Alberta Politics
Stock markets, not as they are seen by AIMCo, but probably as they should be understood (Photo: Magda Ehlers).

CEO’s letter does nothing to restore confidence in AIMCo after its volatility strategy led to ‘a very unfortunate loss’

Posted on May 03, 2020, 12:50 am
6 mins

It’s only half as bad as you were told by the media, Alberta Investment Management Corp. Chief Executive Officer Kevin Uebelein says in a letter to stakeholders — the Crown-owned funds-management corporation only lost $2.1 billion gambling on market volatility.

The first news reports on April 22 indicated the loss was about $4 billion.

AIMCo President and CEO Kevin Uebelein (Photo: Alberta Investment management Corp.)

A loss of more than $2 billion is still pretty darned bad, but while Mr. Uebelein admitted in the letter posted online Thursday that he is accountable for the performance of AIMCo, it sure doesn’t sound as if he or anyone else on his senior management team is inclined to resign for losing so much money in an incomprehensible gamble on market volatility.

On the contrary, Mr. Uebelein said in the letter, which soon attracted media attention, that he just wants to set the record straight: “Markets behaved in a manner never-before-seen and the result was a very unfortunate loss.”

Well then, OK!

He also argued “media reporting has dramatically overstated the extent of the losses,” stating that “realized and unrealized losses to date are approximately $2.1 billion of the $118.8 billion of assets we manage on behalf of our clients.” A final picture is expected to emerge in June when AIMCo delivers its next quarterly report.

Institutional Investor reporter Leanna Orr (Photo: Twitter).

For its part, Alberta’s United Conservative Party Government wants very, very badly for AIMCo to manage all Alberta public-sector pension funds for its own purposes — which are presumably unrelated to the gambling mentality that led to the bet that lost billions but may involve some very bad bets of the UCP’s own. That desire also includes the party’s dream of taking over all Albertans’ retirement security funds now in the Canada Pension Plan. So we can expect the usual UCP suspects on social media to start repeating Mr. Uebelein’s talking points incessantly as the debate over AIMCo continues.

Meanwhile, the same day Mr. Uebelein posted his letter, the reporter who broke the original story wrote in a New-York-based online publication for institutional investors that it was “amateurish” trading that blew up AIMCo’s volatility trade strategy.

“Many traders believed that they were effectively getting free money,” wrote Leanna Orr in Institutional Investor. “Banks were paying to get risk off their books in order to pass stress tests regulators imposed after the last financial crisis. But, the thinking went, the insurance would never actually pay out, because such a dramatic crash had never happened.”

The capped-uncapped strategy is amateurish,” she quoted a volatility market consultant as saying.

Alberta Premier Jason Kenney (Photo: David J. Climenhaga).

Calling AIMCo’s approach “a beginner’s mistake,” the consultant observed that “anybody with experience in options and volatility trading knows that those ‘century-rare’ events happen every few years — much more frequently than the simpler math would tell you. It’s a guarantee. How often should you play Russian roulette? How about with three bullets?”

It’s shocking to see professional money managers adopting such a strategy, the consultant said.

In her story, Ms. Orr described the Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan as being among the world’s top institutional investors, who know how to conduct themselves in volatile markets.

“Experts and data put AIMCo on a lower tier of sophistication,” she wrote. “The organization may not have understood the risks it was taking. Or AIMCo leaders buckled under pressure mid-crash and killed a thoughtful — if risky — program.”

It doesn’t matter if you don’t have your savings in an Alberta public sector pension plan, you should think about that observation when you ponder the covetous glances cast by Alberta Premier Jason Kenney at your Canada Pension Plan.

Even without considering Ms. Orr’s troubling story, there’s nothing in Mr. Uebelein’s letter to suggest we should have any more confidence in the acuity or judgment of AIMCo, whether the size of the loss turns out to be $4 billion, $2 billion or some other sum.

It will still take time to restore trust in AIMCo. The government of Alberta still needs to put the plan to force Alberta pension plans to deal only with the Crown corporation on hold, and to stop the effort to move the better-managed Alberta Teachers Retirement Fund over the objections of its contributors and retirees into AIMCo’s portfolio.

And, sorry, but AIMCo’s senior management team still needs to do more than promise, as Mr. Uebelein did, to “avoid a repeat of this outcome, regardless of market turmoil.”

No matter what Premier Kenney and the UCP want, this story is still not going away.

15 Comments to: CEO’s letter does nothing to restore confidence in AIMCo after its volatility strategy led to ‘a very unfortunate loss’

  1. tom

    May 3rd, 2020

    “No matter what Premier Kenney and the UCP want, this story is still not going away.”

    Bang!

    Reply
  2. jerrymacgp

    May 3rd, 2020

    In corporate governance, the CEO is 100% accountable to the Board for the performance of the entire organization; in effect, the CEO is the Board’s only Employee, and the proverbial “buck” passes from the corporate organization to the Board via the CEO and nobody else. The Board is accountable to the Owners — in this case, everyone whose investments are managed by AIMCo — for the performance of the organization as a whole, and for oversight of the CEO’s performance in particular.

    The only questions here are, was the CEO in compliance with the policy direction given him by the Board, and did the Board exercise its due diligence in monitoring the CEO’s performance? Whose heads should roll, the CEO’s, or the Board’s?

    Reply
  3. Bob Raynard

    May 3rd, 2020

    One of the things that is important in this episode is what has AIMCo learned from this experience? So far the lesson seems to be if they make a major blunder they can fix the problem by writing a letter.

    Reply
  4. !?

    May 3rd, 2020

    It will be interesting to see what ‘speaking fees’ AIMCo President and CEO Kevin Uebelein has been getting – and from who. Sadly, those FOIs are probably locked.

    https://www.nakedcapitalism.com/
    A good place to start if you want to know about pension fund administration shenanigans.

