AIMCo Political Takeover Flies in Face of Canadian Model

The decision of the Alberta provincial government to fire the board and top executives of the Alberta Investment Management Co., which manages C$160 billion ($115 billion) of assets for public pension and investment funds in Alberta, has left pension executives and academics disturbed, questioning what it could mean for governance of the fund and the Canadian model as a whole.

The decision of Alberta Premier Danielle Smith to fire the fund’s board and CEO has puzzled observers of the Canadian public pension system who say that a government stepping in to control the investments of pension funds undermines the success of the model.

CEO Evan Siddal, a handful of executives and all 10 members of the board, including Chair Kenneth Kroner, were let go last week. Nate Horner, the minister of finance of Alberta, was installed as interim chair and sole board member, and Ray Gilmour, the deputy minister of Alberta’s executive council, was named interim CEO.

According to reports, former Canadian Prime Minister Stephen Harper is in talks to become chair of the pension fund.

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AIMCo, a Crown corporation, was founded in 2008 to consolidate and manage the province’s public sector investments. According to a statement from the Alberta government, the goal of the change is to “reset the investment corporation’s focus.”

In September 2023, provincial leaders in Alberta proposed a plan to withdraw the assets of Alberta-based beneficiaries from the Canada Pension Plan, arguing Alberta is entitled to almost half of the Canada Pension Plan’s assets, or C$575 billion at the time, to establish an Alberta Pension Plan.

Smith’s takeover of the AIMCo board and leadership is similar to efforts her government made in 2022 and 2023, sacking all directors of the quasi-governmental agency Alberta Health Services and removing the board of the Banff Centre for Arts and Creativity, replacing the directors with a single administrator.

Undermining the Canadian Model

The Maple 8, the eight major Canadian public pension funds, enjoy political independence. Starting in the 1990s, the funds, characterized by extensive use of in-house management, complete autonomy from political influences and the ability to pay market-rate salaries to all employees, according to a 2023 CAIA Association presentationby James Burron, co-founder of and partner in the Canadian Association of Alternative Strategies & Assets.

“That is the best way: Having oversight by elected officials who will likely do the most expedient [rather than] the most effective method of asset allocation,” he wrote. “All in all, the absence of political influence, procuring and compensating the best talent, and investing in alternative investments has created an excellent environment to perform and fulfill the promises to millions of Canadians.”

Overall, investors and many pension professionals argue that, in general, political interference hinders governance and returns.

“Canadian pension funds have generated high risk-adjusted returns over the past decades because they’ve been able to invest directly and create long-term value in a number of private asset classes,” says Sebastien Betermier, associate professor of finance at McGill University and executive director of the International Centre for Pension Management. “Implementing this strategy requires a long-term focus and the ability to operate at an arm’s length from government. So when a government suddenly dismisses the entire board and the management team like what happened at AIMCo last week, it interferes with the strategy and undermines the long-term success of the model.”

Keith Ambachtsheer, a founder of both CEM Benchmarking and consulting firm KPA Advisory Services and an expert on governance issues for institutional investors, has conducted research that found public pension funds with a higher number of political trustees have lower returns and lower overall funding ratios.

Increased Costs

Among the government’s stated reasons for taking over AIMCo were that the investor incurred high costs. Between 2019 and 2023, management fees had increased 96%, the number of employees increased 29%, and wages and benefits increased 71%, according to the provincial government’s statement. Meanwhile, the percentage of internally managed funds fell from 82% to 67%.

But in a letter to Horner sent November 13, Kroner, the former chair of the board of AIMCo, noted that the fund had the third-lowest costs among its peers, according to CEM Benchmarking data.

The Alberta Teachers’ Retirement Fund, one of more than 30 funds managed by AIMCo, noted in a statement that it had raised concerns about increasing costs in the past.

“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 stated. “At the same time, we have in the past raised issues regarding costs at AIMCo with both the Government of Alberta and with AIMCo.”

Since 2019, the fund has steadily increased its allocation to alternatives and private markets, reaching 38% in 2023 from 27% in 2019.

As more capital is invested or client-driven asset class weightings shift towards more illiquid assets, the absolute costs of investment management increase, as these assets are generally more expensive to manage than publicly traded stocks or bonds,” AIMCo’s 2019 annual report stated.

Maple 8, by the Numbers — Part 1

Annualized returns for Canada’s largest public pension funds.

Fund	AUM	1 Yr	4 Yr	5 Yr	10 Yr
Ontario Municipal Employees’ Retirement System	C$128.6B	4.6%	N/A	N/A	7.3%
Public Sector Pension Investment Board	C$264.9B	7.2%	N/A	7.9%	8.4%
Alberta Investment Management Corp.	C$160.6B	6.9%	5.3%	N/A	7.3%
British Columbia Investment Management Corp.	C$229.5B	7.5%	N/A	7.5%	7.8%
Healthcare of Ontario Pension Plan	C$112.6B	9.38%	N/A	N/A	8.43%
Caisse de Dépôt et Placement du Québec	C$452.1B	7.2%	N/A	6.4%	7.4%
Canada Pension Plan Investment Board	C$632.3B	8%	N/A	4.7%	9.2%
Ontario Teachers’ Pension Plan	C$247.5B	1.9%	N/A	7.2%	7.6%

All figures are as of the individual funds’ most recent annual reports.

