The government is in charge – BNN Bloomberg

(Bloomberg) — It had to be a unifying experience.

Evan Siddall, then CEO of Alberta Investment Management Corp., gathered about 170 senior employees of The Westin Edmonton for a meeting and exercise on “how to lead from a place of joy,” taught by The Moth, a nonprofit organization who is committed to the art of storytelling.

Things quickly became joyless.

Nate Horner, Alberta’s finance minister, showed up to tell Siddall and three other executives were left without jobs. The four left the building after their phones and laptops were confiscated. Horner then told the news to the other Aimco employees. He also fired the entire board.

The public purge sent a clear message: the Alberta government is in charge and taking back control.

Horner has temporarily become the fund manager’s chairman and sole director, and the conservative regime that governs the Canadian province plans to overhaul the company and cut costs.

“To restore confidence in the agency, the Alberta government has decided to shift the focus of the investment company with a new CEO and board,” the Alberta government said in a statement.

Canada’s largest pension funds – called the Maple Eight – have long been the envy of peers. They are admired as one of the most sophisticated money managers in the world, known for their independence from politics, managing most of their assets internally, hiring world-class talent and paying top executives millions of dollars.

Aimco has invested at elite alternative asset shops such as Blackstone Inc. and KKR & Co.

Now Aimco is controlled by a populist government, which is considering putting an ex-politician, former Prime Minister Stephen Harper, in charge of its board. The Edmonton-based company manages about C$169 billion ($120 billion) in public pension plans and government funds, all of which have a stake in who’s in charge.

“No well-run company replaces the entire management team and the entire board at once,” pensions expert Alexander Dyck, professor of finance at the University of Toronto’s Rotman School of Management, said in an interview. “That’s a recipe for disaster.”

Some staffers and government officials did not view the ouster as politically motivated, but rather a responsible move after complaints about turnover and costs under Siddall. Others see it as an attack on Canada’s independence model, which has helped pension funds attract top talent.

Be that as it may, the intervention has fueled panic among staff over their jobs and wages. In recent years, Aimco has lured people from companies such as Carlyle Group Inc., Royal Bank of Canada and Barclays Plc. Employees have already told acquaintances they want new jobs, expecting the province to treat the pension administrator as a government agency and cut their wages.

There are few leaders within the company who can reassure them.

Aimco has been without a permanent chairman since the end of last year and the chairman of the audit committee left in April. Even before last week’s statement, Aimco was experiencing employee turnover under Siddall.

A Chief Legal Officer and a Chief Corporate Officer left during his tenure. In just over three years, four different people held the title of Chief Investment Officer. The last, Marlene Puffer, left in September as the Alberta government increased pressure on the company.

To politicians, Siddall appeared disconnected from Alberta’s fiscally conservative culture, ignoring complaints about rising costs.

He expanded corporate, non-investment functions and made splashy spending along the way, including renting an office in the luxury One Vanderbilt tower in New York, despite the reservations of some of the staff.

Although an internal study found the fund’s 2022 costs were near the bottom of its peer group, the appearance of lavish spending posed a problem for the provincial government.

And it wasn’t the only problem. Siddall’s positive stance on green investing and his travels around the world irked officials in oil-rich Alberta, who preferred their pension manager to keep a lower profile.

In addition to Siddall, other senior managers dismissed by Horner included the Chief Legal Officer, the Chief of Staff and the Chief People, Culture and Engagement Officer. None of these executives worked directly on investments.

This story is based on conversations with several people familiar with the Aimco and Alberta government. The people asked not to be identified to discuss confidential matters; some cited concerns about retaliation. A spokesperson for Aimco declined to comment.

New offices

Siddall, the former head of Canada’s federal housing agency, became CEO of Aimco in July 2021 after it lost C$2.1 billion on a bet against market volatility that occurred when the pandemic hit.

Siddall was quick and blunt and wanted to raise Aimco’s profile on Wall Street. He was hired with a mandate to revamp the operation and created new positions such as Chief Technology Officer. Although most of the staff worked in Edmonton, he also wanted to attract people outside of Canada.

At the beginning of this year, Aimco opened the office at One Vanderbilt in New York. The real estate team had proposed at least five cheaper locations for the New York office, but Siddall felt it was important to have an office that attracted staff to work, according to people familiar with the matter.

