Alberta Politics
Alberta Premier Jason Kenney at Wednesday’s COVID-19 briefing, when he offered his discourse on pension policy (Photo: Screenshot of Government of Alberta video).

New management is now required at AIMCo to restore trust after $4-billion loss

Posted on April 24, 2020, 1:59 am
8 mins

Having lost more than $4 billion on an incomprehensible gamble on market volatility, senior management of the Alberta Investment Management Corp. needs to apologize and resign.

AIMCo is supposed to manage working Albertans’ retirement savings and what’s left of Peter Lougheed’s Alberta Heritage Savings Trust Fund. In other words, working people’s life savings and public money.

The Alberta Investment Management Corp. logo (Image: AIMCo).

The irresponsible bet made by AIMCo, to put it in very simple terms, was that the market would remain stable. When the market turned volatile in the wake of the global coronavirus pandemic, the bet was lost and with it the money.

This does not encourage a high degree of confidence in the acuity of AIMCo management. It hardly requires a finance degree to understand that stock markets are inherently unstable in the short term. A subscription to a respectable business newspaper should provide an understanding of this point.

That this bet was made at all is evidence of a fundamental and unacceptable error in judgment, no matter how clever and knowledgeable the gamblers.

This wasn’t like making a bad bet about how an individual stock might perform, either. It was in effect a gamble that the entire market would behave in a particular way, one that a great many knowledgeable people would have assumed was unlikely even without a global health emergency. No assets were purchased that might someday recover their previous value. The money, once lost, is gone forever.

Unidentified sources quoted by the Toronto Globe and Mail, which followed a story broken by InstitutionalInvestor.com, said AIMCo insiders now acknowledge “its executives were not fully aware of the risks they were taking.” Think about that for a moment. Talk about the definition of a foolish bet!

In fact, as a result of this gamble, AIMCo lost money when the market crashed, then lost more when it bounced back, because both changes were manifestations of volatility and the bet was that the market would be stable.

AIMCo’s spokesperson claims no internal or external rules were broken. This is no excuse. Senior management allowed this irresponsible behaviour to take place. Senior management must take responsibility.

Few reasonable observers would characterize such behaviour as fulfilling the duty to operate the corporation in the best interests of the owners of the funds it managed. No Albertan, no retired person with savings managed by AIMCo, can have any confidence in this company as long as the current leadership remains on the job.

The late Peter Lougheed, premier of Alberta, in his later years (Photo: Calgary Stampede).

No matter what happens, it will take time to restore public confidence in AIMCo. It is imperative, therefore, that the Kenney Government put on hold its plan to require all public sector pension plans to use AIMCo as their funds manager.

This includes suspension of legislation that forces several public sector pension plans to use only AIMCo as their financial manager, and the controversial decision to force the Alberta Teachers Retirement Fund into AIMCo’s portfolio. If that takes another bill to achieve, so be it.

Premier Jason Kenney has already indicated he is not willing to consider that possibility. During a rambling discourse during Wednesday’s daily COVID-19 briefing, he said “it’s ultimately a decision of the government of Alberta,” not each pension plan’s board, who gets to manage the plans’ funds.

In what appeared at times to be an extended exercise in gaslighting, Mr. Kenney tried to pass off AIMCo’s huge loss in earnest tones as if it were just another result of the recent downturn in the stock markets. “It’s not surprising that we’d see investment funds of all scales and all places incurring losses right now.”

Accusing a reporter of getting the facts wrong (he hadn’t) the premier claimed the transfer of the ATRF’s funds “ultimately will generate better returns by increasing the scale of AIMCo’s portfolio, allowing it to invest prudently in a larger class of assets, also allowing it further to diversify its portfolio to thereby diminish risk.”

Wednesday was probably not the best day to make such a claim.

