An Alberta pension plan is reviewing the strategy of its provincial investment manager after a volatility trade went awry, leading to a loss of about 10%.
The Local Authorities Pension Plan, Edmonton, which has more than 275,000 members and about C$47.2 billion ($35 billion) in assets, said the Alberta Investment Management Corp. lost it C$5.1 billion in the first quarter, with "nearly all" asset classes underperforming. A downside protection strategy that Local Authorities implemented cut the total hit to about C$3.3 billion for the quarter.
Edmonton-based AIMCo said on April 30 that a bet against market volatility had lost about C$2.1 billion at the time and that it was working to limit the total eventual loss, which would be finalized when the strategy winds down in the middle of this month. The reports of the money-losing strategy increased scrutiny on AIMCo, and the manager said it was conducting a review of the strategy using its internal auditors as well as third-party experts.
The Local Authorities plan said in a statement Wednesday that it is "considering all available options for attaining better alignment with AIMCo on its approach to taking risk in investing LAPP's assets" and that an upcoming, legislatively mandated review of its investment-management agreement with AIMCo provides a "timely opportunity" for that process.
AIMCo manages more than C$100 billion for the province's government, pension funds and endowments. The firm said it strives for alignment with its clients and looks forward to working on improvements with the Local Authorities plan. AIMCo also said its broad portfolio diversification will ultimately protect clients, but that the extreme market decline in the first quarter reduced the benefit of its diversification.
"In an environment where all investors felt extreme pain, we certainly did too," Chief Executive Officer Kevin Uebelein said in an emailed statement. "We actively reviewed and recalibrated our strategies to limit losses and have openly communicated with our clients through this challenging quarter."