employees who say it lacks a clear direction, particularly as Aimco’s costs were close to peers in the so-called Maple Eight pension funds.
AIMCo isn't a government department nor is it run that way.
In June, the Government of Alberta published a letter from Nate Horner, President of Treasury Board and Minister of Finance, to The Right Honourable Stephen Harper, AIMCo's Board Chair.
The letter, dated January 22, 2025, has been made available on the Open Government web page, which is designed to improve government transparency, and ensure better collaboration between government and citizens.
"This letter clearly outlines that AIMCo’s mandate will remain intact. It also reaffirms AIMCo's commitment to operational independence and accountability to our clients, ensuring that our investment decisions are guided by sound financial principles and long-term objectives," said Mr. Harper.
"AIMCo will continue to operate independently from government and remain focused on acting in the best interest of clients in providing investment management services. Our priority is, and always will be, to uphold the highest standards of governance."
I realize that a letter doesn't fix the culture of the organization overnight but with Justin Lord now acting as CIO, everyone should be focused on their investment mandate and nothing else.
I also recently stated that I don't like the title "interim CEO" for Ray Gilmour, either make him a permanent CEO or replace him and name a permanent one.
The lack of permanent CEO at the top is something that needs to be addressed and I'm confident the Board is in the process of figuring this out (they want to make sure they have the right candidate).
Lastly, on private equity, there are issues in the industry that don't only pertain to AIMCo, the private equity model is changing as higher rates persist for longer (higher for longer):
What this means is AIMCo and other large pension funds need to rely a lot more on their top strategic partners to secure co-investments and lower fee drag.
Long gone are the days of financial engineering in an ultra low rate environment, you need operational excellence to deliver alpha in this environment and most will fail, especially relative to public equities which continue to exhibit strength (for now).
Alright, I wanted to take a couple of weeks off but it's important to cover this properly and I highly recommend you read AIMCo's 2024 annual report here for more details.
Below, Stephen Ledrew visits Muskoka to sit down with Alberta Premier Danielle Smith to dive into a myriad of subjects from national unity to the future of oil and gas production in the province.
Also, after a trade deal between the US and the EU, Sun political columnist Lorne Gunter explains how there are around 1 trillion reasons showing what a goof former Prime Minister Justin Trudeau was.
Justin Trudeau was a complete abomination, he's more in his element dating pop stars than leading a country.
If the rumours are true, my unconditional advice to Ms. Perry is run, don't walk away! :)
Please note I'll be back after taking some time to relax with my family this and next week, I can be reached by email if necessary.
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