Boom times will return, Alberta Investment Management Corp. head predicts
Alberta’s money czar braces for a long financial storm
The chief executive officer of Alberta’s sovereign wealth fund has no illusions that boom times will come back soon. “We got spoiled,” says Leo de Bever.
“We’ve had it so good,” adds the head of Alberta Investment Management Co., the Crown corporation created as of Jan. 1, 2008, to look after $68 billion in provincial government assets. “People got used to high returns.”
De Bever cites performance records of 18 financial markets since 1900. “The last 25 years have been absolutely the best in the past 109 years for returns.” The average annual gain on investments since the mid-1980s has been in the range of eight per cent to nine per cent over and above the inflation rate for any given year.
The magic is not all gone. The 2008 credit and energy price collapses did not kill the goose that laid Alberta’s golden egg. The petroleum industry can still pay off, big time. “We got lucky,” de Bever said after the political fuss over AIMCo’s investment in Precision Drilling Trust died down and results came out.
On a contribution of $280 million to financial restructuring by Canada’s biggest rig contractor in exchange for up to one-fifth ownership, “We expected to make a 20 per cent rate of return over the next five years. Then the stock went back up to $7 in a matter of days. We doubled our money in a couple of weeks.”
Precision was a rare coup, de Bever emphasizes. “It came across as jumping head over heels into the energy market. But it was one of about 10 deals we’re working on.”
The move into the oilfield contracting firm did not reveal a template for AIMCo’s future. Just because at least half of Alberta economic activity is credited to the oil and gas industry does not mean the province will pour the lion’s share of its savings back into fossil fuels.
The agency has no orders to commit target shares of its funds to particular industrial sectors, types of companies, varieties of financial holdings, Canadian regions or countries. “We’re not asset managers. We’re risk managers,” de Bever says.
He describes his organization’s mandate as “very simple. It’s to provide the highest risk-adjusted returns.”
AIMCo deals in variable targets set by a diverse clientele of government accounts, from pension plans to the Heritage Fund for surplus oil revenues, he reports. The numerous provincial wealth pools have differing appetites for risk that reflect commitments ranging from security for future generations of senior citizens to making the most of short-term bank deposits.
“We obviously can’t put everything into pork bellies or emerging markets,” de Bever says. After 18 months in operation, AIMCo has a long investment arm. The reach of Alberta’s sovereign wealth fund extends from Spanish pipelines and Washington household energy utilities to Toronto office buildings, Arctic transportation, educational publishing, power generation equipment and pharmaceuticals manufacturing.
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