    Reply
  5. Lars

    May 3rd, 2020

    Is there any reason the teachers’ union can’t sue the government to prevent it from placing their pension fund under AIMCo? Certainly no less confrontational representation to the UCP appears to be doing any good.

    Reply
  6. alan

    May 3rd, 2020

    The political spin of the professional bullshit artist is truly a marvel. And what is even more amazing, is that they never tire of themselves, or their fables. All the while, the obsequious followers keep eating it up and enjoying every minute of it.

    “For the bullshitter, however, all these bets are off: he is neither on the side of the true nor on the side of the false. His eye is not on the facts at all, as the eyes of the honest man and of the liar are, except insofar as they may be pertinent to his interest in getting away with what he says. He does not care whether the things he says describe reality correctly. He just picks them out, or makes them up, to suit his purpose.”–http://www2.csudh.edu/ccauthen/576f12/frankfurt__harry_-_on_bullshit.pdf

    https://www.facebook.com/kenneyjasont/videos/10155536376167641/

    What does ‘accountability’ and ‘personal responsibility’ really look like in Alberta? If one considers oil and gas company environmental clean up costs, it means taxpayers foot the bill. What does it mean for sophisticated Alberta pension fund managers that lose “about $3 billion on top of substantial, first-quarter losses to portfolio value that nearly all public funds are dealing with amid the coronavirus crisis, “? A promotion? A salary increase? Both a promotion and a salary increase?

    Reply
  7. Comment

    May 3rd, 2020

    No problem! AIMCo has billions of teacher pension dollars coming its way soon.

    Reply
  8. Abs

    May 3rd, 2020

    This may be part of a grand plan to punish and bankrupt all of Alberta’s “undesirables”, that is, anyone who is old/retired/educated/an educator/a pubic employee/a former public employee/not an oil executive (if Covid-19 doesn’t finish them off first). Once the populace is poverty-stricken, starving and weak from poor health, they’ll be much easier to control and a source of cheap labor on par with other banana republics. Pilllaging is top-down in this province. Remember who has ultimate power over the funds. It is not AIMCo.

    Welcome to the craps table.

    Reply
  9. Brian

    May 3rd, 2020

    Kenney and the UCP are controlled by CAPP,,,so is AIMCo

    Reply
  10. Dave in Sask

    May 3rd, 2020

    Bullshit and bluff will beat brains every time in Alberta, especially in rural Alberta.

    Reply
  11. Just Me

    May 3rd, 2020

    The goal is clear …

    The UCP intend to use Alberta’s pension savings to soak up toxic assets in the oil and gas industry. That’s it. Free money and zero liability for everyone of Alberta’s dead and dying fossil fuel companies.

    As for new projects in the industry, no need to worry about investment capital drying up when ‘Daddy Warbucks’ Kenney is coming with other bags of other people’s money in hand.

    It’s been said that Alberta earns more revenue from VLTs than from O & G royalties. Seems they are about to take the next big step and turn the whole province into a casino.

    Reply
  12. Stu, Just Stu!

    May 4th, 2020

    I’m at the point where I’m wishing I could take my contributions out and and manage them myself. Many of us public sector types are relying on a moderate pension for our moderate retirement in our old neighbourhoods. It just is not fair that AIMCo and politicians get to play around with these funds.

    We need to have AIMCo held accountable. An unfortunate loss is the large fish you almost had to the net. Billions of pension dollars–requires many creative adjectives to describe the loss.

    Stay safe everyone!

    Reply
  13. Ct

    May 4th, 2020

    When you talk in billions yes 2 billion is a lot but is still less than 2% of the entire fund. Funny how the media and their agenda will do anything to make it sound catastrophic when in reality it’s less then 2%. Ok so instead of the fund making 6% last year we will say it only made 4% because of the 2% loss of this “catastrophic event” caused. Now there’s not much of a story is there.
    Media is a bunch of f liers and all they do is scam the population with lies and their narrative. Canadian journalists no better then CNN or fox news all a bunch of fake reporters.

    Reply
    • Athabascan

      May 4th, 2020

      Hey CT, you are missing the point.

      Even if it’s “only” $2 billion, and that only represents .00000001`% of a $ trillion, that’s irrelevant.

      What is relevant is the money was lost due to gross incompetence, or worse, on the part of AIMCO managers. No self respecting institutional investor is lending or investing in failing oil & gas right now. Actually, the biggest banks in the world won’t lend money to oil & gas companies. In point of fact, many pension funds and hedge funds are divesting and dumping their fossil fuel stocks .This has been going on for a while now.

      Yet, AIMCO knows better? They are amateurish at best, corrupt at worst. So, who will be held to account? No one apparently, because “it’s only” $2 billion? Let’s ask the Alberta public health, or public education how much $2 billion represents.

      Or, if you are obsessed with the oil and gas industry, let’s ask how many orphaned wells we could rehabilitate with $2 billion. In truth that amount might actually be as high as $4 billion, but hey who’s counting, amirite?

      il & gas companies that were teetering on the edge of bankruptcy of

      Reply
  14. Dave

    May 4th, 2020

    I suppose he had to come out and say something eventually. I am sure with some trepidation, as the UCP could use a good political scapegoat now, so he probably chose his words carefully. I don’t know if it will matter in the end, there will be a scapegoat, someone will get fired over this. It is the only way to give the impression to people that the problems at AIMCO have been solved, whether they actually have or not.

    Our Premier is making powerful enemies at an incredible rate and without gushing oil revenues as balm to ease all the political problems the UCP has created. A bull in a china shop with the ability to pay for all the damage they cause is just an irritation. One that can not is much worse than that, it is a mortal threat to the livelihoods and savings of many who rely on provincial government funding and competence.

    Reply

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