OPINION | Alberta's public pension fund manager is broken. Here's how we fix it
Pension money belongs to the workers, the Heritage Trust Fund belongs to all Albertans. We deserve better
This column is an opinion from Duncan Kinney, the executive director of Progress Alberta.
Pensions are the deferred wages of workers. They have been invested in order to supplement those workers' incomes when they are no longer able to work. It is the workers' money.
The Heritage Trust Fund is the money that has been saved from fossil fuel resource revenues by past governments. It is every Albertan's shared inheritance and it's our rainy day fund for the future. It is our money.
The Alberta Investment Management Corporation (or AIMCo) manages both of these files and they have shown themselves to be remarkably incompetent.
AIMCo reportedly vaporized $4 billion under its care [AIMCo says it's $2.1 billion*] due to being on the wrong side of some volatility-based derivatives reminiscent of The Big Short, likely uncapped variance swaps on an investment product called reverse convertible auto-callable notes.
But whatever financial gobbledygook you call it, the money is gone. Kaput.
The day after that story came out, the organization I work for, Progress Alberta, released a report detailing more than $1.1 billion worth of risky investments by AIMCo into oil and gas firms. As a kicker, those fossil fuel firms that AIMCo has invested in have more than $3 billion worth of environmental liabilities on their books.
So, we get kicked in the gut twice. Not only do we lose money if the companies go belly up (as one of them already has), but we get stuck with the bill for the environmental cleanup, too.
On top of this, recent legislation passed in the fall by the provincial government will see the Alberta Teachers' Retirement Fund handed over to AIMCo, over the objections of teachers. One big reason why they're angry is the fact that the teachers were doing just fine managing their own pension fund and consistently beating performance benchmarks.
In addition, under Bill 22, pension funds are no longer allowed to shop around between different pension fund managers. When your pension fund manager nukes $4 billion, you might just want to check out the competition.
But no, it's a shotgun wedding between Alberta's public pension plans and AIMCo, and Premier Jason Kenney is standing there with the shotgun slung over his shoulder.
So, AIMCo is broken. How do we fix it?
First off, AIMCo has to deal with its transparency problem. Both the Canada Pension Plan Investment Board and the British Columbia Investment Management Corporation regularly disclose what they've invested in — AIMCo does not.
There is simply no earthly reason why the pensioners whose funds are managed by AIMCo are being kept in the dark, especially when there are quarterly updates on the Heritage Trust Fund and the pension boards are briefed quarterly on fund performance.
When bigger and more successful pension funds disclose this information as a matter of procedure, it makes AIMCo look like it has something to hide.
Having a well produced and shiny annual general report is nice, but knowing what the actual investments are would be far better.
In a recent press conference, Premier Kenney took great pains to reinforce the fact that AIMCo "is an independent Crown corporation."
"Their investment strategy is overseen by the board of directors … their mandate is to maximize returns and they have a very good track record," Kenney said.
In reality, AIMCo is not nearly as independent as Kenney would like you to think (nor has it met its performance benchmarks from its largest pension plan in 11½ years).
The government and AIMCo work together to decide on things like committee structures as well as financial, administration and staffing arrangements. And since AIMCo is an agent of the government of Alberta, it is subject to direction by the finance minister.
The board of directors is appointed by the government of the day (it is a Crown corporation, after all). The board is responsible for strategy, hiring the executive team and, most importantly, executive compensation.
Most troubling, within the AIMCo Act is a section that allows the government to issue directives to AIMCo. In the case of one of these directives being issued, the government appointed board shall ensure it is "implemented in a prompt and efficient manner."
It is these government directives that started AIMCo down the calamitous path of investing in risky oil and gas companies with massive environmental liabilities, something we detail in our report.
In 2015, the Alberta NDP government issued the Alberta Growth Mandate, which was essentially an order to invest locally using funds from the Heritage Trust Fund. Two out of every three dollars invested under this mandate went to oil and gas projects and/or companies.
The federal government can do no such thing with AIMCo's federal equivalent, the Canadian Pension Plan Investment Board, or CPPIB. There are extraordinary safeguards built into the system to stop things like that from ever happening.
If a politician even attempts to contact a CPPIB board member, it must be reported. If the federal government tries to change the legislation governing the CPPIB, it needs more buy-in than you would otherwise need to amend the Constitution.
Until these substantial issues are rectified, no one can credibly call AIMCo independent.
When it comes to governance, there is an example of how to do it right just across the Rocky Mountains.
The British Columbia Investment Management Corporation, AIMCo's B.C. equivalent, has a majority of its directors appointed by the pension plans that are being managed by it.
It's an elegant way to ensure that the pension plans, and ultimately the workers whose money is being managed by these pension fund managers, control their own destiny.
Imagine trusting your retirement to a process ultimately controlled by a politician. That's how it works right now and that's why so many people are so angry.
There have to be consequences when your pension fund manager is incompetent, and right now the only thing the pension plans can do is write a strongly worded letter.
The workers whose pensions are being managed by AIMCo need to be able to fire someone who is so flagrantly wasting their money. And it is unclear from compensation disclosure whether there is any ability for the board to claw back executive compensation, as is common in publicly listed corporations
CEO Kevin Uebelein and the senior executive team at AIMCo have to go. There also needs to be a public review of AIMCo's pension performance compared to its contemporaries over the past 12 years by a respected third party or the auditor general.
Pension plans need the freedom to choose their own pension fund manager. This is the final key to fixing AIMCo.
As detailed in a 2016 paper written by University of Alberta political scientist Robert Ascah, by giving Alberta's public sector pension plans the ability to shop for the best value in investment management services, you improve both investment performance and customer service.
If the government and AIMCo don't move forward with these changes, they will quickly discover that nothing organizes people faster than messing with their pensions.
Citizens and pensioners are starting to come together. Unions, civil society groups and organizers are figuring this out, too.
Any government that doesn't address these concerns is going to find itself facing serious consequences from hundreds of thousands of angry citizens, pensioners and public sector workers.
*Editor's note: The Globe and Mail reported on April 21 that AIMCo had lost around $4 billion of the roughly $110 billion it manages by using a strategy that relied on little volatility in global markets. The story was first reported by Institutional Investor, a trade publication based in New York that follows pension funds. AIMCo chief executive officer Kevin Uebelein issued a statement on April 30, disputing the scale of the loss. Uebelein said realized and unrealized losses to date were about $2.1 billion but would likely change. He blamed it on markets that "behaved in a manner never-before-seen" and said AIMCo's board of directors had begun a review using internal audit capabilities and outside, third-party experts. Read his full statement here.