Alberta government should keep AIMCo free from government intervention

The Smith government recently fired the CEO and all 10 board members of the Alberta Investment Management Co. (AIMCo), the $169 billion asset manager that manages the Alberta Heritage Savings Trust Fund and several public pensions including the Alberta Teachers’ Retirement Fund.

Why?

According to the government, the shakeup was necessary due to AIMCo’s rising operating costs, management fees and staff costs, which have not produced a higher return on investment. Finance Minister Nate Horner said things weren’t going to change “without a major reset.”

However, Premier Smith’s dismissal of the entire AIMCo leadership team may also pave the way for government control of AIMCo’s investments, or as one columnist put it, turn AIMCo into “the province’s cookie jar.” This would be bad news for Albertans invested in AIMCo’s funds, particularly if the government forces AIMCo to increase the share of assets invested in specific companies and projects in Alberta—whether in the oil and gas sector, artificial intelligence or any other industry the government may favour. (This would not be unprecedented; Quebec's Caisse de dépôt, which manages the Quebec Pension Plan among other plans, has a dual mandate to optimize risk-return and invest in the province.)

But if increased investments in Alberta promised higher risk-adjusted returns, AIMCo’s independent investment managers would need no direction from the government to shift investment strategy. This is not to say that private investment managers are omniscient, but they’re at least as capable as government bureaucrats in identifying investment opportunities.

So why would the Smith government—or any government—want control of public pension assets? Again, to promote its own investment objectives, whatever those may be. In this scenario, the current number one priority of AIMCo—that is, to maximize returns for investors—would take a backseat to the government’s priorities. Of course, some might argue that AIMCo’s investors are also likely to be Alberta residents who might benefit indirectly from investment reallocations. For example, AIMCo investments in local companies might help create jobs and increase wages for AIMCo investors, while AIMCo investments in the housing sector might improve housing affordability for AIMCo investors living in Alberta.

But there’s a problem with that argument—while AIMCo investors would bear the costs of government-directed investment strategies, the indirect benefits would be broadly distributed to many residents of the province who did not invest their money in local companies or local housing projects. This would amount to an indirect and unlegislated effective tax increase on a specific set of Albertans to benefit other Albertans.

Finally, politicians and political parties are primarily concerned about staying in power. To win elections, politicians promise financial benefits (including government subsidies) to voters who are most likely to benefit from those promises and vote in their favour, while effectively passing the costs on to residents who either don’t vote or who are unlikely to base their voting behaviour on the government’s promises (at least to the same extent as the beneficiaries of those policies). Put differently, if the government effectively controls a portion of AIMCo’s investment strategy, it may promise to use pension assets to curry favour with specific voters. That’s not a recipe for an efficient allocation of private financial capital meant to benefit investors under the AIMCo umbrella.

In sum, all Albertans should want the Smith government to maintain the independence of AIMCo from government intervention.