Imagine the news. The Minister of Finance, Eric Girard, fires the CEO of the Caisse de dépôt et placement, Charles Emond, as well as all the members of the board of directors.
Published at 6:30 a.m.
Without a doubt, such an announcement would have the effect of a bomb. What, the Caisse is a puppet of the CAQ government? And does this government manage our retirement funds effectively or with a hidden political mission?
The media would question the real motives of this radical housekeeping, unprecedented in the history of Canadian public pension funds. And would wonder if the reasons given by Minister Girard are the right ones.
This situation is fictitious in Quebec, but it reflects exactly what is happening in Alberta. The government of populist Minister Danielle Smith fired on November 7 the entire staff of the Alberta Investment Management Corporation (AIMCo), the equivalent of the Caisse de dépôt et placement du Québec1. And this decision shakes the Canadian business world.
Which scandals at AIMCo deserve such cleaning? Was there any appropriation of funds or corruption?
None of that. Alberta Finance Minister Nate Horner says it is the institution’s low returns, combined with a sharp increase in administrative costs, that justify this decision.
Although he has appointed an interim CEO, the minister is now the sole member of the board of directors of this 169 billion fund until a new team is appointed.
This type of decision resonates in Quebec, since the Caisse de dépôt has produced returns below its benchmark index over 18 months, in addition to having increased its management costs by 23% per $100 of assets in 2023. Caisse had assets of 452 billion as of June 30, 2024.
But is Alberta Minister Horner telling the truth?
Last Wednesday, AIMCo’s fired chairman of the board, Kenneth Kroner, sent a letter to Alberta’s finance minister calling his comments “misinformation” and “incorrect.”
In this letter obtained by certain media, notably the Financial PostMr. Kroner says the fund’s management fees compare favorably to those of other major funds, and its five-year performance is in line with expectations2.
The former president of the CA is both wrong and right. In fiscal year 2023, the five-year return of AIMCo’s balanced fund (6.6%) was lower than that of comparable funds, including the Ontario Teachers’ Pension Plan (7.2%) or the Canada Pension Plan (7.7%), but higher than that of… the Caisse de dépôt (6.4%).
This comparison is, however, imperfect, since these institutions do not take the same risk, given their different clientele.
Comparing AIMCo’s return to its benchmark index – therefore to a similar risk portfolio – the situation does not appear so bad over five years (6.6% compared to 6.5% for the index), as this was the case of the Caisse de dépôt, moreover (6.4% compared to 5.9% for its reference index)3.
Political…oil motives?
In short, are there other reasons which justify this dismissal?
It seems so. And these other reasons could have a political color linked… to oil.
It’s that according to the daily The Globe and Mailthe creation of a green fund of several billions at AIMCo would have been a source of tension. This fund intended to take advantage of the transition to a carbon-neutral economy came from Bill Morneau, former Liberal Finance Minister under Justin Trudeau.
Even though the AIMCo board had nothing to say about this initiative, nor its costs, nor the presence of Mr. Morneau, the project was abandoned…
Was the Alberta government, oil-rich and allergic to the Liberals, opposed to it? Did the project go against Premier Danielle Smith’s demands for AIMCo to invest in Alberta’s energy sector?4 ?
Is this why rumors are circulating that former Canadian Prime Minister Stephen Harper – conservative and oil proprietor – would be the next president of the CA?
The Globe also mentions issues related to the personality of CEO Evan Siddall and his desire to centralize powers. But we can ask ourselves the question: why dismiss the entire staff if only the actions of the CEO are considered inappropriate?
“No well-run company replaces its entire management team and its entire board of directors at the same time. It’s a recipe for disaster,” Alexander Dyck, a finance professor at the University of Toronto’s Rotman School of Management, told Bloomberg.
By the way, in Quebec, it is the government which appoints the members of the board of directors of the Caisse de dépôt, in particular the chairman of the board, according to the Act respecting the Caisse de dépôt et placement du Québec. We can therefore think that the government could technically dismiss the entire council, including its president.
As for the CEO, whose appointment must be approved by the government, the law specifies that his departure can be requested “by the vote of two thirds of the members of the board of directors and with the approval of the government”.
Finally, although the government has influence over the Caisse, the law specifies that the Caisse acts in complete independence, a clarification which does not appear in the AIMCo law…
Regardless, this Alberta story will leave its mark, even after the nominations expected in the coming days. In the industry, it is judged that the stunt will undermine the credibility of the institution, which Mr. Kroner wrote to the Alberta minister.
It will certainly deal a fatal blow to any Alberta plan to create the equivalent of the Quebec Pension Plan by repatriating federal funds from the Canada Pension Plan under AIMCo.
And it will raise questions about the real independence of public pension funds, at a time when the English-Canadian business community is putting pressure on these funds to invest more in the Canadian economy.
1- In fact, not only the board members and the CEO, Evan Siddall, were shown the door, but also three senior executives who reported to Mr. Siddall, including the head of human resources and the head of legal affairs, recently hired.
2. Read an article from Financial Post (in English)
3- Although one might wonder if these two fund managers advise their contributors to take enough risks… but that’s another story.
4- AIMCo manages the government oil royalty fund (Alberta Heritage Savings Trust Fund).
