Cautious. Reliable. Boring. Those are words that are appropriately associated with pension fund management. However, pensions have recently become a hot button political issue in Alberta, for some ominous reasons.
As international investment dries up for the fossil fuel sector, evidence mounts that Premier Jason Kenney may be eying up the retirement funds of public sector workers as a financial lifeline for companies in the oil patch.
The United Conservative Party didn’t mention sweeping pension reform in its election platform, but it has been a curious legislative priority since they were swept to power last year.
Bill 22 forced the Alberta Teachers’ Retirement Fund to hand over its $18-billion pension fund to Alberta Investment Management Corp. — a Crown corporation that just lost $1.9 billion of the Alberta Heritage Trust Fund’s assets. This bill also prevents the numerous public pensions under AIMCo control from ever taking their investment business elsewhere, regardless of poor investment results.
Kenney has also proposed pulling out of the Canada Pension Plan after a vote under his new referendum-on-anything bill. AIMCo could then be in charge of over $260 billion entrusted for the financial futures of millions of Albertans.
Legal firewalls are often in place to prevent political meddling in public pension management. If a politician even attempts to contact a Canada Pension Plan board member, it is a reportable offence.
AIMCo, in contrast, is legally bound to act on directives from cabinet. Its board members are appointed by the government. The sole shareholder is the Alberta finance minister.
The previous NDP government opened this Pandora’s box by issuing the Alberta Growth Mandate in 2015, which required AIMCo to invest three per cent of the Alberta Heritage Trust Fund in Alberta-based businesses. Two-thirds of this $400 million was invested in 14 local oil and gas companies. Their share prices had fallen even before the COVID-19 pandemic.
Kenney has clearly signalled his willingness to increase public financing for private oil and gas companies on a vastly larger scale. Last April he committed $7.5 billion in provincial funds to completing the Keystone XL pipeline because TC Energy could not access private equity for the contentious project, a move he boasted was “a solid bet.” International finance experts disagreed, calling the investment an “idiotic waste."
Has this “solid bet” just gone bust? The U.S. Supreme Court just upheld a lower court ruling halting TC Energy’s construction of the project until stream crossing permits are issued by local authorities — if that ever happens. Democratic presidential candidate Joe Biden holds a solid lead in the race and has vowed to kill the pipeline if he is elected.
AIMCo has also bet big on contentious pipelines. Last December the fund bought a 65-per-cent stake in the TC Energy Coastal GasLink pipeline just before a nationwide rail blockade in support of Wet’suwet’en hereditary chiefs opposed to its construction. The pipeline is being built to deliver fracked gas to an LNG plant in Kitimat, B.C., but large questions remain about LNG demand and Indigenous consent. TC Energy stock has dropped 16 per cent since Alberta pensioners became majority owners in what could be a money-losing climate killer.
News enthusiasts might recall AIMCo lost $2.1 billion in pension investments on risky market bets that went the wrong way last year. Its record on investment returns is far inferior to the managers of the Alberta Teachers’ Retirement Fund recently put out of a job by Kenney’s Bill 22. If AIMCo eventually assumes management of $260 billion, are there credible reasons to believe that hometown politics won’t play into what should be dispassionate investment decisions?
Quebec already has what Kenney apparently hopes to achieve, a stand-alone provincial pension fund, and unsurprisingly there are some red flags snapping in a stiff breeze. The Caisse de Dépôt et Placement du Québec is roughly equivalent to AIMCo and owns about 20 per cent of local favourite SNC-Lavalin.
In 2019 the pension fund CEO pledged to be “a rock” for the notoriously corrupt Quebec company even after the federal government laid criminal corruption charges. Six months later the fund reported it had lost $700 million after SNC’s share price plunged on poor performance. Since 2018, SNC has lost 64 per cent of its market value, yet the Quebec pension fund stubbornly remains the largest shareholder. Does Alberta really want to emulate the path taken by la belle province?
There are good examples of how to properly manage pension funds and resource windfalls, but Alberta has shown little interest in them. The Alberta Heritage Fund, in fact, was the inspiration for the Norwegian Pension Fund, which is now the world’s largest sovereign wealth fund, holding the equivalent of $1.4 trillion Canadian and controlling 1.5 per cent of global equity markets. The fund is specifically prohibited from investing in Norway to avoid inflating its currency or corrupting their economy. Robust legal and policy firewalls have prevented political meddling or government cash grabs.
This could have been Alberta. Back in 1976, the Peter Lougheed government began laying a solid foundation for a Norway-like outcome. The Alberta Heritage Fund was created with three goals: saving for the future; diversifying the economy; and improving the lives of Albertans.
Over the course of decades, the abandonment of those laudable objectives has become emblematic of the fall of the province from economic powerhouse to a point where observers fear public retirement funds may be raided to prop up the private petroleum sector.
According to figures from the Canadian Association of Petroleum Producers, between 1971 and 2018 the oil patch produced almost $1.9 trillion in wealth. Yet not a penny of petroleum revenues has been added to the heritage fund since 1987, which now has one per cent of the value of the similar fund Norway started 14 years later.
In the ensuing decades Albertans have instead opted for exceptionalist cultural crumbs like paying no sales tax or receiving $400 cheques in Ralph Bucks during the Klein government. The province is now $74 billion in debt and privatizing public spaces on a scale that would make Margaret Thatcher blush.
If Kenney succeeds in grabbing control of $260 billion in retirement funds, you can bet the fiscal farce that is the Alberta resource economy is far from over.