The premier then doubled down and touted his scheme to replace the Canada Pension Plan with an Alberta version, managed by AIMCo. “I think it’s quite reasonable for Albertans to ask whether we would be better off and be able to operate a public pension plan at lower premiums that would help us to create more jobs while keeping those returns here in Alberta. That’s a question we’re going to come back to once we get through the crisis.”

It is nevertheless possible to hope cooler heads in the UCP cabinet and caucus might prevail when the severity of what has happened at AIMCo is considered, along with the possibility there will be more revelations in the days and weeks ahead.

If there is no new executive at AIMCo in which pensioners and the public can have confidence, legal and political challenges to the legislation forcing the pensions to rely on AIMCo will inevitably be accompanied by demands for the outright repeal of the relevant parts of the Reform of Agencies, Boards and Commissions and Government Enterprises Act, and even the dismantling of AIMCo.

This might not move the UCP, but governments do change from time to time, even in Alberta. Count on it, UCP MLAs will hear about this in their constituency offices, and the experience is unlikely to be a pleasant one.

It would not be a complete surprise if it were soon revealed the losses are larger than we have been told. Pension plans whose funds must by government fiat be managed by AIMCo may have to take measures to protect their still-working and retired members’ assets. Questions are bound to be asked if the pension plans administered by AIMCo were fully informed of the company’s plan to bet so much on a guess about what the markets would do. While such uncertainty drags on, AIMCo will look worse at every step.

AIMCo is expected to deliver its next quarterly report in June. We will have a clearer picture of the full extent of the damage then.

No matter what Premier Kenney and the UCP may wish, this story is not going to go away.

16 Comments to: New management is now required at AIMCo to restore trust after $4-billion loss

  1. Dave

    April 24th, 2020

    The easy political solurion would probably be to replace a few top people at AIMCO and stop at that. It might be part of the solution, but in itself it is not sufficient. It is probably the most tempting option for the UCP as it gives them the possibility to find or create a scapegoat or two, arguably at arms length from them.

    It is true these losses can not be recovered, it is not about a stock price that has fallen, it is about a move that has failed. Mr. Kenney’s mumbo jumbo talk about diversification also clearly shows he either doesn’t understand finance or does not want to explain it properly. A portfolio of 20 or so stocks can give very good diversification, it does not take billions of dollars more. Diversification and economies of scale are not even the same thing and Mr. Kenney seems to conflate them. Unlike the U of A the religous university Mr. Kenney attended probably did not offer an education in Finance, or if it did he did not avail himself of it.

    The more fundamental problem is people would prefer to keep their pension money where it is. Yes, they are uncomfortable with AIMCO’s lackluster record, but they are probably even more uncomfortable with Mr. Kenney’s not so hidden intention to use their money to finance the energy sector or some other hobby horse investments of his that other investors are reluctant to now. Replacing a few people at AIMCO perhaps addresses the former concerns, but not the greater latter ones.

    Of couse, the bigger problem is Mr. Kenney is probably unwilling to give up on his hobby horse idea, so yes a few heads will roll at AIMCO and that will likely be it.

    Reply
  2. Bill Malcolm

    April 24th, 2020

    Well, look at it this way. There’ll be a forced exodus of Albertans when this virus calms down in a couple of years, because the oil and gas sector is going to crash out, and the place won’t be able to support the population. If there’s pension portability, then those leaving for saner political jurisdictions will be able to extract what’s left of their portion. Might only be $100 or even a whole $250 left per person, but something’s better than nothing, eh? The bulk will have been poured down the rathole of propping up foreign oil companies and hedge funds on a bet by those ideological and financial twerps led by kenney expecting a return to what was the old normal. You can’t fix stupid, you just have to get out of their way when they’re in charge. And then disregard the subsequent bleatings for help when the dopes left behind realize finally that they’re out of their depth. The old saying is: “as you make your bed, so you must lie on it”.

    Reply
  3. tom

    April 24th, 2020

    Dave,

    “The premier than (sic) doubled down and touted ” should be “The premier then doubled down and touted.”

