Overexposure to Alberta, energy prompts AIMCO to shift weightings
Alberta's public pension manager admits it is overexposed to both the oil and gas industry and Canada's largest oil-producing province, but its chief investment officer said those weightings are coming down as strategies shift.
“We go where we see the best risk-adjusted returns and the exposure we have in Alberta is driven by our own views,” Dale Macmaster, chief investment officer of Alberta Investment Management Corp., said in a recent interview following the release of the public pension investment manager's 2020 annual report last month.
“Let's face it, for many, many years Alberta was Canada's leading engine of growth. Alberta far outpaced the rest of the country and it had very strong attributes.”
Macmaster said that outperformance has led AIMCO, which manages $118.6 billion in assets, to being slightly overweight in Alberta, particularly in real estate and the energy sector, where it is invested in public equities and through its fixed-income portfolios.
On the same day that AIMCO released its annual report, Calgary-based junior Razor Energy Corp. announced it was deferring a regularly scheduled interest payment on a $50-million term loan to AIMCO.
“The company is grateful to be partners with AIMCO and the continued support as both a major shareholder and senior lender,” Razor said in a press release.
Nevertheless, Macmaster said oil and gas equities have rebounded along with Alberta's economy, and that AIMCO has been tilting away from investments in the province, particularly its real-estate market, for several years.
The exposure to the local oilpatch has led to criticism that the fund manager should be better diversified outside of Alberta's biggest sector to insulate against oil and gas downturns.
Macmaster said AIMCO sees strong tailwinds in logistics, data centres, health centres and multi-family housing real-estate investments and it has been shifting more investment dollars into those asset classes in recent years.
“The Alberta weight and the office and retail weight will come down over time with that repositioning,” he said.
Macmaster also pushed back on suggestions that AIMCO was too invested in energy, noting it is overweight by just 0.4 per cent and 0.5 per cent in the sector, “so not enough to make a huge difference.”
More broadly, he said a V-shaped recovery in both the markets and commodities have allowed AIMCO to sharply recover in the second half of 2020 after a volatility trading scheme affected returns in the first half of the year.
AIMCO suffered a catastrophic $2-billion loss last year from a volatility trading scheme called VOLTS, which suffered major losses due to volatility caused by the outbreak of COVID-19.
“From an investment perspective, this past year began with a crash in March, where there was no place for investors to hide and where AIMCO sorely underperformed for our clients,” outgoing chief executive Kevin Ubelein said in the company's annual report, published June 30.
Following the losses from the VOLTS program, AIMCO accelerated a leadership transition and new chief executive Evan Siddall, previously head of the Canada Mortgage and Housing Corp., began on July 1.
Despite those losses, AIMCO managed to post a 2.5-per-cent return for the year, generating $3 billion in net investment income.