Can AIMCo Be Fixed?

The pension security of over 460,000 Alberta workers and retirees depends on the investment management performance of a provincial agency called the Alberta Investment Management Corporation (AIMCo).

AIMCo is one of the most significant agencies of the Alberta government, managing the investments of the Alberta Heritage Savings Trust Fund (AHSTF), various government accounts, and five major public sector pension funds—Local Authorities Pension Plan (LAPP), Management Employees Pension Plan (MEPP), Public Service Pension Plan (PSPP), Special Forces Pension Plan (SFPP), and Alberta Teachers’ Retirement Fund (ATRF). These five plans account for 74 per cent—a whopping $97.5 billion—of the $131.4 billion in funds under AIMCo’s management.

Trust in the governance of pension plans and in the investment management done on behalf of pension plan members and beneficiaries is critical to the pension bargain. Unfortunately, this trust has been seriously eroded through legislative and regulatory actions taken by the United Conservative Party (UCP) government. In late 2019, the UCP government swept Alberta teachers’ pensions under AIMCo’s management without consultation and removed the right of public sector pension plans to withdraw their funds from AIMCo. Neither of these actions were mentioned in the UCP’s spring 2019 election platform. In late 2020, AIMCo—acting through the UCP government—attempted to remove the discretion of pension boards in setting investment policies.

On top of these unusual moves, in April 2020 it was disclosed that AIMCo had lost over $2 billion due to a risky investment strategy known as volatility trading strategy (VOLTS). This large financial loss and the manner in which it occurred added to teachers’ and other public sector workers’ concerns about the competence of AIMCo’s board and management.

This report shows that AIMCo’s investment management performance overall has been less than satisfactory for its clients and when compared with most of its peers. Key research findings include:

• Over a period of four to 20 years, AIMCo’s main job of beating its clients’ return objectives by consistently adding value was met in only six of 15 data points available.
• AIMCo’s five-year performance against its own benchmarks was minus 0.7 per cent, meaning AIMCo as the investment manager failed to meet its own performance expectations.
• A review of 10 years of performance data of AIMCo’s investment management for the Alberta Heritage Savings Trust Fund (AHSTF) shows volatile investment performance that should concern all Albertans and the government.
• The formerly independent Alberta Teachers’ Retirement Fund (ATRF) had a four-year performance that is over one percentage point above that of AIMCo, and AIMCo has not outperformed ATRF since 2017. An ATRF report to the Alberta Teachers’ Association found that had AIMCo managed ATRF’s investments over the past seven years, $1.3 billion of value would have been lost.
• In recent years, AIMCo was not a top performer compared to other major public pension fund managers based in British Columbia, Ontario, and Québec. Over a 10-year period, AIMCo once outperformed its four main peers, but that was nine years ago in 2012/13, when AIMCo’s value-add equalled that produced by the Ontario Teachers’ Pension Plan.
• AIMCo’s long-term performance has only been better than one of its peers, the Ontario Municipal Employees’ Retirement System.

A thorough rethink of AIMCo’s board of directors and ownership structure is required in light of the troubling actions by the UCP government, AIMCo’s poor performance as an investment manager in recent years, and the serious structural weaknesses of AIMCo. Trust is central to the pension bargain, but the current relationship between pension plan members, including retirees, and the Alberta government is one of mistrust.

Actions, not words, are required from AIMCo and the government to repair the damaged trust of the past two years. This report makes five policy recommendations to improve the damaged relationship between AIMCo and plan members and Albertans:

1. Eliminate the Crown’s sole ownership of AIMCo
2. Representation on AIMCo’s board should be broadly apportioned on the percentage of investments contributed.
3. Qualifications or skills required should be defined in a refurbished AIMCo Act to make it difficult for the government to change these details for political reasons.
4. Give plan participants and owners the option to give two-years notice of departing after AIMCo has managed its funds for eight years.
5. Implement a new ownership structure with the government holding a minority position to prevent governments using AIMCo funds for their own political purposes.