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AIMCo CEO responds to concerns about potential impact of oil price crash on public pensions

Click to play video: 'AIMCo loses big in oilpatch investments' AIMCo loses big in oilpatch investments
WATCH ABOVE: (From April 22, 2020) AIMCo, which oversees the pensions for nearly 80,000 Albertans, has reportedly suffered a multi-billion dollar loss this year. As Tom Vernon explains, that has people questioning whether the province should slow down on moving more money into the fund – Apr 22, 2020

The CEO of the entity that manages Alberta’s public pensions delivered a message Thursday to those concerned about their retirement investments and said he wants to assure them they are not at risk.

“As CEO of AIMCo (Alberta Investment Management Corp.), I am accountable for the performance of our organization,” Kevin Uebelein posted on AIMCo’s website. “I am also responsible for setting the record straight.

“Recently, the media has reported on a volatility-related investment strategy we manage that resulted in a significant loss. This occurred because the losses that quickly accrued as market volatility dramatically increased and remained elevated were not able to be offset by the gains that would normally be realized as volatility returned to more typical levels.”

Earlier this month, the left-wing think tank Progress Alberta found that AIMCo had invested $1.1 billion from public service pensions in junior and intermediate oil and gas firms since 2016.

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READ MORE: Alberta public pension manager loses big in oilpatch investments: analysis

An analysis found that most of those firms lost value well before the combination of the coronavirus crisis and an oil supply war between Russia and Saudi Arabia that saw the price of oil fall to record lows.

“Markets behaved in a manner never before seen and the result was a very unfortunate loss,” Uebelein wrote on Thursday. “In addition, media reporting has dramatically overstated the extent of the losses, by 43 per cent on the low end and 100 per cent on the high end.

“Realized and unrealized losses combined to date are approximately $2.1 billion of the $118.8 billion of assets we manage on behalf of our clients.”

Uebelein noted that number is likely to change but AIMCo is taking steps to mitigate the damage.

“Actual losses will not be finalized until the strategy is completely wound down, which should occur by mid-June,” he wrote. “Anytime you are counting in the billions, it is a big number worthy of attention, and I certainly would never want to experience such an outcome from a strategy.

“When record-setting market movements occur — recall the TSX suffered its biggest one-day plunge in eight decades — new lessons will inevitably emerge, as they clearly will here at AIMCo.”

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Uebelein said he believes “one lesson that will be reaffirmed by us all is the power of diversification over the long run.”

“Inherent in this principle of diversification is the notion that some asset classes or strategies will perform negatively under certain circumstances,” he wrote. “AIMCo has had longstanding success in building well-diversified portfolios, ones that deliver strong investment returns while managing total risk.”

Ubelein acknowledged that he believes “the recent performance of this strategy is not acceptable.”

“As an independent investment manager, AIMCo takes full responsibility for the investment losses incurred by this strategy,” he wrote. “Over the past few weeks, we have focused on implementing measures to minimize the potential losses from this strategy and across our entire portfolio, while honouring our commitment that our clients remain fully informed of our results.

“Let me be clear, the performance of this investment is wholly unsatisfactory and AIMCo’s board and management share the frustration and disappointment of our clients, their beneficiaries and all Albertans.”

He said AIMCo is undertaking a review of the situation that involves third parties.

“We would like Albertans to know that every day, I, and the team I lead, go to work to help our clients secure and grow the pensions, endowments and government funds they run,” Ubelein wrote. “It is both a responsibility and a trust.

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“We will continue to keep our clients and stakeholders informed in a timely manner. We welcome their ongoing input as well. Please know I am fully focused on one thing: making any and all changes to ensure AIMCo is stronger and that we avoid a repeat of this outcome, regardless of market turmoil.”

–With files from The Canadian Press’ Bob Weber

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