An Alberta Pension Plan has merit — but not as a source of fresh capital for the energy sector
What's really behind the province's interest in the pension funds of Albertans?
Desperate times call for desperate measures, and that might be what Jason Kenney's government has in mind when it comes to supporting the energy sector. Yes, it's already invested in a $30-million war room and a public inquiry that will investigate its critics. But the biggest investment of all may be yet to come: your pension dollars.
That's one of the concerns that's been raised about Bill 22, the omnibus legislation that was rushed into law while the premier was down in Texas drumming up investment for the oilpatch.
It's been most vocally criticized for its impact on the investigation into the 2017 UCP leadership race, one that has already resulted in more than $200,000 in fines.
But the outrage over the decision to shut down Alberta election commissioner Lorne Gibson's investigation and terminate his contract may be providing cover for an even more troubling part of that bill — one that will force Alberta's teachers to give over control of their pension funds to the Alberta Investment Management Corporation (AIMCo).
It's not just the retirement savings of Alberta's teachers that the government has its eyes on, either.
As part of the Fair Deal Panel that Jason Kenney announced on Nov. 9 to "advance our vital economic interests," the repatriation of nearly $40 billion in Canada Pension Plan assets will be explored. Those assets would also be handed over to AIMCo, and they could be an irresistible target for an oil and gas industry that is struggling to attract investment — and a government that clearly wants to help it do just that.
AIMCo, which was created in 2008, does fine work on behalf of the 31 pension, endowment, and government funds whose assets — all $108.2 billion of them — it manages.
Yes, it has underperformed both the Alberta Teachers Retirement Fund Board and the Canada Pension Plan Investment Board (the latter by 3.1 per cent, per year, over the past five years), but it has been a capable steward of the capital under its control.
And the idea of an Alberta Pension Plan isn't a fatally flawed one.
Due to the province's relatively younger population and the fact that many people retire to either the interior or coast of British Columbia, Albertans pay approximately $3 billion more in payroll taxes than retirees in the province receive in CPP benefits.
If the goal of repatriating Alberta's retirement capital from Ottawa is about reducing administrative costs, capturing economies of scale and thereby lowering premiums, as Finance Minister Travis Toews and University of Calgary's Jack Mintz have both argued, then it's worthy of further study.
A larger goal?
But there is a very real risk that these are not the only goals, and that they may be subordinate to a larger one: providing a fresh source of capital to an energy sector that is being starved of it.
That crash diet is the result of a pair of trends, neither of which is exclusive to Alberta or its energy sector.
First, there's the growing divestment movement that has large financial institutions like banks, insurers, and sovereign wealth funds unloading their shares of fossil fuel companies, either in response to pressure campaigns or fears that the assets those companies hold will be stranded as the world takes action on climate change.
But there's also the pressure coming from another group of investors that cares far less about climate change than the habit that oil and gas companies have of focusing more on growing their production than their profits.
As the Financial Times noted in October, "The money pipeline is running dry for large portions of the U.S. shale oil sector, tipping drillers into bankruptcy and threatening the industry's breathtaking growth in oil production."
In 2016, U.S. oil and gas companies raised a whopping $56.6 billion in debt and equity. Through 10 months of 2019, they'd only managed $19.4 billion.
And while the Alberta government's spokespeople have been quick to dismiss the possibility of AIMCo's assets being directed to support Alberta oil and gas companies, that sort of hometown bias is one of the hallmarks of the Caisse de dépôt et placement du Québec, the manager of Quebec's pension assets — which just happens to be the model those in favour of an Alberta Pension Plan like to cite as proof of its viability.
It has used the funds it manages to invest in Quebec companies like Bombardier and SNC-Lavalin (indeed, it owns nearly 20 per cent of the latter) a number of different times, and there are surely some people in the energy sector who would welcome the same favourable treatment.
And unlike the Canadian Pension Plan Investment Board, which is largely immune to political pressure because of its governance model and pan-Canadian mandate, AIMCo could theoretically come under pressure from the Government of Alberta.
Sections 19 and 20 of the AIMCo Act, which established it as a Crown corporation, explicitly state that it must follow "directives" issued by the Treasury Board — ones that could include how or where to invest.
Danielle Smith, the former leader of the Wildrose party and a popular talk radio host, said the quiet part here out loud in a recent CBC interview. (Skip to the 5:36 mark in the video below.)
"If CPP starts bailing out of energy resources," she said, "we don't want to be in a position where our money is being used to support solar and wind or other experiments that the CPP — driven politically by a Trudeau government — might want to invest in."
Never mind that the Trudeau government can't actually influence the CPPIB's strategy, or that investments in solar and wind are increasingly attractive to asset managers around the world. Smith's apparent belief that Alberta's pension assets should be used to support the province's biggest industry is a leap that a lot of people are probably willing to take — even if AIMCo's track record on this front is something short of enviable.
There's Calfrac Well Services, whose shares are down nearly 70 per cent since its June 2016 deal with AIMCo (and almost 80 per cent since it exercised the warrants it picked up in that deal in 2017). That's better than Perpetual Energy, whose shares are down an eye-watering 95 per cent since AIMCo took a position in the company in February 2017. And the 9.1 million shares AIMCo picked up in Western Energy Services at $1.25 each in September 2017 are currently trading at 19 cents.
A rough ride
Yes, it's been a rough ride for anyone invested in oil and gas over the past five years, but the companies that AIMCo has chosen to invest in haven't exactly been world-beaters — and it's hard to see how giving it $50 billion more to invest would change that.
That's why, if the Alberta government genuinely wants to create its own provincial pension plan, it should take this issue off the table as soon as possible.
By amending the AIMCo Act to remove any possibility of government influence over investment decisions, it could allay concerns that the funds are being looked at as a potential source of corporate welfare for the oilpatch, rather than a trust that belongs to future retirees.
If it chooses not to, it will only invite more questions about what's really behind its increasingly conspicuous interest in the pension funds of Albertans.