CALGARY, Alberta (Reuters) - Alberta’s public wealth manager is in talks with regulators to lift the amount of leverage it is allowed on its books, its chief said on Tuesday after it reported 8.2 percent return on investment in its latest fiscal year.
Alberta Investment Management Corp is bound by strict provincial limits on how much pension plans can borrow to invest in assets, and that keeps results at a level that lag some peers outside Alberta, AIMCo Chief Executive Officer Leo de Bever said.
He contended that allowing more leverage would actually reduce investment risk by better balancing assets and liabilities. Pension leverage rules are established by Canada’s provinces individually.
“I don’t want to go in there with cannons blazing, but it’s certainly a discussion we have,” de Bever told reporters. “We’re basically asking the regulator to decide: ‘If you want efficient financing of pension plans, are you willing to give me a bit more freedom than I have now?'”
Established by the Alberta government, AIMCo manages nearly C$70 billion ($73 billion) in public sector pensions as well as such government accounts as the Heritage Savings Trust Fund, a rainy-day fund made up of money from the oil-rich province’s energy take, as well as the Sustainability Fund, which is used to fund budget deficits.
It invests in a range of securities and infrastructure, and is part of the Maple Group consortium seeking to gain control of TMX Group Inc, operator of the Toronto Stock Exchange, with a C$3.8 billion bid.
In 2010/2011, AIMCo generated a 10.3 percent return on pensions and endowment assets and 8.2 percent on total assets, including short-term government funds, reflecting above-average market returns. Its clients’ policy to eschew currency hedging cost a few percentage points last year, it said.
In comparison, the Ontario Teachers Pension Plan Board, one of the country’s largest pension funds, generated a 14.3 percent return in its most recent results.
De Bever said some of the difference is likely due to the levels of leverage Teachers can employ.
Albertans are not necessarily averse to a change in investment and risk philosophy, but it is not an issue that has come up before, he said.
In the last fiscal year, AIMCo’s assets under management fell C$1.9 billion to C$68.8 billion, as the Conservative government of Premier Ed Stelmach withdrew money to fund its budget shortfall.
The government said last month its deficit for 2010/2011 was C$3.4 billion, C$1.4 billion below its previous estimate as oil royalties beat expectations. At the end of the fiscal year ended March 31, the Sustainability Fund totaled C$11.4 billion.
As for the bid for TMX, de Bever said Maple Group, made up of several financial financial institutions, did not aim to build a capital market monopoly, just bring efficiencies.
The deal, which follows a failed bid for TMX from the London Stock Exchange, is subject to winning clearance from Canada’s Competition Bureau to bring the TMX together with Alpha, the country’s largest alternative trading platform.
“Obviously it has to make economic sense, but part of the rationale for the whole thing was that an exchange that would have a lot more traffic going through it would be inherently better positioned to serve all interests better,” he said.
“If that implied efficient regulation to make sure everybody’s protected, so be it. It’s a prerequisite.”
Earlier, discussing his investment philosophy, de Bever told Reuters that the global commodity boom is driving prices for agricultural assets to near-bubble levels. [ID:nN1E7641HY]
Editing by Carol Bishpric