Maple 8, by the Numbers — Part 2

Funded status and costs of Canada’s largest public pension funds.

Fund	Funded Status	Most Recent Annual Costs	Expense Ratio (bps)	Date as of
Ontario Municipal Employees’ Retirement System	97%	C$0.818B	54.0	12/31/23
Public Sector Pension Investment Board	N/A	C$1.620B	29.5	3/31/24
Alberta Investment Management Corp.*	N/A	C$1.085B	66.4	12/31/23
British Columbia Investment Management Corp.	103%-133%	C$1.788B	53.7	3/31/24
Healthcare of Ontario Pension Plan	115%	C$1.190B	59.0	12/31/23
Caisse de Dépôt et Placement du Québec	N/A	C$2.465B	59.0	12/31/23
Canada Pension Plan Investment Board	N/A	C$6.428B	27.5	3/31/24
Ontario Teachers’ Pension Plan	107%	C$1.886B	75.0	12/31/23

* AIMCo reports performance based on the calendar year, but financials on the fiscal year ending March 31.

Many pension funds have difficulty hiring and retaining top talent when the salaries they offer are lower than other financial institutions and when they are located far from the major financial hubs of the world.

Edmonton-headquartered AIMCo has seven offices total, including ones in New York, London, Singapore and Luxembourg, as well as several in Canada. According to the Alberta government, the number of AIMCo employees increased to 600 in 2023 from 455 in 2019, while the costs of salaries, wages and benefits rose 71% to C$223.3 million from C$129.7 million.

The pension fund opened its New York office this year and opened one in Singapore last year, part of a global expansion. AIMCo cited its headcount growth as a driver of increased costs.

“Higher year-over-year headcount drove the increase in AIMCo performance costs from fiscal 2023,” the fund’s 2023 annual report stated.

In the Bigger Picture

While not every pension fund is opening new offices, increased costs are hardly unique to AIMCo. In fiscal and calendar 2023, many pension funds and endowments in Canada and the U.S. reported weak returns from the private markets.

“Returns from private asset strategies were held back by the increased cost of debt, increased operating costs, and anticipated slower economic growth, all of which are affecting private market investors worldwide,” wrote Jonathan Simmons, chief financial officer and chief strategy officer of the Ontario Municipal Employees’ Retirement System, in the fund’s 2023 annual report.

In AIMCo’s 2023 annual report, the fund explained increased costs as deriving from its business transformation program and an increase in the corporation’s staffing levels to support the execution of AIMCo’s corporate strategy, which includes a significant global expansion.

“It’s not clear how the Albertan government came to a conclusion that AIMCo delivered low performance and at a high cost,” Betermier says. “If you look at the fund’s latest annual report, it has outperformed its benchmark over the past five years, and the cost between 60-70 [basis points] corresponds to what it costs to run a ‘Canadian model’ pension fund.”

Norges Bank Investment Management, which manages the Government Pension Fund Global, the world’s largest sovereign wealth fund with roughly $1.74 trillion in assets under management, announced Monday that it will combine the units that manage the fund’s real assets and equity investments. According to the state-run management company, the move will strengthen the management of both asset classes by “bringing together people with complementary expertise.”

The consolidation of the two units and Holstad’s departure are both effective on January 1, 2025. The combined unit will be renamed active strategies and will be led by Daniel Balthasar and Pedro Furtado Reis, co-CIOs of equities, based in London.

The move does not affect the manager’s investment strategies, according to the announcement.

“We will remain an active real estate investor and continue to buy assets when they are attractively priced and in-line with our strategy,” a press release stated.

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In addition, Mie Caroline Holstad, CIO of real assets, will leave NBIM after 14 years at the firm, the last four spent as CIO of real assets. Previously, Holstad’s titles included global head of real estate operations and chief administrative officer of real estate.

“As the fund further cements its energy expertise and ambition, pulling on all areas of active management under one umbrella will also benefit the other parts of real assets,” Holstad said in a statement. “I therefore firmly believe that the optimal platform for real assets going forward is in close partnership with the fund’s other active investment strategies. Hence, I have decided that my time here has come to an end.”

Under Holstad’s leadership, real assets were consolidated into one area, which includes unlisted and listed real estate and unlisted infrastructure and renewable energy investments, according to NBIM’s announcement.

“Mie has done a tremendous job for the organization. She started out as a young adviser 14 years ago and has proven her value all the way up to being a chief in the fund’s leader group,” said Nicolai Tangen, NBIM’s CEO, in a statement. “The last four years, she has managed one of the largest real estate portfolios in the world. She is a leader that is loved by people, especially her colleagues. I respect her decision to leave, but we sure will miss her and know that she has a great career ahead of her.”

The manager allocates 72% of the fund’s portfolio—about $1.16 trillion—to equities. NBIM’s real estate exposure is 1.7% of the total portfolio, or $27.94 billion. Renewable energy infrastructure, which includes the fund’s handful of offshore wind investments, equal to 0.1% of the fund, or $1.8 billion. Fixed income accounts for 26.1% of the fund, or $421.87 billion.

NBIM has no allocation to private equity. While the manager has consistently requested permission to expand its investments in the private markets, it needs permission from the government to do so, and it has declined NBIM’s request multiple times.