    Reply
  4. Pogo

    April 24th, 2020

    Wow! Your link to our Jason was as high as it gets! Jebus boss! You guys are doomed! At least in Texas it’s Texans stealing from Texans! Premier “Pudgy WTF!!11?? the First!”, is givin’ it away to whoever wants to rape a supine fund! Fa means.. Me? A name I call myself? That mirror must be bad juju! Whoa boy! At least you’re not Nevada! Waht? Really? FM!!!

    Reply
  5. Bob Raynard

    April 24th, 2020

    “…operate a public pension plan at lower premiums that would help us to create more jobs …”

    This is the problem I have with the entire scheme. I did not put my own money into a pension plan to create jobs, I put it into the plan so I could have a poverty-free retirement.

    Reply
  6. Michelle

    April 24th, 2020

    I wonder if it the”concern” Kenney is showing for his province’s pensions is the same “concern” Mitch McConnell is showing for his states pensions down south? Apparently government bankruptcy is the goal now.

    (https://www.forbes.com/sites/investor/2020/04/23/us-state-bankruptcy-mitch-mcconnells-political-bond-math/#79a29490118cL)
    They are all in collusion and it is beyond concerning actually. I hope the pension members are aware bankruptcy is the end game here . My suspicion started when Kenney laid off the teachers, forcing them onto EI and the responsibility of the Feds. It makes sense now doesn’t it? Honestly if we progressives could ever be in such agreement with the central planning like they have we truly would have a different world.

    Reply
  7. Prairie Observer

    April 24th, 2020

    There appears a chance that a leadership position located in the northern half of the Korean peninsula may soon be available. As Mr. Kenney’s unusual skill set is definitely suited to this particular career opportunity he should be considering this potential career move. All of his cabinet, caucus and other political cronies should be encouraged to join him in such a venture. Though he is dearly needed both in his adopted province and the country as a whole it is a sacrifice that all Canadians should be prepared to make; we would no doubt be losing a great future prime minister.

    Reply
  8. Public Servant

    April 24th, 2020

    As usual, Kennochio’s first instinct is to lie and if that doesn’t work just make things up or blame Trudeau.

    He loves money more than people and nothing would give him greater pleasure than to obliterate public sector workers’ pensions.

    Ironic really when you realize that he comes into a taxpayer-funded $120,000 per year platinum pension in 2 years.

    Reply
  9. Sheldon

    April 24th, 2020

    No worries. According to the Premier the Public sector pension funds being transferred to AIMCO’s control will save $20 million a year in fees. By saving $20 million a year the pension plans will recoup the $4 Billion in just 200 years.

    Reply
  10. Murphy

    April 24th, 2020

    As much as it is surprising that AIMCo gamblers would put pension funds into derivatives, the fact remains that modern pension funds put wager earners into the rentier class. Pension funds become like any other capital pool chasing greater gains in a relentless race against inflation. These big pools of capital drive the stock market and bond casinos, and no amount of “savvy” changes the fact that bit is a casino. One cannot be “sort of” in the speculation game.

    Reply
    • David in Sask

      April 24th, 2020

      The fact that people can short sell, invest in puts and calls makes the stock market nothing more than a casino.

      Most individuals who do venture into investing in individual stocks do so only in the hope that the price of their stock will go up. But pros sell stock they don’t own (selling short) and gamble on puts and calls so it is a casino pure and simple.

      If you get caught with the market moving the wrong way (for you) look out, but someone is on the winning side of every bet.

      I don’t understand puts and calls or I would explain them, but you can look it up yourself.