Several months earlier, Siddall had opened an outpost in Singapore to focus on Asia-Pacific investments. Aimco’s investments in Asia amounted to approximately 3% of total assets last year.

He hired Kevin Bong from GIC Pte to lead the efforts there. At Aimco, which also opened an office in Calgary in 2022, about 600 people work from seven offices while being given the flexibility to work remotely. In London, Siddall attracted attention with a renovation to accommodate more staff.

The global expansion led some in government to suspect the pension fund was shifting priorities away from Edmonton, where its presence has supported the city’s economy. Aimco invests more than 40% of its assets in Canada, much of it in its home province.

Alberta Teachers’ Retirement Fund, one of Aimco’s clients, said it has raised issues regarding costs with both the government and the fund in the past. Aimco’s management has always been transparent about its expenses, say people close to the company.

Aimco’s clients had asked for a nearly doubling of allocations to private assets, which drove up costs, according to a letter from former board vice chairman Ken Kroner to government officials.

“Aimco has hired the talent needed to support this customer-driven growth, and this should not be misinterpreted as evidence that costs are spiraling out of control,” he wrote, adding that compensation to outside managers grew slower than assets .

But as IT and human resources budgets increased, new expenses became a flashpoint.

According to a statement from Horner’s office, personnel costs increased by 71% and the workforce grew by 29% between 2019 and 2023. Third party management fees also increased by 96% during the period.

Another source of friction: Aimco awarded BlackRock Inc. a contract worth millions of dollars for its portfolio management software Aladdin.

Some insiders saw this as a necessary expense to replace an inferior risk management tool. Others saw it as an unnecessary contract that cost too much. BlackRock declined to comment.

Aimco spent C$276 million on salaries, wages and benefits in the last fiscal year, and awarded Siddall more than C$4.5 million in direct compensation.

The New York State Teachers’ Retirement System, a U.S. fund that oversees a similar amount but relies more heavily on outside managers than Canadian funds, spent $59 million on salaries and benefits, according to its most recent annual report.

According to a 2022 survey by CEM Benchmarking, the most recent research available, Aimco ultimately falls in the bottom third in terms of costs compared to its peers. Costs were 23% lower than average industry peers.

In terms of returns, Aimco beat its benchmarks in two of the three years Siddall was in charge, and recent internal surveys showed that employee morale improved substantially. That gave the board few reasons to question its investment judgment.

But for politicians in Alberta’s capital, it wasn’t that simple.

‘First stage’

Alberta produces the vast majority of Canada’s crude oil – almost 4 million barrels per day – and its economy depends on fossil fuel revenues to create jobs and fuel growth. In fact, government royalties from oil and gas are part of the pool of money that Aimco controls.

The province is led by Prime Minister Danielle Smith, a conservative and outspoken booster of the oil and gas sector who regularly battles Prime Minister Justin Trudeau’s left-wing government in Ottawa. Recently, Smith said she was “pissed off” about draft federal rules to limit oil and gas emissions and vowed to challenge them.

Siddall did not embody Alberta conservatism.

He has been a civil servant for many years and has Parkinson’s disease. He has increased Aimco’s focus on human resources and driven diversity and inclusion initiatives – including the hiring of a Chief People Officer.

On Instagram, he posted photos from a COP climate conference in Egypt and reflected on Canada’s treatment of indigenous people.

While he rejected fossil fuel divestment — a political nonstarter in Alberta — he also presented decarbonization as an attractive investment strategy.

In February, Aimco said it was creating a C$1 billion fund dedicated to energy transition, including “low-carbon renewable energy production,” led by then-CIO Puffer.

Some customers complained to the government that the pension fund manager deviated from Aimco’s principles. Others supported his direction.

Ultimately, Horner sided with the first group. The government has been considering giving the chairman role to Harper for months, according to people familiar with the matter. He is a veteran politician who has led the Conservative Party of Canada to three straight election victories – and he is deeply trusted by Conservatives in Alberta.

The Minister of Finance was waiting for an opening. Then came last week’s purge at the Westin hotel. More changes are certain, potentially further destabilizing Aimco.

“You’re kicking the foundations, and the concern is that if you kick the foundations enough, at some point they’re all going to collapse,” says Dyck, the pension expert, speaking of Canadian pension funds in general and their history of being a political non-starter. -interference. “It’s just: this is the first stage.”