Can Kenney’s plans for Albertans’ pensions survive the next round of bad AIMCo news?

Alberta’s Local Authorities Pension Plan was in “the healthiest position in its 58-year history” at the end of 2019, and things are still fine, the president and CEO of LAPP Corp. said in a message Friday to plan members and retirees.

It would be going too far to call Chris Brown’s communication cheerful, but it was certainly intended to be upbeat and reassuring in advance of what’s likely to be more bad news in the first-quarter financial update by the Alberta Investment Management Corp., which manages the province’s largest public pension plan’s investments on behalf of LAPP’s Board.

How bad? Well, we won’t know that until we see the first-quarter results from AIMCo. some time in the next couple of weeks.

As is well known, AIMCo is already mired in controversy as a result of its multi-billion-dollar loss gambling on market volatility and the Kenney Government’s determination to make it the manager of all Alberta public pension plans, including the province’s portion of the Canada Pension Plan.

AIMCo’s losses on the bad volatility bet alone were first reported to be in excess of $4 billion, although AIMCo CEO Kevin Uebelein later published a statement saying they were only $2.1 billion.

But the volatility investment fiasco isn’t the only thing wrong at AIMCo. As the Globe and Mail reported on May 6, in a story unfortunately hidden behind its paywall, AIMCo. has been significantly underperforming other pension managers for more than a decade. “LAPP … is decidedly underwhelmed by AIMCo’s performance of late,” wrote Max Fawcett, a former editor of Alberta Oil magazine.

Of course, that fact didn’t stop Alberta Finance Minister Travis Toews from claiming last fall in a Postmedia op-ed accusing “union bosses” of “scaremongering” that AIMCo “regularly achieves spectacular investment performance.”

Regardless of whether there’s been any any scaremongering, AIMCo’s recent disasters and the carnage on the world’s stock markets caused by the COVID-19 pandemic shutdown unquestionably have public pension members and retirees a jittery mood. Many more Albertans are worried about the United Conservative Party plans for the CPP. Teachers forced by law to hand AIMCo their savings in the independent Alberta Teachers Retirement Fund are furious.

Despite the stock market downturn, Mr. Brown said in his message, the LAPP remains in surplus — 109 per cent now, versus 119 per cent at the end of 2019.

“LAPP has not been immune to the impacts of the economic crisis across its full investment portfolio,” he continued, “however, the measures put in place by LAPP did protect the plan from the worst of the impacts in the stock market.”

The downside protection strategy by the plan, which manages retirement security for a majority of UNA members, had also reduced the severity of losses, Mr. Brown said.

“While there is no way to predict what will happen over the remainder of the year, the plan has weathered the storm well, particularly compared to many others,” he insisted.

This is all true. But how will Mr. Brown’s rosy assessment be impacted if AIMCo’s first-quarter and subsequent quarterly results turn out to show its underperformance is significantly worse?

Remember, the downside protection strategy cited by Mr. Brown wasn’t adopted by Alberta’s other public sector pensions — so when AIMCo’s first-quarter results are posted, shrewd observers will look to see how the Public Service Pension Plan and the Special Forces Pension Plan are faring in comparison to LAPP. Those results will show the real malaise with AIMCo.

Observers might also want to check to see if LAPP’s success with strategies that countered AIMCo’s bad bets makes AIMCo’s own results look better than they ought.

And what happens later this year when the returns from LAPP’s significant investments in illiquid assets like vacant office towers in Calgary, New York and London must be totted up? Surely losses from empty corporate office space in Calgary are going to have to be written down too, probably in the third quarter.

It will be interesting to see if Alberta Premier Jason Kenney’s claim there’s a “compelling case” for grabbing CPP funds survives the next round of bad news.