Investment Philosophy

Strategy Matters.  AIMCo's approach to managing investments on behalf of our clients is to combine an in-depth appreciation of their unique circumstances and objectives with the investment capacity of a large-scale institutional investor.  That means knowing when to apply traditional strategies and when to deviate to ensure consistent, strong risk-adjusted returns.  While how we earn those returns may change year over year, our investment beliefs remain constant.

Investment Beliefs

Taking risk has a persistent long-term reward

Bonds provide high security of principal, but have low long-term returns. Stocks command much higher long-term returns, to compensate for rare but extreme losses in years like 2008. The equity risk premium will persist, since market returns cannot be anticipated in the short run.

We are risk managers

Our clients want rapid asset growth, but have a limited capacity to absorb downside Risk. Risk is our scarce resource, to be deployed where it will earn the highest return. 

Return and risk are best managed across all investments 

Maximizing return/risk by asset class is suboptimal for the portfolio.

Active management can be an important source of return

Listed markets will always supply the bulk of our return. Superior security, sector and country selection can add value, with little incremental risk.

Our comparative advantages are cash and patience 

We can earn a premium return for being able to commit sizeable capital for long periods of time. Unlisted investments must offer better returns than their closest listed proxy.

Investment strategies must respond to change

Good investment ideas don’t last forever. There is a reward for spotting new opportunities early. Some of the best opportunities do not fit asset class silos.

Good governance has a return

There are good business reasons for companies to act responsibly. We may use our influence as shareholders to improve business practices.

Our easiest return is money we do not have to spend

Managing internally is more cost-effective with the right expertise. Strong operational support can avoid costly operational errors.

Our goals should align with client objectives

We want to improve on what our clients could earn from passive investment in listed markets.

What We Know About Risk

The year 2008 demonstrated the importance of effective risk measurement and management. After 25 years of enjoying far higher returns on risk than could be expected, 2008 took us to the other extreme. Equity risk had one of the poorest annual returns on record. And when market liquidity dried up, even the safest of corporate bonds suffered large losses. Fortunately, and as expected, positive returns on government bonds diversified some of that risk.

Good risk management will not shield our portfolios from the poor short-term return on risk. However, by properly accounting for sources of risk and carefully considering the merits of where risk should be deployed, we will be better positioned to earn a superior long-term return on risk.

The return on risk remains high because of investor aversion to extreme outcomes such as those occurring in 2008. It is important to focus on your long-term objectives, to “stay the course” and not be swayed by short-term market volatility. For these reasons, AIMCo intends to be at the forefront of risk management. We will strive to understand risk better than anyone else and our objective will be to generate the best possible return per unit of risk.

Measuring and Managing Risk

Our mandate to our balanced fund clients is to earn a long-term incremental return of about 2.0–2.5% per year over risk-free government bonds. To accomplish this, we use a diversified policy asset mix.

We have made comparing and contrasting risk across our portfolios part of our investment language and central to the debate of investment decisions. We monitor key operational risks through a “dashboard” report that shows, with quantitative and qualitative measures, how we are progressing in our efforts to control and remedy weaknesses across the organization.

Our risk group is fully integrated in the investment process, working closely with all asset classes. It operates as an independent unit, maintaining prudent separation between those who deploy risk and those who monitor it. We consider Risk Management a key component of our long term success, and are making considerable investments in people, processes and systems to improve its effectiveness.

Strategic Response to Climate Change

AIMCo has a fiduciary duty to satisfy the investment objectives of our pension and endowment fund clients. We believe the time horizon, scale, and complexity of climate change present challenges which can impact asset values and influence systemic economic, environmental and social risk. We recognize the business imperative of addressing climate change in our investing strategies, and view both the physical and the regulatory risks of climate change as material to our clients’ objectives.

The physical effects of climate change have the potential to significantly impact asset value across all asset classes and markets. For example, changes in the frequency of extreme weather events alter probability scenarios, asset life assumptions and net present value calculations. Investors also seek certainty regarding potential regulatory impacts on asset value. The physical and regulatory impacts of climate change create stranded asset scenarios for companies, leading to possible solvency issues and shrinking the investible universe for investors.

Effectively addressing climate change requires concerted action from all actors – companies, investors and policymakers. Successive international agreements, culminating in the recent G7 pledge demonstrate growing concern that the average global temperature not increase beyond 2 degrees Celsius from pre-industrial levels. The Canadian government has committed to reduce our GHG emissions by 30% below 2005 levels. The UN conference of parties (COP 21) scheduled this December in Paris presents an ambitious, significant and timely opportunity to address global implementation strategies.

Many of the companies we invest in are pledging to support these political commitments. Over the coming decades, climate change will present strategic risks and opportunities’ to businesses. In alignment with our responsible investment pillars, AIMCo is committed to:

  • Integrating consideration of an asset’s climate risk and resiliency into our investment decision making, including voting by proxy to support reasonable proposals to limit carbon emissions (ESG integration)
  • Investing to support lower carbon infrastructure, such as alternative energy solutions and eco-efficiencies to facilitate the transition to a lower carbon economy (Positively-themed ESG investments)
  • Actively engaging with companies to promote climate-resilient strategies and best environmental practices. AIMCo champions a voice over exit approach- we prefer to engage with select companies to promote best practices and effect positive changes, where possible, rather than divesting of applicable holdings. (Engagement)
  • Reporting on climate change related Responsible Investment activities (Reporting and Disclosure)
  • Participation in collaborative initiatives and support for credible climate change policies and regulations based on achievable emissions reduction targets, water efficiency targets, alternate energy implementation strategies and industry best practices (Advocacy)

AIMCo is committed to addressing climate risk across our portfolios in support of Canada’s vision and strategy to achieve a more sustainable, low carbon economy, while continuing to focus on our fiduciary duty to our clients.