The Decibel - Why is Stephen Harper taking over Alberta’s pension fund manager?

Episode Date: December 2, 2024

Last month, former Prime Minister Stephen Harper re-entered the headlines, after being appointed to chair the board of AIMCo, the Alberta Investment Management Corporation. His return followed mass upheaval at the company – with the Alberta government abruptly firing most of its senior leadership and board members. AIMCo is responsible for managing hundreds of thousands of public-sector pensions, totaling more than $169 billion. What is happening at Canada’s sixth largest pension fund manager and what does it mean for these pensions?James Bradshaw is the Globe’s institutional investing reporter. He’ll explain the shake up at AIMCo and why the separation of government from public pension funds is at stake. Questions? Comments? Ideas? Email us at [e-mail]

On November 7th, a lot of the top leaders at AIMCO, almost 200 of the more senior people at the pension fund manager, had gotten together at the Westin Hotel in Edmonton. That's James Bradshaw, the Globe's institutional investing reporter. AIMCO is the Alberta Investment Management Corporation. It manages the funds for Alberta's public sector pensions. It's supposed to operate independently of the provincial government. The CEO of AIMCO and three other top leaders were pulled out of the meeting, and it was the finance minister himself, Nate Horner, and one of his deputies who showed up to do it. And they were taken into another room, and they were told that they were being dismissed.

Their electronic devices, phones and laptops, were taken away, their access badges were taken away, and then the rest of the leaders at the meeting were told what was happening. And almost nobody had seen this coming. It wasn't just those senior leaders who were let go that day. A government press release went out saying that the government had also dismissed the entire 10-member board of directors of AIMCO. Oddly, that press release made no mention of the CEO or other senior leaders being let go, but it was immediately clear that something big and something unusual was happening. Today, James is on the show to explain what this means for hundreds of thousands of pensions managed by AIMCO, how former Prime Minister Stephen Harper is involved, and the reason

these kinds of corporations are meant to be independent from the government, and why that independence could now be at stake. I'm Mainika Raman-Wilms, and this is The Decibel from The Globe and Mail. James, thank you so much for joining me. Manika, so happy to be here. Great to be in studio with you. I think we should just start by explaining what exactly AIMCO does. I guess, how would you put it, James?

What do they do? So AIMCO is not a pension plan. It's a pension fund manager. And the best way to think about it is that it has a bunch of pension funds, as well as some other money, some endowment funds and one particular government of Alberta fund that are kind of pooled together. And it manages that money, it invests it on behalf of 17 clients, most of which but not all of which are pension plans, in order to try and get a good rate of return and make sure primarily that those pensions can be

paid for decades into the future. And it's one of the biggest pension fund managers in Canada. It's the sixth largest. It manages about $169 billion. And there are a number of these large pension funds in Canada, and they're some of the most significant investors in the world. Okay. And so when we're talking about pension funds, this is kind of like, I don't know, firefighters, health staff, like that kind of thing? Yeah. They've got about 500,000 beneficiaries and their families, and broadly speaking, they're public sector employees.

They're police, firefighters, teachers, municipal employees, university professors, those types of professions. And they are a number of pretty large pension funds that plan for those people's retirement. Okay. So as you said, one of the largest in Canada. I take it that other provinces actually have similar funds then doing this same kind of thing? Yeah, there are similar funds. A couple of good examples would be the Caisse de Depot et Placement du Québec, which is a large Quebec pension fund manager. It's got dozens of clients. It manages more than $430 billion. In Ontario, there's OMERS, which is a municipal employees retirement fund. They're all a little bit unique. They've all got

their own particular characteristics, but it's a similar model of pooling a number of funds together, investing on a large scale, and trying to get good returns for clients at a reasonable cost and a reasonable level of risk. Okay, so AIMCO manages these funds for public sector pensions. And you also mentioned, James, that they manage a government of Alberta fund. So I think you're referring there to the Heritage Savings Trust Fund. Yeah. Tell me about that. Yeah, this is emerging as an important piece of the puzzle. And to be clear, most of that money in AIMCO is pension money, about $140 billion of it. Out of $169.

Out of $169. The Heritage Fund, it's actually called the Heritage Savings Trust Fund, is a government fund. It was set up in the mid-1970s, and it took a portion of the province's resource revenue, basically oil and gas revenue. And the idea was to invest in the province, but also to save for the future, because they were looking ahead and knowing that these are resources that are not renewable, and one day they would be depleted, and they needed to save for and invest in the province's economic future. Over the years, the province, various governments have dipped into that fund at times, sometimes to pay for public infrastructure like parks or libraries, sometimes just to contribute to the province's general revenues for all of its spending priorities.

