Leo de Bever, CEO of Alberta Investment Management Corporation, discusses AIMCo’s evolution and the impact of the downturn on the money management industry.
As a crown corporation, how is AIMCo different from other managers?
We are more in line with Teachers’ or OMERS. The crown corporation structure puts us aside from the government, but we are still managing money in the public sphere in the sense that it covers the pensions of former or existing government employees, teachers and fire fighters. It is also the resource money from Alberta and the short-term government stabilization assets. If you were managing for retail money, you would have a totally different focus, so the advantage we have is being able to focus on getting the best risk-adjusted returns without having to worry about marketing.
What is AIMCo’s investment philosophy?
We see assets as envelopes for risk. It’s not the assets we love; it’s the return on the risk of those assets that we are shooting for. We are not gunning for headline returns; we are saying, ‘What do we have to do to get that return? How much risk do we have to take, and is that opportunity better in one arena than another?’
How have its operations changed?
Things have improved dramatically. I try to drum it into people that the easiest money we can make for our clients is the money we don’t spend, or the money we don’t give up because we make operational mistakes. When you look at the history of active management, that is the least understood lesson. People are shooting for big headline returns, but they lose nickels and dimes along the way.
Most of the hiring we’ve done in the last year has been in operations, risk management, compliance—all of the support functions. Also, I’ve made it clear that I want smart people all across the organization. However, there is still a lot of work to be done.
How did AIMCo survive the downturn?
The organization has learned a lot. One thing it learned is not to do things it isn’t ready for. It tried to emulate OMERS and Teachers’, [which] you can do only if you have built up the capacity to do so. We’ve analyzed every aspect of the organization and made sure that we tailor what we do to the depth of our staffing and internal expertise.
What lessons has the recession taught the money management industry?
I’ve been saying for years that the [traditional models] are obsolete and need rejigging. I think people may agree with me, but I am fascinated by the fact that our memories recede very quickly and that people seem to forget lessons learned.
The question is, Is there a residual effect that should be learned? One of them, in my mind, is that money managers are going to have to work a lot harder to justify the kind of fees they have been earning. But ultimately, it’s the clients that determine that. If there is one thing I hope, it’s that consumers will get smarter about how they pick their managers and what they pay for.
What do you see as the main pension trends going forward?
To find a good hybrid between defined benefit (DB) and defined contribution (DC). DB does a few things for you: it gives you economies of scale in management, professional asset allocation and longevity insurance.