After changes at AIMCo, United Conservatives now own successes and failures of fund giant

When Alberta's public pension manager lost $2.1 billion in a risky bet on market volatility in 2020, little of the scorn or blame fell at the feet of then-premier Jason Kenney or his government.

Why? The investment decisions at the Alberta Investment Management Corporation (AIMCo) are independent of the government. Cabinet's lone role is to appoint directors to the fund manager's board and let the experts invest, trade and (ideally) grow the funds.

The teachers group whose pension funds the Kenney government transferred to AIMCo's control was understandably frustrated their savings' destiny was tied to the downs and ups of the wealth giant in that moment, but the teachers' union wasn't lobbing rhetorical grenades at the premier for the loss itself.

That distance between the politicians and the pension investors shrank substantially this week, when Finance Minister Nate Horner took the unprecedented step to remove the entire independent board of AIMCo, name himself the temporary one-man board and fire CEO Evan Siddall.

All future rhetorical grenades (and bouquets) can be addressed to the finance minister and Premier Danielle Smith.

Ready, AIMCo, fired

Horner has pledged to appoint a new board within a month, but in the meantime he appointed as interim CEO Ray Gilmour, a veteran senior provincial bureaucrat who lacks experience in the world of big-fund management, but did work in Alberta banks more than two decades ago.

The Smith government pitched the move as "restoring confidence in AIMCo" after underperforming financial results and rising costs. Sebastien Betermier, a leading analyst of pension funds, doesn't see this as confidence-building in the agency's ability to make the sophisticated, long-term investment decisions they need to.

"To me it goes the exact opposite way," Betermier, the executive director of the International Centre for Pension Management, told CBC News. "That goes against the whole independence, the ability of the funds to work at an arm's length from government."

When the province created AIMCo in 2007, the then-Tory government specifically barred MLAs from serving on the fund manager's board, to ensure independence. A cabinet order this week temporarily undid that rule.

Betermier, a finance professor at McGill University, said this seemingly abrupt turmoil could also give pause to other major investors or firms AIMCo partners with on large-scale investments. The fund currently co-owns Yorkdale Mall in Toronto with a major property developer (itself owned by an Ontario pension manager), and has been building thousands of U.K. rental apartments in a joint venture with a British firm.

"When you see moves like this, where the government can come in any day and dismiss the whole board, that sends shivers in your ability to implement such projects going forward," Betermier said.

Horner expressed some disappointment in recent failures by AIMCo to meet growth benchmarks, but said cost growth was the main reason behind the move. In announcing the board's sacking, his office noted that over the last four years, AIMCo has hiked its staff expenses by 71 per cent and its employee numbers by 29 per cent.

"We want them to be a low-cost provider," Horner told reporters.

Unmentioned in that news release is that, thanks in part to the shift of teachers' pension funds to AIMCo's portfolio, the agency's total managed assets rose over that stretch to $166 billion from $115 billion, a 44 per cent increase. (Instead, the release noted that more funds are being managed by external groups than previously.)

Does an investment firm guarantee itself better returns by slashing its workforce and hiring lower-paid executives?

Short-term frustration with costs can overlook the time it takes to develop an international investment strategy over a longer term, Betermier said.

Of the country's major public-sector pension managers known as the Maple 8 including the Canadian Pension Plan Investment Board and the independent investment arms of the British Columbia and Quebec governments it's the youngest, only launching in 2008.

It's lately been playing catch-up to its peers to establish more international offices, including New York this year, its first Asian office in Singapore last year, and a recent plan by Siddall to more than double its presence in London.

"It's a project where you can generate a lot of value for pensioners, but you need to give it time," said Betermier. "One of the big risk factors is precisely government interference, when you come right in the middle of an initiative and you undo it."

Horner isn't alone in his frustration with the costs. Deb Gerow, president of the Alberta Retired Teachers Association, said expenses and management fees "have been a concern for us," compared to the educator retirement fund's smaller previous operations.

But is the wholesale sacking of a board the solution to a minister's balance-sheet frustrations?

"It struck me as a rather extreme reaction given the problems the government identified," said Bob Baldwin, a veteran pension consultant who has chaired the C.D. Howe Institute's pension policy council.

It makes him wonder what other considerations were behind the Smith government's takeover of AIMCo leadership.

Horner and his office have said this decision has nothing to do with the UCP's consideration of removing Alberta from the Canadian Pension Plan (and possibly putting AIMCo in charge of an Alberta pension mega-fund). Nor, they say, does this have anything to do with the premier's ambition, reiterated at last weekend's UCP convention, to balloon the $23-billion Heritage Savings Trust Fund into a $250-billion fund by mid-century.

There is certainly a desire by Horner and the premier to change the focus and approach of the Crown corporation that currently stewards Alberta's long-term savings account and the retirement funds of thousands of residents. It's not clear how they want that approach to change, aside from producing wealth management on a leaner budget.

And what happens to AIMCo's investments in the coming years will depend on the quality of the leaders Smith's cabinet selects to run the agency, who will undoubtedly be more aligned with the desired directions of Horner and the premier than a group appointed over several years by both UCP and NDP premiers.

Success will be attributed to this government's actions. So will future losses and failures.

It's the same way that the Smith government has tied Alberta Health Services' outcomes to their own decisions, by ousting the entire board in 2022 and then redesigning the entire system's structure.

They dismantled and remade it, and will politically own whatever comes next.