In a dramatic purge in a pension sector renowned for its stable governance, the government in Canada’s western province has removed the entire board of the $160 billion Alberta Investment Management Corporation (AIMCo) and sacked its CEO, citing rising costs and poor returns.
The province’s finance minister conservative Nate Horner, who has been in the position since June 2023, has been appointed the sole director and chair for AIMCo on an interim basis. Before being elected to parliament in 2019 aged in his mid-30s, Horner was a rancher with a cow-calf mix farm operation.
The abrupt departure of AIMCo’s chief investment officer Marlene Puffer earlier in September foreshadowed the most recent turmoil. Puffer joined AIMCo in 2023 from Canada’s railway pension fund CN Investment Division and was part of a new management team put in place to shore up governance at the asset manager after 2020 losses.
“Last week’s wholesale dismissal of AIMCo’s new board and senior management team is difficult to understand,” Keith Ambachtsheer, University of Toronto Rotman School of Management executive in residence and pension system luminary, told Top1000funds.com. “Was there something in the benchmarking process that triggered the Alberta government’s actions? If not, was fraud or major conflicts of interest detected? Also, what makes the government think it can improve on the high quality of the board and executive team it just fired?”
Another industry insider called the sacking “sensational” noting noone in the wider industry “saw it coming.”
“Most of the major commentators agree that this was unprecedented,” they added.
A new board chair will be appointed within 30 days, Alberta United Conservative Party premier Danielle Smith said in a statement.
Meanwhile, the ousted board included pension veterans like interim chair Ken Kroner and Jim Keohane, the former chief executive of the Healthcare of Ontario Pension Plan.
AIMCo’s chief executive officer, Evan Siddall, in the role since summer 2021, was also fired. Ray Gilmour, deputy minister of executive council, a senior public servant in Alberta, has been appointed interim CEO.
Pressure to invest more at home
One rationale for the board overhaul could be a push by policy makers to get the fund to invest more at home. Alberta’s premier Danielle Smith has made it clear she wants the pension fund to put more capital to work in Alberta.
Some stakeholders have already voiced concerns that this could mean more investment in fossil fuels.
Like Alberta Federation of Labour (AFL) president Gil McGowan who said the billions of dollars of pension assets controlled by AIMCo belong “to workers, not the government,” continuing, “workers with money in pensions need to know they are secure. They remember Danielle Smith musing about using pension funds to prop up oil and gas companies that couldn’t otherwise get financing. They remember Danielle Smith musing about setting up a sovereign wealth fund, but she hasn’t been clear where the money would come from. Albertans are jittery. Rightly so.”
The encroaching politicisation of Canada’s $4.1 trillion Canadian pension industry was front of mind at FIS Toronto earlier this year. Ambachtsheer and the former chief executive of CPP Mark Wiseman warned the founding principles that have made Canadian funds exemplars around the world are under attack.
“The Canadian model is under threat today,” Wiseman said. “When you see trillions of dollars in assets, when you see a government that is running deficits, when you see economic malaise – and we’ve seen this in other jurisdictions –this is the time when pension assets get raided. And I’ll use that term, because that is the risk that I think the Canadian model faces today.”
Wiseman warned that the issue is “much more acute than people think”.
“It will come under a different guise, it’ll be said, ‘you should invest more in Canada’, ‘you should invest more in infrastructure’, ‘we should let people have access to their capital earlier’, or whatever excuse may be the fact of the day.”
Rising costs and struggling returns
AIMCo posted an overall return of 6.9 per cent in 2023 despite challenges in its real estate portfolio. The return, though positive, fell below its benchmark return of 8.7 per cent and policy makers, including Minister Horner, cited rising costs and poor returns as a key rationale for the re-set.
According to a statement from the government, between 2019 to 2023 AIMCo’s third-party management fees increased by 96 per cent; the number of employees jumped by 29 per cent and wage and benefit costs increased by 71 per cent. AIMCo has around 600 employees spread across seven offices in Canada, London, New York and Singapore.
One reason for rising costs has been the push into alternatives. Like the growing $7 billion private credit portfolio where the organization has recently expanded its talent base with new hires in New York and a strategy to push into large cap partnerships and deal flow out of the US.
The investor has also attracted criticism in recent years from some of its member funds. AIMCo manages assets for 17 pension funds and organizations, a more complex job than overseeing one single pool of capital. Speaking at FIS Toronto earlier this year, Puffer explained the complexities of running money over 32 pools of capital and paying attention to each client individually.
“We need to make sure we’re delivering what each client actually needs. Not just at the total portfolio or total fund level,” she said.