And it's grown over time, and it's now worth nearly $25 billion. But the government, it's becoming clear, has new plans for what it wants to do with that money. Yes. And this is the big part of what we're going to get into here. But I guess I just want to clarify. So this is a fund that AIMCO manages for the province. AIMCO is not a government entity, though, right? They're independent. The way to think of it is this. It is intended to be independent. It is intended to be arm's length, and it's intended to make its own decisions about how it manages money with a level of guidance from its clients. Its clients have input on what the mix of assets it invests in are, and also how much risk AIMCO

should take in doing that. And so there are parameters that the clients, including the government as a client of the Heritage Fund, get to set for AIMCO. And then AIMCO is supposed to go off and make its own decisions about how it does its investing within those parameters. At the same time, the government does get to choose some key figures for AIMCO. It gets to appoint the board chair. It has a say in appointing other members of the board of directors. So there is still some connection and there's supposed to be broad collaboration between the two, even though there's a level of independence. OK, so this kind of brings us back to then what happened in early November at that offsite AMCO meeting with with senior leadership being being let go. So what reason did the province give James for dismissing senior leadership? The reason that it has consistently given is that costs had risen quickly at AIMCO and that it didn't see a commensurate improvement in the

investment performance of the fund. And up to a point, that is true. Costs did rise fairly quickly in the last few years at AIMCO. Between 2019 and 2023, the staffing level went from about 465 people to 600 people. The overall costs were up something like 29%, according to numbers the government has provided. And so there was an increase in costs. But there was also another side to that story, because its investment performance had not been bad. It averaged about an 8% return over the last four years, which is not a bad rate of return, especially in a very volatile period for markets. And its overall costs, even after rising, weren't out of step with what most large pension fund managers in Canada spend. They use a ratio to describe it, but the easiest way to think about it is for every $100 they manage on behalf of their clients, they spent about $0.41 on costs to run the organization.

And that was higher than it used to be, but it was still in a lower tier relative to some of the other really large pension funds in Canada. And so pretty quickly, people started to say, this is the official story for what's happening here, but the math doesn't really add up. Okay. So the government says they felt that AIMCO was kind of not spending appropriately, but it seems like that's not really a widely agreed upon fact then. No, there was a clash here. So there were concerns that were raised with government. They came from stakeholders, people in and around AIMCO, people in and around the client funds who had concerns about aspects of the way AIMCO was spending money. And there were a range of things.

Some of it was as simple as things like travel spending decisions. There was one particular point of tension that we've reported about, which was AIMCO spent, according to our reporting, millions of dollars trying to set up a new strategy for climate investing. It was going to be a large fund for investing in the energy transition. They worked with former federal finance minister Bill Morneau on this. It was going to be called Carbon Shift. And they spent a fair bit of money, some of it on consulting fees, trying to get this off the ground. And it never did. They decided not to go ahead with it. One example that the government seems to have really seized on was AIMCO opened a couple of new international offices, one in Singapore, one in New York. The New York one, they took office space in a particularly coveted and

expensive office building called One Vanderbilt. So there were a lot of leaders at AIMCO who did not feel that anything that had happened would have risen to the level of terminating the CEO or other senior leaders or that kind of discipline. So there was a clash of cultures about how AIMCO was being run. The government clearly came to a decision that it had lost its way. On the other side, there was a group of senior leaders who thought AIMCO was transforming itself into what it needed to be, which was a sophisticated global investor capable of managing $169 billion, and in future, quite a bit more than that, on behalf of members for decades to come. This is an interesting kind of, I guess, maybe tension is the word here. So it sounded like AIMCO was kind of trying to diversify New York, Singapore

offices, like expanding in that way. I guess, was that part of what the government was taking issue with then? Yeah. So to take one step back, in the recent history of AIMCO, there has been some turbulence. And the major event that stands out was during the COVID-19 pandemic around 2020, a previous leadership team had placed a complicated but fairly significant bet, a type of investment that bet on the amount of volatility that there was in investing markets. And then the pandemic hit and volatility skyrocketed and that investment bet went bad and they lost more than $2 billion on it. And that prompted a whole review and that leadership team was ultimately turned over. And the team that was ousted more recently came in around 2021, led by Evan Siddall, with a mandate to do a bit of a turnaround plan, or as executives like to call it, a transformation plan. They were supposed to transform AIMCO, and they really did. Evan Siddall is a leader who likes to move fast. He's a pretty bold guy. He's known for being

outspoken, and he changed most of AIMCO's senior leadership team. They changed the way it manages risk and what the policies and procedures around that are. They started to overhaul its technology and the systems it uses to make investments. It was a big change in a short period of time. And that's part of where that increased level of staffing and cost came from. And as part of that, they opened more international offices as a way of being, as they saw it, closer to the action in some very important centers of the global investment world to try and get access to better investment opportunities. So there was a lot happening and a lot changing, and there was

a lot of investment. But in the eyes of the leadership team and a lot of the board, that was the mandate they'd been given when they were brought in. We'll be right back. I guess I wonder, James, how unusual is it for a province, I guess, to intervene with a pension fund manager like this? It's very unusual. I can't think of a recent example that is similar. And one thing that is worth understanding is that the large Canadian pension funds in Canada have been run on a model that's sometimes called the Maple model. And it's not perfect, but it has been fairly revered internationally, in part for the independence that these funds had from political interference or other types of interference and for the way they were governed.

