Alberta public sector pension plan fund falls $3.4B in quarter, pointing to AIMCo losses

An Albertapublic sector pension plan says its fund dropped by $3.4 billion or 6.5 per cent in the first quarter of the year, calling it an "extremely difficult" period for investors due to COVID-19's impact on financial markets.

But the Local Authorities Pension Plan (LAPP), which has 275,000 members, is also pointing to losses at the Alberta Investment Management Corporation (AIMCo), its mandatory investment manager under provincial legislation.

LAPP says total asset losses sustained by AIMCo amounted to $5.1 billion for the quarter. However, because LAPP initiated a downside-protection strategy, it said it managed to reverse some of the losses.

The move saved the fund almost $1.9 billion, LAPP said in a release Wednesday.

"We will continue to work with AIMCo to achieve LAPP's goals, and we are considering all available options for attaining better alignment with AIMCo on its approach to taking risk in investing LAPP's assets," Chris Brown, LAPP'schief executive, said in a statement.

"The upcoming review of our investment management agreement required by legislation provides a timely opportunity for LAPP and AIMCo to explore those options."

LAPP, which issued its first-quarter update Wednesday, reported that it started the year with $50.6 billion in assets and ended the first quarter of 2020 at $47.2 billion.

However, LAPP says its fund remains in "very good shape" and was nearly 110 per cent funded as of March 31.Brown said that while it will take time for the LAPP fund to recover the losses, the pensions promised to its members are secure.

AIMCo's CEO Kevin Uebelein said many investors have felt "extreme pain" given theeconomic environment and "we certainly did, too."

"We actively reviewed and recalibrated our strategies to limit losses and have openly communicated with our clients through this challenging quarter," he said in a statement.

"Meanwhile, we've already seen global markets rebound from their first quarter lows.We are very cautious on the short-term strength of the markets' rebound, but we are optimistic over the longer term potential for strong investment opportunities."

An AIMCo spokespersonsaid although the corporation believes broad portfolio diversification will ultimatelysafeguard investors from the worst, in extreme markets like this, where many asset classes are declining together, its investments "realized less diversification benefit than usual" in the quarter.

AIMCo's performance has come under scrutiny in recent weeks.

The government-owned investment corporation has called in accounting firm KPMG to conduct an independent review studying how it lost $2.1 billion this year on a single investment strategy.

AIMCo lost about two per cent of the value of its assets with a volatility-based strategy when the coronavirus pandemic began to pummel the global economy.

But LAPP said that wasn't AIMCo's only issue.

"Although recent media attention has focused on significant losses resulting from AIMCo's volatility investment strategy (VOLTS), investment strategies for nearly all asset classes at AIMCo also underperformed during the quarter," it said Wednesday.

Among AIMCo's $119-billion portfolio is the $18-billion Alberta Heritage Savings Trust Fund and public sector pension plans holding the retirement savings of hundreds of thousands of Albertans.

The Alberta government has decreed that by the end of 2021, AIMCo must also manage investments for the $18-billion Alberta Teachers' Retirement Fund, which has more than 80,000 members.