The removal of the entire board of Alberta Investment Management Corp., Edmonton, and its CEO was “surprising” and “unprecedented,” said Keith Ambachtsheer, director emeritus of the International Centre for Pension Management, a Toronto-based global network of pension organizations.
On Nov. 7, the provincial government of Alberta terminated the entire board of the C$168.9 billion ($124.5 billion) AIMCo and its CEO, Evan Siddall, citing underperformance issues and rising costs. Alberta Premier Danielle Smith's government said a new board chair will be appointed within 30 days and that a new board will be established after a permanent chair is named.
In the interim, Nate Horner, Alberta’s president of treasury board and minister of finance, was appointed the sole director and chair for AIMCo. In addition, Ray Gilmour, the province’s deputy minister and secretary to cabinet, was appointed the interim CEO at the pension fund.
AIMCo is a “crown corporation” of the province of Alberta, which means it is a government-owned organization. Ambachtsheer, who is also executive-in-residence at the University of Toronto’s Rotman School of Management, said the federal government of Canada cannot stop a provincial government from taking such actions at a pension investment organization that the province itself created.
He also described the ongoing saga at AIMCo as unique, and that such drastic measures would be unlikely to happen at other Canadian pension funds.
"Keep in mind that AIMCO is not a pension plan," he said. "It is an investment manager that manages the assets of public sector pension plans in Alberta; for example, teachers, municipal employees, etc."
Examples in other provinces of similarly structured pension fund managers, he noted, are the C$452 billion Caisse de Depot et Placement du Quebec, Montreal; the C$77.4 billion Investment Management Corp. of Ontario, Toronto; and the C$229.5 billion British Columbia Investment Management Corp., Victoria.
The mass termination and upheaval at AIMCo will also “likely have a significant impact” on AIMCo's culture and investment practices. He added that even after a new board and permanent CEO is installed, it’s “very unlikely” that things will return to normal at the pension fund. “The big question is: Why did the Alberta government do this?" Ambachtsheer asked.
Fees, costs, lower returns
Among other things, in explaining why it took these measures, the Alberta government cited AIMCo's significant increases in operating costs, management fees and staffing without a corresponding increase to return on investment.
From 2019 to 2023, the government noted, AIMCo’s third-party management fees increased by 96%, the number of employees increased by 29%, and salary wage and benefit costs increased by 71.4%.
Over that time, the fund delivered an average annualized return of 7.62%.
For calendar 2023, AIMCo returned a net 6.9%, below the benchmark return of 8.7%. For the three- and five-year periods ended 2023, the fund returned a net 5.8% and 6.1%, respectively, vs. benchmarks of 3.6% and 5.9%.
However, the fund underperformed in calendars 2019 and 2020, returning a net 10.6% and 2.5%, respectively, compared with benchmarks of 11.1% and 8% for those years. In the first half of 2024, AIMCo returned a net 5.4% (no benchmark was provided for this period).
For context, Ambachtsheer noted that AIMCo had suffered significant investment losses in 2020, and that this had led to reconstituting its board and senior management team over the 2021-2023 period. “This history makes last week’s wholesale dismissal of AIMCO’s new board and senior management team difficult to understand,” he said. “Realistically, it takes a decade to assess the impact of such major changes.”
Ambachtsheer pondered: “Was there something in the benchmarking processes that triggered the Alberta government’s actions? If not, was fraud or major conflicts of interest detected? If not, what exactly was the trigger that led to the Alberta government’s dramatic actions so soon after the governance and management changes it made over the 2021-2023 period?”
Such changes, among other things, included naming a new board chair, various new board members, new CEO, chief risk officer, chief technology officer, executive vice president of public equities and new senior managing director-fixed income.
He also wondered “what makes the government think it can improve on the high quality of the board and executive team members it just fired? And why would (other) high-quality board members and senior executives want to work for an organization owned by a government that appears to be behaving erratically?”
According to its mandate, AIMCO “operates independently and at arms’-length from the government of Alberta and it is governed by a professional board of directors that is independent of the government of Alberta and AIMCo management.” However, the mandate also states that AIMCo’s directors “shall be appointed by Orders in Council on the recommendation of the minister (of finance).”
The mandate also emphasized that there is “broad cooperation and collaboration between AIMCo and the government of Alberta.”
Politicians vs. investment experts
Alberta Premier Smith and Finance Minister Horner are members of the province’s ruling United Conservative Party. Court Ellingson, Alberta’s shadow minister for finance and a member of the opposition Alberta New Democratic Party, criticized the government’s actions at AIMCo, calling it a “drastic, earth-shaking move” and described Horner as a “politician, not an investment expert.”
“Appointing a UCP politician the head of it sends entirely the wrong signal to Albertans and the investment community,” Ellingson said in a statement. “The premier (Smith) herself appointed some of these AIMCo directors. The finance minister (Horner) himself said this spring that AIMCo was doing a good job. To suggest this is about AIMCo salaries, when this government passed legislation to remove the caps on salaries for board members, is ludicrous.”
Ellingson added that AIMCo’s “poor returns” were a “clear reflection of the UCP’s incompetence.”
“We have raised concerns about their poor returns for years, and we’ve noted AIMCo’s returns have been below that of the Canada Pension Plan,” he noted.
Ellingson also referred to a proposal Smith made last year in which she called for the creation of a provincial pension plan (the Alberta Pension Plan) and pulling out of the national C$646.8 billion Canada Pension Plan, Toronto.
“Until now, the UCP even proposed using AIMCo to manage the proposed Alberta Pension Plan,” Ellingson stated. “Any such APP scheme should now be completely off the table.”
Ellingson called for the removal of Horner from governing AIMCo and asserted that a “non-partisan interim board and CEO” should be installed at the fund.
Union condemns the moves
The Canadian Union of Public Employees also condemned the measures, stating on Nov. 8 that the government of Alberta's “unilateral changes to AIMCo's board without any consultation with public sector unions” showed a “deep disregard for the fact that pension funds belong to Alberta workers and retirees, not the government.”
"Removing the ability of pension plans to move with their feet undermines pension security," stated Rory Gill, president of CUPE Alberta. "The solution for AIMCo performance is to restore the right of pension plan members to choose who administers their retirement savings, not have a government minister continue to interfere through political appointments."
Neither AIMCo nor the government of Alberta could be immediately reached for comment.
