Fired AIMCo chair disputes Alberta’s narrative on costs in letter to Horner

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The former interim chair of Alberta Investment Management Corp. has written a letter to the Alberta cabinet minister who fired him last week to dispute what he calls an “incorrect narrative” and “misinformation” about the performance of the asset manager and Crown corporation.

In a letter to Alberta Finance Minister Nate Horner that was viewed by the Financial Post, Kenneth Kroner disputes the data and a number of assertions used to justify the government’s “reset” at AIMCo, which saw the entire board of directors, including Kroner, as well as chief executive Evan Siddall, removed from their posts. The letter goes on to say that while the government is within its rights to replace the board, the faulty narrative that AIMCo’s costs are out of control will make things difficult for the next board and management team.

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“Over the last week, there have been numerous public statements made about AIMCo’s performance and costs,” wrote Kroner, who was on the board of AIMCo for eight years and had been acting chair since the beginning of this year. “I have concerns that these are tarnishing AIMCo’s reputation, which will only make it harder for Albertans to have confidence in the public asset manager, and will create unnecessary barriers for AIMCo in its goal to deliver strong investment performance for Albertans.”

Contrary to skyrocketing costs and poor performance, he said AIMCo is a low-cost manager compared to similar funds and has “solidly” exceeded benchmarks over the years.

“The data contradicts the very negative narrative that is out there,” Kroner wrote in the letter, which was also sent to the government’s bipartisan standing committee on the Alberta Heritage Savings Trust Fund, which is managed by AIMCo.

“The misinformation will make it unnecessarily difficult for the next management team to be effective,” it said.

In statements to media since the board and Siddall were let go en masse last Thursday, Horner has said he and his team had asked for changes at AIMCo and applied “constant” pressure on costs.

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“We asked for change. Weren’t seeing it. Weren’t seeing it. We were seeing the opposite,” he told the Calgary Herald.

“It became evident things were not going to change even with constant pressure from me and the team.”

In a statement announcing the board purge, the government said that AIMCo’s third-party management fees increased by 96 per cent in the 2019 to 2023 period, the number of employees increased by 29 per cent and salary, wage and benefit costs increased by 71 per cent. The government said the cost increases had not come with a commensurate increase in returns.

In Kroner’s response, dated Wednesday, Nov. 13, he said the government’s measure of AIMCo’s total returns ignores the fact that clients, such as operators of pension funds for teachers, judges and police officers, direct how much of each asset class the pension management organization should invest in on their behalf.

“AIMCo’s mandate is to outperform the benchmarks that clients given them,” Kroner wrote. “This is why I’ve consistently emphasized that AIMCo’s contribution can only be measured by returns versus their client-directed benchmarks, not total returns.”

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He said AIMCo has consistently added value on this metric, the only one it can control. For example, the provincial government’s Heritage Fund has seen an annualized 10-year return that is half a percentage point above its benchmark after all costs through the end of June. Returns outperformed the benchmark in seven of those years, and, after all costs, added $1 billion to the Heritage Fund, according to the letter.

“This is not poor investment performance as the narrative states, but rather is a performance record that Albertans can be proud of,” wrote Kroner, who holds a PhD in economics from the University of California at San Diego and was a senior managing director at Blackrock and predecessor Barclays Global Investments for more than 20 years.

As for the government’s statements about AIMCo’s costs, he said they were indeed rising, but so were assets under management. Moreover, independent firm CEM Benchmarking pegged AIMCo’s costs at 23 per cent below what an average peer would incur to manage AIMCo’s client assets.

“That $258-million (based on 2022 figures) goes straight into Albertan’s pockets,” Kroner wrote. “AIMCo has always been, and remains, a cost-conscious, high value-for-money asset manager.”

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The government figures that Kroner says “are being used to tarnish AIMCo’s reputation” include an assessment of third-party management fees. Third-party assets rose by two and half times in the 2019 to 2023 period, so fees naturally went up. “But these fees went up at a much slower pace than assets,” he wrote, “and the data shows that AIMCo’s average third-party management fees dropped by a third … over that window. This is evidence of effective cost management not undisciplined cost management.”

He said AIMCo’s headcount increases have also drawn much public discussion, but that the staffing reflects client request for a near doubling of the illiquid investments such as real estate, private equity and infrastructure in the period between 2019 and 2023. It was well known that this would require expanding investment and legal teams, strengthening risk controls, and building a global presence.

“AIMCo hired the talent necessary to support this client-led growth, and this should not be misinterpreted as evidence of costs being out of control,” Kroner wrote.

Horner stepped in as acting chair following the board and executive purge last week. Alberta’s deputy minister of executive council, Ray Gilmour, the province’s top bureaucrat, was named interim chief executive.

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Since then, speculation has emerged that former prime minister Stephen Harper will become AIMCo’s next chair. Sources say his name has been in the mix for nearly a year, since shortly after Mark Wiseman, former CEO of Canada Pension Plan Investment Board, announced plans to step down as chair of the Alberta pension and investment manager.

Representatives for Harper have not responded a request for comment.

On the day the board was let go, Horner said he expected to have a new board in place within 30 days.

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