And that has been seen as a point of pride and a point of success for the way pension dollars have been managed for a lot of people in Canada for a long time. And just to show the scale of that, the eight largest pension fund managers in Canada, including AIMCO, which is the sixth largest, manage well over $2.2 trillion. So it really matters how they are run. And it is very unusual for a government to step in with such a heavy hand. I wonder too, how can the government do this? Because it is supposed to be an arm's length situation with AIMCO and the government. So just practically speaking, how is it possible for the government to have such a say here? Yeah, that is one of the parts of this that has raised some eyebrows, particularly with the political opposition in Alberta. So what actually

happened on November 7th was the finance minister and the finance ministry issued an order that revoked the appointments of all of the board members and installed the finance minister himself, Nate Horner, as the board chair and the only board member for a short period of time. For about two weeks there, he was the board. And normally the finance minister wouldn't hire or fire the CEO of AIMCO. That would be the board's decision. But because he became the board, he was able to also remove the CEO and other senior leaders. And there was a transition period there for a couple of weeks where he was the board and the board chair. And they very quickly named someone named Ray Gilmore as the interim CEO. And Ray Gilmore is a long time,

long serving and very respected senior civil servant. He was the top civil servant in Alberta. And in that sense, he's a very qualified person, but he also doesn't have the background in investment management or pension fund management that you would normally expect in that role. So there was a pretty significant move here by the government to exert control. And it said it wanted to, as it put it, restore confidence in AIMCO, have a reset of the direction that the pension fund manager was taking. Okay. So it sounds like the Alberta government kind of wanted to restructure things a little bit here.

I mean, this all sounds like that arm's length separation, James, is kind of wanted to restructure things a little bit here. I mean, this all sounds like that arm's length separation, James, is kind of getting a little bit shorter, especially when you're talking about, you know, the finance minister stepping in as the board. That seems like quite a close connection. I think there are real concerns here about that. So the finance minister stepping in even briefly in the way that he did was one thing. Appointing a senior civil servant to be the interim CEO was another. And our reporting has shown that the government is in no great rush to replace him as CEO. So he may have some runway to be part of the plan to reset and reposition AIMCO.

And then there was one more decision that was made more recently, which was that AIMCO appointed a new board chair and some new board members. And as part of that, they added the deputy minister of finance as a permanent board member. The government has said they don't intend to put pressure on AIMCO. They don't intend to steer the way it invests. They just want to reset its direction. But I think there's still a lot of uncertainty about exactly where that will lead. Yeah. And we now know that a big name in Canada, Stephen Harper, former Prime Minister Harper, has also been involved in this. He's been tapped to chair the board going forward. James, why has Harper been chosen for this?

Well, if you ask the government, he is an eminent Albertan. He's a very experienced person. He steered Canada through the global financial crisis, among other things. He's also, since he left politics, had a career in the investment world. So they said they couldn't think of anyone more well-qualified to be the board chair of AIMCO and to help lead this organization. To put this in context, we first heard through our reporting that the government was eyeing Stephen Harper as the chair of AMCO's board in September of 2023. So this has been an idea that's been in the works for a long time. As of a couple of weeks ago, they finally got their man. He was installed as the chair chair, the government also reappointed three of the directors who were dismissed on November 7th in what it said would provide some continuity for the board going forward. So, of course, Harper left office as prime minister in 2015.

What has he been doing since then? He has developed a number of business interests. He has his own consulting and advisory firm called Harper and Associates. He's involved with at least two investment funds, and he's had some board seats. He's on the board of Alimentation Couchetard, which is the convenience store giant based in Quebec that is currently trying to do a mega deal to buy the parent company of 7-Eleven in Japan. And he's on the board of another company called Colliers International. So he's been really busy in the private sector,

even as he has often kept a fairly low profile. And that has actually raised some concerns. Our reporting showed that last year, when AIMCO was first looking at Mr. Harper as a provincial finance minister, Nate Horner, and he said that was not his job, that it was up to Mr. Harper to make sure he was on side with all of the rules. But Mr. Harper's various business interests have raised some eyebrows, in particular because we reported that he has in the past approached AIMCO about trying to set up conversations about investing in funds with which he was affiliated. So there are interesting questions there about exactly how Mr. Harper's business interest could interact with his role as AMCO's board chair. I should also note that he has said he will be AMCO's board chair on a pro bono basis. He's not planning to get paid for that position as the board chair normally would. So James, what does all of this tell us

about Premier Daniel Smith and the Alberta government's approach, I guess, to AIMCO? Well, I think one thing that's worth noting is that this isn't the first time the government has done something like this. They dismissed the entire board of Alberta Health Services in 2022 and the entire board of the Banff Center for the Performing Arts in 2023. So there is a bit of a playbook here. They like to do quick and dramatic resets of organizations when they don't think they're on the right path. I think we're still waiting to see what the full plan for AIMCO is here, but they've given us at least some clues about where they intend to take it. One is they've said they want a really tight focus on cost control.

