Leo de Bever, the first CEO of the Alberta Investment Management Co. (AIMCo), says he’s had his work cut out for him ever since he began his tenure at the arm’s-length crown corporation set up to manage assets for the province’s 26 pension, endowment and government funds.
“I came in at the end of 2008, just before the financial crisis got going. So my timing was impeccable,” he jokes.
The job didn’t get much easier from there. Prior to AIMCo’s creation in 2008, investments for the province’s public funds were overseen by a department within Alberta’s Ministry of Finance and Enterprise, and about 20% were externally managed. De Bever and his team knew that one of their first orders of business was to bring down the management cost of that 20%—which, at the time, made up 80% of AIMCo’s budget.
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AIMCo benefits from Viterra dealDe Bever calls it the Canadian model: a movement among large Canadian public pension funds to manage their assets using their own internal teams to achieve cost savings and decision-making expediency. The model’s success, especially during the recent period of extreme market volatility, has caught the attention of investment professionals around the world. Indeed, an article in the March 3, 2012, edition of The Economist mentions Wall Street veteran and current New York City mayor Michael Bloomberg as an admirer.
“If you can bring the expertise [in-house], you can do it for between one-third and one-fifth of the cost, depending on the asset class,” explains de Bever. “An external manager typically has to pay for marketing costs and the cost of capital, whereas we operate more or less like a cost recovery co-op: we manage assets for our clients, and we charge them our cost, with no markup.”
De Bever also notes that a strong in-house management team, working across different asset classes with an eye toward the maximization of a single portfolio, can be far more agile and creative in its thinking than a fragmented series of external managers.
“If you farm it out, the fixed income manager wants to hold on to fixed income assets, and an equity manager wants to hold on to equity assets. We want to be in a position to have a discussion where we can say, ‘In the next few years, we should lighten up on this, shift the assets to that.’”
All systems go
Of course, actually getting to a place where all of this is possible is a complex process for a fund manager of AIMCo’s size, with more than $70 billion in assets under management. Getting the right people and systems in place is crucial.
On the latter, de Bever says that prior to the launch of AIMCo, the province hadn’t put money into investment systems technology for close to a decade.
“The systems we needed didn’t exist [internally], because it was only recently that the organization became involved in some of the more sophisticated or labour-intensive asset classes. So we basically had to rebuild everything.”
The technology reconstruction effort saw AIMCo replace its derivatives management system in 2010. The focus since then has been on improving its portfolio management and data management capabilities. De Bever says the goal is to have everything in place early in 2013.
“It’s been expensive,” he admits. “But by planning carefully, we haven’t been spending any more money than many of our peers have had to spend on just replacing one or two of their key systems, which happens every 10 years or so.”