A. Charles Baillie
On behalf of Alberta Investment Management Corporation’s Board of Directors, it gives me great pleasure to report that through calendar 2013 AIMCo recorded its strongest investment performance since becoming a crown corporation in 2008.
AIMCo earned a gross return of 13.0%, 12.5% net of expenses on $75 billion of total assets. $914 million or 1.4% of that return represented gross value-added in excess of market benchmarks. Over five years, AIMCo has returned 8.8%, a testament to the team’s commitment to seeking out innovative opportunities in all asset classes, and continuously adapting to changing markets.
Creating AIMCo as an arms-length investment manager operating on commercial terms required great vision by the Government of Alberta. Our clients include some of Canada’s largest pension plans, the nation’s largest endowment system, and the day-to-day operating balances of the Province.
Every dollar that AIMCo manages affects millions of Albertans, and we are committed to helping our clients achieve their goals using the best available strategies and tools. By leveraging AIMCo’s scale and internal expertise, our clients collectively can access opportunities with far greater efficiency and significantly lower cost than they could achieve individually.
AIMCo accesses global markets to capture the best returns and diversification opportunities. This year we established our first international office with a modest space in London, England. Arriving at the decision to expand our footprint did not come easily, but was pursued to lower the cost of managing and improving the oversight of our geographically dispersed portfolio.
Our first five years were focused on building an investment organization of which Albertans could be proud. As we set our sights on the future, AIMCo’s strategic plan supports the mandate originally set for AIMCo in 2008 with particular emphasis on providing meaningful client solution support and delivering superior rates of return.
The Board would like to acknowledge the important contributions to the AIMCo board of two founding directors, Daryl Katz and Clive Beddoe, and of, Kurt Winkelmann, who respectively retired from the board this year. Their significant business acumen and experience has helped AIMCo develop into the world class investment organization envisaged at its creation.
We are pleased to welcome three new Directors to the board; John Ferguson, Founder and Chair of Princeton Developments and Chair of Suncor Energy; Richard Bird, Executive Vice President, Chief Financial Officer and Corporate Development of Enbridge Inc.; and Robert “Jay” Vivian Jr., former Managing Director of the IBM Retirement Funds. Each joined in March 2014.
In closing, we would like to thank Leo de Bever and his colleagues for their relentless pursuit of excellence through the innovative investments and the leadership they demonstrate each day to deliver AIMCo’s clients unsurpassed access to opportunity.
A. Charles Baillie
Leo de Bever
For the last five years, we have worked to combine investment scale and skill to find the best global opportunities. Last year, active management and strong stock markets earned AIMCo the strongest returns in its six-year history. Our Pensions and Endowment assets earned 14.6% before expenses, 1.6% better than market, while our short-term Government and Specialty Funds earned 4.0%, 0.7% better than market. We did it with very little incremental active risk, and at low cost compared to peers.
Market volatility in 2013 was unkind to strategies that diversified risk without considering where risk was likely to have a return. We added value by overweighting equities, having good security selection, and exploiting the inefficient boundaries between asset classes.
Modest expected stock and bond returns make it all the more important to add value with active management, to help achieve ambitious client objectives. Low rates and rising rates will make fixed income a challenging asset class. Equities are not cheap, but an abundance of capital-friendly technological change is supporting long-term prospects.
Iconic private assets are harder to find at prices that imply reasonable long-term returns. Demand has increased much faster then has the supply of good opportunities, as investors try to find alternatives to fixed income in a low rate environment. Buying overpriced assets does not serve client needs, so we are maintaining pricing discipline.
Our private asset strategy has always focused on transactions where patience and our ability to deal with complex issues was expected to yield extra return. For example, in 2011 we bought 640 bankrupt Australian timberland properties. These assets initially lagged far behind listed benchmarks, but hard work and patience more than made up for that in 2013.
Markets evolve, and we have to evolve as well: you cannot achieve the extraordinary in ordinary ways. In all markets, we look for dislocations, and then work with clients to capture excess returns from being more nimble and adventurous than other investors. Our capital stability, structuring ability, and responsiveness has value for our investment partners. We must get better at capturing smaller and more complex opportunities in existing asset classes, and in the commercialization of new technologies.
Monitoring performance and risk accurately and timely is as important as selecting good investments. It can dramatically reduce financial losses, and yields information that allows us to make better investment decisions. We used to have our challenges in this area. So in 2013, the whole organization came together to replace all of AIMCo’s business information systems concurrently, on time, and on budget.
My thanks to the AIMCo Client Boards, the Government of Alberta, AIMCo’s Board of Directors and to all who supported our efforts. I feel privileged to lead AIMCo’s talented team, and thank them for creating a strong organization capable of achieving the best investment outcomes for those we serve.
Leo de Bever