So it's clear that Mr. Harper and Mr. Gilmore will be asked to keep a close eye on what AIMCO is spending. Another is that they've signaled they may want a different approach for how the heritage fund money is managed. Premier Daniel Smith has said in some interviews that she's looking at what she calls a hybrid approach. And by that, she means that she seems to understand that pension fund dollars need to be managed a certain way, fairly conservatively, with a very long-term view. But she also seems to want a chance to grow the heritage fund much more quickly. And she's talked about taking it from $25 billion right now to at least $250 billion or maybe more over the coming decades. And one of the things the province did the same day that it dismissed the top leadership at AMCO was it released an order creating a new entity, which we now think is going to be called the Heritage Fund Opportunities Corporation.

And there's a sense that there will be a shift in direction in how that money is invested and managed. And maybe that it will be more oriented towards investing in the province's future and the province's priorities in some way. And maybe that will be somewhat different from the way the pension dollars are invested. Yeah. It's interesting, James. We've also in the last few months heard a lot about Alberta wanting to withdraw from the Canada pension plan and establish their own provincial plan. I guess I just wonder, is there any connection here between that idea and what's happening now with AIMCO? The government has said, the finance minister has said those two things are not related.

But I do think there's a bigger picture here where Alberta has looked for some time at ways to have more control, more sovereignty over the way some of these things are managed on behalf of Albertans. plan, they released a report they had commissioned that estimated that if they withdrew, Alberta would be entitled to more than half of all of the assets in the Canada pension plan. The number they put out was $334 billion. And if you're wondering why one province could be entitled to that much, the rationale was that they have had a younger population, a higher earning population, and Alberta thinks it has, as they put it, over contributed to the Canada pension plan. Of course, that is disputed by other provinces, but yes, this is their argument. That has been disputed by the federal government and other provinces and pension experts and economists. And that dispute is sort of working its way through now. The federal government asked the chief actuary of Canada to go away and try and come up with a number for what Alberta would be entitled to.

And it might, in the end, be quite a different number. So that whole plan has been a little bit on hold. But the government says these two things are not related. And this is really just about setting AIMCO on a better path and about making sure the Heritage Fund can be grown in future, possibly on more of a sovereign wealth fund type of model. But it remains to be seen exactly what their plans are. So just lastly here then, James, if we look at all these changes that have been happening at AIMCO and we look ahead to the future, what does this mean for people? Like, especially if you've got a pension that's involved in this, what effect is this going

to have on you? I think the stakes are pretty high. The obvious first consequence here will be for the investment returns for working Albertans and pensioners in Alberta and what that's going to mean for ANCO's ability to pay their pensions long term. In the best case scenario, it does better and there's more money to support that. But anytime you have this level of upheaval, it is worth asking the question of whether it could disrupt those returns. So that's first and foremost and top of mind. But I think there are other

consequences that are potential here. One is just for AIMCO's reputation, and that goes to its ability to attract top talent at a time when it needs to rebuild its senior executive team and chart a new course here. Another would be for its reputation with other large investors. It's part of a very sophisticated, very competitive global landscape. Most of these investments, it doesn't make alone to get access to the best ones. You partner with other investors. You share the risk with other investors. You share the risk with other investors. So are they going to look at AIMCO and want to invest alongside it in

multi-billion dollar deals if they're unsure about where it's going? And then I think there is that larger question of independence for the pension fund sector as a whole in Canada. Because as we mentioned, the way this money is managed, the way investment decisions are made, and whether that is influenced by political priorities, by the way the winds are blowing in a particular province or at the federal government level, really matters. You're talking about a system where a few tenths of a percentage point in investment returns can be worth hundreds of millions of dollars. And so you tinker with these things at your peril. And often when these sorts of things happen, the default response from a lot of Canadians has been, keep your hands off my pension.

James, thank you so much for taking the time to be here and explain all of this today. It's my pleasure. Thanks for having me. That's it for today. I'm Mainika Raman-Welms. Our producers are Madeline White, Michal Stein, and Allie Graham. David Crosby edits the show. Adrian Chung is our senior producer, and Matt Frainer is our managing editor. Thanks so much for listening, and I'll talk to you tomorrow.