Boom times will return, Alberta Investment Management Corp. head predicts
Alberta’s money czar braces for a long financial storm
The provincial agency does not expect to be besieged by oilfield contractors demanding versions of the Precision deal. When asked how a firm looking for backing can catch AIMCo’s eye, de Bever says, “It usually goes the other way.” The investment house does the courting involved in forming financial relationships.
Money managers do not just dump money into companies, then stand back, hoping for quick profits. “They need someone to be a partner for five to seven years.”
Relationships typically include giving up significant ownership shares and rights to appoint independent directors or even new chief financial officers. “Entrepreneurs have trouble with that,” de Bever says.
He emerged from the 2008 financial and energy market setbacks with a heightened sense that wealth is precarious no matter how it is held – as bonds, stocks or commodities. “Last year, even relatively ordinary portfolio returns were absolutely terrible.”
As a rule of thumb, de Bever suggests it is reasonable to expect returns on shares to run about four percentage points higher than for safer bonds. The rule was broken last year. “Occasionally, as in 2008, the downside risk comes home to roost. It happens about every 25 to 40 years.”
But there are no safe havens due to lingering effects of the global credit crisis. “I’m really nervous about bond markets,” de Bever says.
The province resisted temptation to be lured into the high-rolling trade in financial paper that promised big returns on questionable mortgages and loans. When AIMCo arrived on the scene, de Bever reports he encountered some losses on provincial interests in former pillars among financial institutions that went under. But Alberta government wealth pools escaped being poisoned by toxic money market assets. “There was nothing terribly exotic.”
As a veteran of 35 years in financial services who belongs to a generation steeped in old-fashioned prudence, de Bever continues to be startled by extreme risk-taking with creative financial “derivatives” that the 2008 credit crisis exposed. He emerged shaking his head from a Montreal pension conference that reviewed asset-backed commercial paper, a version of American sub-prime loan securities that infested Canadian financial markets.
“I don’t understand a word of it,” de Bever said after hearing the latest on ABCP, as the notoriously foul financial packages came to be known. “I want to run as far away from it as I possibly can.”
He agrees with a saying that was heard from sadder but wiser energy traders and creditors who were burned by Enron Corp.’s bankruptcy in 2001. If you can’t explain to your mother what you’re doing, you probably should stop it.
The 2008 credit crisis taught the same lesson about financial products and services on a global scale. “If you don’t understand it, don’t buy it,” de Bever says.
By this spring, he suspected that the worst was over for industrial commodities including energy. “This is the low,” he suggested just before oil bounced back into the range of US$60-$70 a barrel.
But he is not betting all of Alberta’s public wealth on oil and gas futures contracts or companies in the belief that there are quick killings to be made on an imminent revival of skyrocketing energy prices. “Anybody who can pick market bottoms and tops is a genius, and there aren’t too many of those around.”
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