In his first public statement on Alberta Investment Management Corp.’s investment strategy, the organization’s new chief executive officer says the AIMCo won’t have a policy to divest from hydrocarbon producers.
“I want to be clear in stating that we believe that divesting hydrocarbons would miss an urgent opportunity to work with the companies who’ve the most to lose, as well as the ingenuity to win, as the world transitions to a low-carbon economy,” said Evan Siddall during a meeting with the standing Committee on the Alberta Heritage Savings Trust Fund Committee. “Divestiture may, indeed, be counterproductive to climate goals, serving only to increase the cost of capital for the companies most in need of transitional funding.”
During the meeting, Siddall also said the AIMCo saw its value rise 7.3 per cent during the first half of 2021. The Alberta Heritage Savings Fund earned 5.5 per cent returns during the first quarter of the year, beating its benchmark by almost two per cent.
Established in 1976, the fund draws from revenue generated by non-renewable resources on behalf of Albertans. Its income stream is used to fund health care, education, infrastructure and other government services in the province.
The statement was Siddall’s first public announcement about investment policies since taking over from Kevin Uebelein in July 2021. It comes about a month after the AIMCo reached a deal with the Alberta Teachers’ Pension Plan that would give the pension’s board some ability to prevent its funds from being allocated in ways the board members believe don’t conform to the wishes of its members.
“Helping carbon-intensive businesses adapt may be the most important contribution to make, not something to be avoided,” said Siddall. “AIMCo will invest so that our clients profit from the economic transition ahead, first of all. Building Alberta’s financial future also means protecting our province’s economic prospects.”
Despite the strong performance in the first half of 2021, Siddall was keen to address the organization’s weaker performance in 2020 during his remarks to the board. According to its annual report, the AIMCo saw returns of just 2.5 per cent during 2020.
The poor performance was largely caused by a a volatility trading strategy, known as VOLTS, that resulted in $2.1 billion in losses in the wake of the coronavirus crash. While the strategy was expected to generate some losses in periods of market volatility, the losses were far greater than had been predicted.
“I recognize that these results can’t be looked at in isolation,” said Siddall. “As this committee knows well, in 2020, AIMCo faced significant trading losses due to a volatility trading strategy. In the wake of these losses, our board and management did the right thing. They undertook a comprehensive review of our risk management practices, identified the root causes of the company’s failures and recommended improvements.”
In July, the organization’s board released the results of a comprehensive review, which included 31 recommendations for changes to the AIMCo’s approach to investing. Siddall said all of these recommendations will be fully implemented by the end of 2021.