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Cost of bad bets: Alberta savings pensions funds, ‘quarter from hell’
Gary Park for Petroleum News
It was launched in 1976 full of hope that Alberta would build a piggybank “to save for the future, strengthen or diversify our economy and improve the quality of life for Albertans.”
Labelled as the Alberta Heritage Savings Trust Fund, AHSTF, it was designed to capture surplus oil and natural gas revenues and give the province some financial security against a day when the fossil fuel industry started to wind down ... such as right now.
The slide from the mountain top, where Alberta governments were able to gaze with pride at their debt-free status and mandatory deficit-free budgets, started 10 years ago and is now at the point where Alberta’s debt is fast approaching C$100 billion, with the COVID-19-driven deficit expected to easily surpass C$20 billion in 2020-2021.
The only reminder to Albertans of once-heady days is the sight of rail grain cars, emblazoned with the AHSTF logo, headed for export terminals on the Pacific Coast.
Slush fund for governments Otherwise the AHSTF has become a slush fund for financially strapped governments to raid, with income from fund investments contributing C$44.5 billion over recent years for programs including health care, education and job-creating infrastructure.
Since 1980 non-renewable resources have generated far in excess of C$200 billion, but the fund has slipped in value to C$16.3 billion, ending the 2019-20 fiscal year with a loss of 5.1% and a decline in value of 10.4%.
It was disclosed in mid-July that the portfolio had hit its lowest point in eight years, partly the result of a risky investment strategy by the Alberta Investment Management Corp., AIMCo, that cost the fund C$411 million in the last fiscal year. Global market losses also contributed to the setback.
“You don’t have to apologize for being hard on us,” said a rueful AIMCo Chief Executive Officer Kevin Uebelein. “This latest quarter was one from hell and we deserve to be whacked around.
Public pension fund also down Earlier this year, the Alberta government’s public pension fund lost C$4 billion of its C$50 billion portfolio value volatility trades, leading to the government replacing AIMCo Chairman Richard Bird with Mark Wiseman, former head of the Canada Pension Plan Investment Board, and prompting an external review.
Alberta Finance Minister Travis Toews said Wiseman “brings deep experience in large fund management.”
AIMCo currently manages the investment of 31 funds, including major public sector worker pension funds.
In a report on AIMCo’s performance, reviewers said risk governance and culture at AIMCo were “unsatisfactory” and that employees were too slow in raising concerns about the investment strategy to managers or the board.
University of Calgary economics professor Trevor Tombe warned the government may have to decide whether to withdraw more of the principal from the fund, permanently depleting its value, or run a larger fiscal deficit to make up the difference.
Given that government borrowing is relatively cheap, he said there could be a case for the government to run an even deeper deficit and keep more money in the AHSTF.
- GARY PARK
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