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New management is now required at AIMCo to restore trust after $4-billion loss

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Alberta Premier Jason Kenney at Wednesday's COVID-19 briefing, when he offered his discourse on pension policy. Image: Screenshot of Government of Alberta video

Having lost more than $4 billion on an incomprehensible gamble on market volatility, senior management of the Alberta Investment Management Corp. needs to apologize and resign.

AIMCo is supposed to manage working Albertans' retirement savings and what's left of Peter Lougheed's Alberta Heritage Savings Trust Fund. In other words, working people's life savings and public money.

The irresponsible bet made by AIMCo, to put it in very simple terms, was that the market would remain stable. When the market turned volatile in the wake of the global coronavirus pandemic, the bet was lost and with it the money.

This does not encourage a high degree of confidence in the acuity of AIMCo management. It hardly requires a finance degree to understand that stock markets are inherently unstable in the short term. A subscription to a respectable business newspaper should provide an understanding of this point.

That this bet was made at all is evidence of a fundamental and unacceptable error in judgment, no matter how clever and knowledgeable the gamblers.

This wasn't like making a bad bet about how an individual stock might perform, either. It was in effect a gamble that the entire market would behave in a particular way, one that a great many knowledgeable people would have assumed was unlikely even without a global health emergency. No assets were purchased that might someday recover their previous value. The money, once lost, is gone forever.

Unidentified sources quoted by the Globe and Mail, which followed a story broken by InstitutionalInvestor.com, said AIMCo insiders now acknowledge "its executives were not fully aware of the risks they were taking." Think about that for a moment. Talk about the definition of a foolish bet!

In fact, as a result of this gamble, AIMCo lost money when the market crashed, then lost more when it bounced back, because both changes were manifestations of volatility and the bet was that the market would be stable.

AIMCo's spokesperson claims no internal or external rules were broken. This is no excuse. Senior management allowed this irresponsible behaviour to take place. Senior management must take responsibility.

Few reasonable observers would characterize such behaviour as fulfilling the duty to operate the corporation in the best interests of the owners of the funds it managed. No Albertan, no retired person with savings managed by AIMCo, can have any confidence in this company as long as the current leadership remains on the job.

No matter what happens, it will take time to restore public confidence in AIMCo. It is imperative, therefore, that the Kenney government put on hold its plan to require all public sector pension plans to use AIMCo as their funds manager.

This includes suspension of legislation that forces several public sector pension plans to use only AIMCo as their financial manager, and the controversial decision to force the Alberta Teachers Retirement Fund into AIMCo's portfolio. If that takes another bill to achieve, so be it.

Premier Jason Kenney has already indicated he is not willing to consider that possibility. During a rambling discourse during Wednesday's daily COVID-19 briefing, he said "it's ultimately a decision of the government of Alberta," not each pension plan's board, who gets to manage the plans' funds.

In what appeared at times to be an extended exercise in gaslighting, Kenney tried to pass off AIMCo's huge loss in earnest tones as if it were just another result of the recent downturn in the stock markets. "It's not surprising that we'd see investment funds of all scales and all places incurring losses right now."

Accusing a reporter of getting the facts wrong (he hadn't) the premier claimed the transfer of the ATRF's funds "ultimately will generate better returns by increasing the scale of AIMCo's portfolio, allowing it to invest prudently in a larger class of assets, also allowing it further to diversify its portfolio to thereby diminish risk."

Wednesday was probably not the best day to make such a claim.

The premier then doubled down and touted his scheme to replace the Canada Pension Plan with an Alberta version, managed by AIMCo. "I think it's quite reasonable for Albertans to ask whether we would be better off and be able to operate a public pension plan at lower premiums that would help us to create more jobs while keeping those returns here in Alberta. That's a question we're going to come back to once we get through the crisis."

It is nevertheless possible to hope cooler heads in the UCP cabinet and caucus might prevail when the severity of what has happened at AIMCo is considered, along with the possibility there will be more revelations in the days and weeks ahead.

If there is no new executive at AIMCo in which pensioners and the public can have confidence, legal and political challenges to the legislation forcing the pensions to rely on AIMCo will inevitably be accompanied by demands for the outright repeal of the relevant parts of the Reform of Agencies, Boards and Commissions and Government Enterprises Act, and even the dismantling of AIMCo.

This might not move the UCP, but governments do change from time to time, even in Alberta. Count on it, UCP MLAs will hear about this in their constituency offices, and the experience is unlikely to be a pleasant one.

It would not be a complete surprise if it were soon revealed the losses are larger than we have been told. Pension plans whose funds must by government fiat be managed by AIMCo may have to take measures to protect their still-working and retired members' assets. Questions are bound to be asked if the pension plans administered by AIMCo were fully informed of the company's plan to bet so much on a guess about what the markets would do. While such uncertainty drags on, AIMCo will look worse at every step.

AIMCo is expected to deliver its next quarterly report in June. We will have a clearer picture of the full extent of the damage then.

No matter what Premier Kenney and the UCP may wish, this story is not going to go away.

David Climenhaga, author of the Alberta Diary blog, is a journalist, author, journalism teacher, poet and trade union communicator who has worked in senior writing and editing positions at The Globe and Mail and the Calgary Herald. This post also appears on his blog, AlbertaPolitics.ca.

Image: Screenshot of Government of Alberta video/Youtube

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