AIMCo expansion, Alberta’s investment focus were sources of tension before purge, sources say

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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.

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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.

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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.”  

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.”

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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.”

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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.”

Horner has been installed as chair and sole director for the next 30 days until a replacement can be found.

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.

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“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.

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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.”

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