      Reply
  11. alan

    April 24th, 2020

    It still walks and quacks like a duck. Market failure and disinvestment by private equity means that the double down crowd are forced to dig into the pockets of taxpayers, even if it means more losing in the investment shell game. It is a safe bet that there will not be an in depth analysis on the MSM evening news; even though,

    “AIMCo’s investments in oil and gas companies that will likely go bankrupt and drop billions of dollars worth of environmental liabilities on the public.”

    https://www.theprogressreport.ca/aimco_unfunded_orphan_well_crisis

    “According to the report, junior producers Journey Energy, Pieridae Energy and Razor Energy all received favourable debt negotiations late last year, while Calfrac Well Services, an oilfield services company based in Calgary, gave $50,000 to a pro-Jason Kenney PAC after receiving more than $228 million in investment from AIMCo.”

    https://www.canadianmanufacturing.com/environment-and-safety/albertas-failed-oil-and-gas-bailout-a-warning-to-feds-report-251725/

    “Sharon Rubeling of Rocky Mountain House points out Albertans are already invested in Pieridae through loans from AIMCo, which administers public pensions in Alberta. AIMCo also owns five million shares in Pieridae. “Material uncertainties exist around (Pieridae’s) ability to continue as a going concern,” said a letter from Cenovus to the energy regulator and the association could get stuck with a $500-million bill if Pieridae is unable to clean up.”

    “Others, such as Pieridae Energy, in which AIMCo has invested $120 million in debt and equity, are high-risk investments, says the report. Many have large environmental liabilities that can no longer be shuffled off in bankruptcy due to a recent Supreme Court of Canada ruling.”

    https://www.canadianunderwriter.ca/markets-coverages/alberta-government-promising-to-fix-rules-on-aging-energy-wells-1004172832/

    “But about $269 million _ about 70 per cent of the money invested under the so-called Alberta growth mandate _ has gone to oil and gas companies. Some, such as Trident Exploration, have already gone bankrupt despite a $12.3-million AIMCo infusion, leaving behind millions of dollars in cleanup liabilities.”

    Reply
  12. Frustrated

    April 24th, 2020

    The most frustrating part of this whole disaster is that the exec at AIMCO will not face repercussions and will still be thought of as financial experts.

    Reply
  13. e.a.f.

    April 25th, 2020

    wonder if any one will sue? perhaps its time some of those unions administered their own pension plans. who are those idiots who can loose $4B. where were they in Vegas, so who is going to pay the pensions when people retire? whatever you say about Jason and his friends you can’t say they are business people. They’re idiots. losing $4 billion in pension funds, the idea is to diversify. with a brain trust like this Alberta isn’t going to improve any time soon and is going to look like it did in the dirty 30s.

    Reply
  14. Just Me

    April 25th, 2020

    Ken-DOH! has no intention of doing anything rational or sensible. He is determined to gamble for the sake of his own shallow desires and bizarre lust for high-risk entertainment.

    He is impressed by his own power and the (other people’s) money he has control of. He is just like those crazed and reckless capitalists he has always admired and aspired to be like.

    He is under the swoon of the demented rantings of Ted Byfield’s “Alberta Report” nonsense that God’s Grace will protect and reward the righteous, and who is more righteous than Kenney? In Kenney’s mind, no one else. He is eternally destined to achieve all and more, because he is the most blessed.

    As we watch Kenney’s delusions collapse, one by one, he takes all of Alberta with him. Watch his most recent broadcast event and watch him high-tail it out of the room, claiming he had more important things to do.

    One thing is certain: Alberta is truly blessed with the stupidest voters on Earth.

    Reply
  15. Jim

    April 26th, 2020

    It should be clear what Kamikaze Jason’s orders are now to anyone willing to see. He has been put in place to ensure his backers are able to unload oil and gas assets for as little loss as possible onto the backs of Alberta taxpayers or pension funds. If in the future should these assets become profitable again they will be offered back at a discounted price. Preferably in an election year so the proceeds, not really a profit, will be used to show a paper reduction in the deficit. Remember this is Alberta never but against stupid.
    As to AimCo an immediate audit of all positions should be ordered to see what else is in there. The thing with problem gamblers is they never just make one bet.

    Reply

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