In the eyes of many, Australia represents the pension promised land. Its system of superannuation funds was set up to ensure pension coverage for a majority of Australian workers, not just a few lucky enough to have an employer-sponsored plan. Having spent time working for one of Australia’s largest public sector pension funds— Victorian Funds Management Corp—industry veteran Leo de Bever came back to Canada armed with new knowledge about what works and what doesn’t when it comes to setting up multi-employer sponsored pension funds. He’s using that knowledge—as well as his not inconsiderable experience in Canada and the Netherlands—as chief executive officer at Alberta’s AIMCo where he’s looking to take pension coverage in Canada to a new level. In this Q&A, he shares his views on pension reform, the financial crisis, and what’s next for Canada’s ailing pension system.
How has the financial crisis impacted pension funds in Canada in your view?
It shouldn’t be having a negative impact. What most people don’t understand is that, in the last 25 years, we have had the absolute best returns in the typical pension asset mix in the last 100 years, 2008 included. People don’t realize we’ve been living a charmed life. Yes, 2008 hurt, but these things happen. Maybe the problem is that we haven’t seen something quite this drastic for 20 or 30 years but if you read the history of financial markets, we manage to get ourselves into trouble periodically through some combination of disruptive technology followed by excessive credit creation.In recent years we’ve had the Internet, a telecommunications revolution, rapid innovation in financial services (the shadow banking system) that was not well understood, and a credit explosion. As in the past, things eventually blew up.
Read Charles Kindleberger’s Manias, Panics, and Crashes: A History of Financial Crises, which looks at financial markets over 400 years, since the time of the first stock market in Amsterdam. He shows we have had a financial crisis every 10 years and a big one every 40 years. Kindleberger goes through the anatomy of these crises and they are eerily familiar. In 1907, for example, the U.S. banking system imploded because at the time trust companies were new and were not as well understood as the banks. The trusts blew up because of commodity speculation and caused the banks to become unstable. What does that remind you of? It’s exactly what we just went through. We had investment banks and hedge funds operating opaquely on the periphery that failed, causing the conventional banking system to blow up. Our ability to learn from history seems to be very limited.
What from your experience working in Australia are you bringing to your new role at AIMCo?
I used to work at Ontario Teachers’, a single client pension plan which was simpler. In Australia, I was working with multiple clients—the same model I have here at AIMCo. Multiple clients increase the complexity and cost if you don’t do it right. That’s one lesson I have learned…read the full Q&A here.