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The High Cost of Lost Labor Stakeholder Trust: What Pensions Can Learn from the AIMCo Board Shakeup
Perhaps the key lesson from the AIMCo situation (at least so far) is a reminder that no pension plan or pension investment body can afford to be apathetic about a sudden decline in labor stakeholder trust.
By: Neil HrabOn November 7th, an earthquake struck the normally quiet, calm world of Canada's large public sector pension investment bodies. The Province of Alberta's government, exercising its formal and duly-authorized legal authority, announced it had fired the entire board of directors of the Alberta Investment Management Corporation (AIMCo). AIMCo manages approximately US$120B on behalf of numerous public sector clients, including several provincial public sector pension plans. AIMCo is an investment manager, and to a US audience might best be classified as a “government sponsored enterprise.” It is set up much differently than the typical jointly-sponsored defined benefit pension plan.
The government also announced that AIMCo had bid farewell to its CEO and three other senior leaders. A new board chair, the government promised, would be named in 30 days.
The Alberta government tersely sketched out its rationale for the changes at AIMCo as follows:
[AIMCo] has seen significant increases in operating costs, management fees and staffing without a corresponding increase to return on investment. From 2019 to 2023, AIMCo's third-party management fees have increased by 96 per cent, the number of employees increased by 29 per cent and salary wage and benefit costs increased by 71 per cent. These costs all increased while AIMCo managed a smaller percentage of funds internally.
A second, smaller earthquake occurred on November 20th, when Alberta named a former Canadian prime minister, Stephen Harper, to serve as chair of the AIMCo board (without pay, it should be noted); three of the previously-removed board members, the government also said, would return.
The organizations that populate Canada's public sector defined benefit pension space operate quietly on their own, most of the time -- but are not 100% independent of all authority. Whether they are jointly-sponsored pension plans or, like AIMCo, public sector corporations that pool and invest retirement and other assets from various clients, they are not truly “free agents.”
Each is subject to the terms of their respective governance models, a measure of formal oversight from an external regulatory body – and the broad parameters of some sort of specific statutory authorization for their activities, through which they are accountable to elected governments.
AIMCo, for example, is subject to a provincial law, which includes formal reference to the Province of Alberta's power over AIMCo's board.
The days following the November 7th announcement saw extensive commentary appear in the central Canadian media about the changes to AIMCo, some of it white-hot with outrage. One academic observer even called it a “heist” and said the government had provided insufficient explanation for its sudden move. US investment publications took note as well, including through a detailed article claiming that the Canadian pension model was being undermined through a “political takeover” of AIMCo.
Another angle that started to emerge after the announcement was that some organized labor groups -- representing the ultimate beneficiaries of AIMCo's investment activities -- had been dissatisfied for some time with the plan's explanations for its rising costs and inconsistent returns. (As for any specific remedies those groups may have demanded – we do not yet know what those may have been.) After apparently being stonewalled by AIMCo, these stakeholders next voiced their concerns directly to the Alberta government, exercising their right to advocate for their respective members.
The Alberta Teachers Retirement Fund (ATRF) hinted at this scenario in a November 8th statement, saying that “we have in the past raised issues regarding costs at AIMCo with both the Government of Alberta and with AIMCo.”
Another AIMCo labor stakeholder, the Alberta wing of the Canadian Union of Public Employees (CUPE), used the events of November 7th to circulate a statement attacking the Alberta government for taking such a dramatic step at AIMCo without prior consultation. CUPE Alberta, in the same breath, also denounced AIMCo as inefficient and ineffective as an investor of its members' retirement savings, and asked the province to give those members the right to have another provincial body manage those savings. That is, for them to move their money out of AIMCo. A November 19th statement by the Alberta Teachers Association, also an AIMCo labor stakeholder, combined aspects of the ARTF and CUPE Alberta criticism. Additional labor groups weighed in with a joint letter about AIMCo on November 20th.
Perhaps the key lesson from the AIMCo situation (at least so far) is a reminder that no pension plan or pension investment body can afford to be apathetic about a sudden decline in labor stakeholder trust.
As trust declines, those labor stakeholders could become more likely to seek action on rising expenses, falling returns, benefit reductions or other matters of concern by lobbying the relevant level of government to take action.
The lesson for pension trustees, managers and administrators: When labor stakeholders voice concerns, that input shouldn't be just brushed off or ignored. One way or another, their voices will be heard.
Neil Hrab worked in the Canadian pension sector for 12 years. His views are entirely his own.
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