AIMCo chief: Federal government's push for pension fund investments raises concerns

Evan Siddall argues that pressuring pension funds to prioritize domestic investments is 'not the way Canada will grow its economy'

AIMCo chief: Federal government's push for pension fund investments raises concerns

In a recent op-ed with The Globe and Mail, Evan Siddall, chief executive officer of Alberta Investment Management Corp (AIMCo), expressed his concerns about the Canadian government's efforts to encourage pension funds to invest more in the country. Siddall argued that this move could undermine the Canadian model of pension investment management, which is “seen around the world as the gold standard in safeguarding retirement savings.”

“Despite defining the standard, Canada’s retirement system is under pressure. We should all be concerned,” Siddall wrote.

The Mercer CFA Institute Global Pension Index 2023 revealed a decline in Canada's high ratings, primarily attributed to worries about the efficiency of pension plans operating free from political influence. Finance Minister Chrystia Freeland's fall economic statement exacerbated these concerns by proposing a ‘dual mandate’ that could divert Canadian pension funds from their “clear, risk-adjusted return-driven mandate to add a focus on economic development.”

Siddall argued against the dual mandate, stating that it would create confusion and dilute the fiduciary obligation to “deliver safe, secure, and growing pension investments.” He contended that such a mandate could result in pensioners shouldering the burden of the government's failure to promote economic growth.

Despite global economic challenges such as inflation, market volatility, and geopolitical tensions, Siddall stressed that the Canadian pension model was designed to be resilient.

“The Canadian pension model of long-term investing was built for this: to be resilient in difficult conditions. It rests on three pillars: stand-alone pension investment firms with unambiguous missions; strong, independent governance; and the ability to hire professional resources and highly qualified investing talent,” Siddall continued. “As a result, Canada is the envy of the world and houses some of the best investment firms anywhere.”

However, he raised concerns about the government's interference in two key pillars of the model: a clear mission and independent governance.

AIMCo, as the investment manager for several Alberta-based pension plans, opposed the idea of increasing investments in Canada. Siddall underscored the importance of global diversification and noted the oversight of the “inherent value of diversification” by those pressuring Canadian pension funds.

“AIMCo must be free to seek investment opportunities by achieving the portfolio benefits of global diversification. In short, we will pursue the best investments wherever they exist, consistent with our fiduciary responsibility to maximize risk-adjusted net returns,” Siddall added.

Siddall criticized efforts, including a lobbying campaign by Letko Brosseau, to compel pension funds to invest more in Canadian equities. He argued that such initiatives overlooked the broader investments in Canadian fixed-income securities, real estate, infrastructure, and private debt and equity.

“It is not our role to prop up Canadian equity markets,” Siddall said. “Their analysis reflects a profound lack of understanding of investing on behalf of pension funds.”

Highlighting the already high exposure of pension funds to the Canadian economy, AIMCo defended its global expansion strategy to “increase the potential sources of diversification and higher returns for our pension clients and beneficiaries.”

Siddall rejected the notion of using pension funds to fulfill “policy objectives” and suggested alternative measures for the federal government to boost the economy, such as lifting ownership caps on Canadian businesses, reinstating pension-friendly inflation-hedged Real Return Bonds, and making large-scale infrastructure projects available for private investment.

“Pressuring pension funds to ‘make Canada great again’ is not the way Canada will grow its economy. Indeed, it will harm the very individuals on whose behalf they are investing. The pension savings of Canadians are not our country’s economic development department,” Siddall said.