City’s investment portfolio takes a small hit in 2018
By COLLIN GALLANT on May 25, 2019.
cgallant@medicinehatnews.com@CollinGallant The fortunes of City Hall’s newest equities-focused investment fund followed the stock market downward in 2018 – the value fell 2.3 per cent during the turbulent year that equates to a loss of several million dollars. That was outlined in the City of Medicine Hat’s latest annual report, released on Tuesday, and comes in just the second full year of the $135-million fund’s operation by the province’s Alberta Investment Management Corporation. Overall, the fund’s value is bigger than what was deposited, leading elected officials to warn that the funds are earmarked for long-term purposes and a long-term view is needed. “It’s a snapshot in time, no different than each individual’s portfolio,” said Coun. Darren Hirsch, who chairs council’s audit committee. “We’re pretty comfortable in the overall view of what we’re invested in. Any funds that are delivered to AIMCo are long-term focused, and we expect there will be underlying volatility … Frankly many people experienced the dip, and since then we’ve seen (improvement) in the market.” Recurring losses would lead the city to re-evaluate the plan, Hirsch said. The strategy is to have the cash broken down in a wide array of investments, weighted 40 per cent to money market accounts and 60 per cent to equities or stocks, considered higher risk, but also higher reward. The loss in 2018 is about 1 per cent greater than that of a bond index that local administrators use a benchmark. Since 2017, the city has stationed about $134 million for long-term oil and gas well abandonment and a “heritage savings” fund with AIMCo after successfully lobbying the province that its relatively large bank account meant restrictions set out for smaller cities should be lifted. During the first year, the AIMCo. funds returned over six per cent, and considering both years the net return over the term is 2.5 per cent, slightly higher than the benchmark. But that’s also lower than cumulative inflation, which is a key factor accessing a dividend for the savings fund. Under the current policy, any profit from the specific reserve can’t be accessed until they grow above a point where inflation for the whole term is factored in. That could be re-examined, said Hirsch, as part of a general dividend policy review that several members of council are hoping to hold. Currently, new power generation profits are split evenly between the savings fund and a tax stabilization fund as the city works to replace gas division profits with cuts and tax increases over the next eight years. With more than $37 million in power profits in 2018, about $18 million is earmarked for the savings fund. “Every policy that we have should be available to review,” said Hirsch. “Does it make sense considering the financial state we’re in right now from a financial point of view.” Over the same time the much broader portfolio managed by AIMCo., including the Alberta Heritage Trust Fund and several public pensions, posted an overall return of positive 2.5 per cent. Funds managed internally at the city – mostly money held for near-term construction projects, grants and operating cash – also returned 2.5 per cent in 2018. Those types of funds are restricted to low-risk bonds, a financial sector that outperformed equities in 2018 which featured turbulence on the stock market late in the year. 20-19
