Alberta Breaks With the Canadian Pension Model
Without any advance notice, the government of Alberta last week fired all 10 directors on the board of its pension fund, Alberta Investment Management Corporation, along with its chief executive and three of his most senior employees. Then, this week, it announced that Stephen Harper, the former Conservative prime minister, would serve as the fund’s chairman.
The change at AIMCo, which manages 161 billion Canadian dollars, shook the pension world. “In my history of being in this space, it’s unique,” Keith Ambachtsheer, emeritus director of the Toronto-based International Centre for Pension Management, told me, describing the purge as “Soviet style.” “It’s a departure certainly in the eyes of not just Canada, but the world,” he said. “I’ve talked to people from Australia to the U.K. about what’s going on. The Canadian pension model has become the global standard for how you should think about these things. Now here is a government that is kind of stepping outside those rules.” The Canadian pension model, pioneered by the Ontario Teachers’ Pension Plan during the 1990s, is based on the principle that funds should be managed independently of both governments and unions and free of political interference. It calls for independent boards whose members are experienced in investments and finance. And to ensure that the best people manage funds, most Canadian pension plans pay fund managers salaries on the scale of those offered for similar positions at banks, private equity firms and other private sector firms. Those high salaries sometimes draw complaints from politicians. But Mr. Ambachtsheer said that the politically independent Canadian system justified them with returns that have not only more than covered pension obligations, but have also sometimes allowed pension contributions by employees to be lowered. The salaries may be partly behind the shift in Alberta. In a news release announcing the firings, Alberta said that it “has seen significant increases in operating costs, management fees and staffing without a corresponding increase to return on investment.” In making that case, the province pointed to costs and returns between 2019 and last year. But Evan Siddall, the now deposed chief executive and a former investment banker, was appointed in 2021 to clean up a major mess: The year before, stock market swings brought by the pandemic led to a $3 billion loss in a complex trading strategy, which was then abandoned. Mr. Ambachtsheer, who is a co-founder of a firm that analyzes pension fund performance, said that since Mr. Siddall’s arrival, AIMCo had solidly offered the province “value for money.”
Then why the purge? Some speculate that it’s linked to repeated suggestions by Danielle Smith, the premier, that she will pull Alberta out of the Canada Pension Plan and follow Quebec by establishing a provincial plan. But Nate Horner, the province’s finance minister, insisted that there was no connection. Many pension experts, including Mr. Ambachtsheer, are very skeptical about Alberta’s ability to go it alone. Mr. Ambachtsheer also believes the report commissioned by Alberta that found the province is owed just over half of the Canada Pension Plan’s assets is fundamentally flawed, undermining the province’s case for pension separation. He estimates the actual amount to be 15 percent. Mr. Ambachtsheer’s theory is that Ms. Smith is asserting her government’s control over AIMCo as part of her plan to increase the value of Alberta’s Heritage Fund to between 250 billion and 400 billion Canadian dollars by 2050. The fund, which currently accounts for 24.3 billion dollars of AIMCo’s assets, was founded in 1976 with oil and gas royalties collected by the province. But Alberta soon started dipping into it to pay for infrastructure projects and other special spending. And in 1987, regular infusions of cash from royalties ended. Last year, Ms. Smith restored them. (Some payments of about 1 billion dollars were made in the mid-2000s.) Also restored, this week, were three of the AIMCo board members purged last week, to serve under Mr. Harper. Mr. Ambachtsheer said he found the return of the directors, all experienced financial executives, “somewhat comforting.” But Mr. Harper, who is not accepting a salary, is something of an anomaly among the chairs of large pension funds in Canada. While he has been involved in several business ventures since leaving politics, he lacks his counterparts’ deep and extensive experience in finance and investment. The chairman of Ontario Teachers’ is a former president of CIBC World Markets, and the chairman of the Canada Pension Plan Investment Board was once the head of Sun Life Financial. “It is going to be interesting to see how Stephen Harper behaves as the new chair of the board,” Mr. Ambachtsheer said, adding that he believes the former prime minister now has enough business experience for the role. “Alberta’s kind of breaking that mold in terms of being centered on the idea that it’s our organization, we created it and we don’t like the way it’s being run and we’re going to reconstitute it. We’ll see where that goes.” Trans Canada
Ian Austen reports on Canada for The Times and is based in Ottawa. Originally from Windsor, Ontario, he covers politics, culture and the people of Canada and has reported on the country for two decades. He can be reached at austen@nytimes.com. More about Ian Austen How are we doing? Like this email?
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