The performance of investment fund of the City of Medicine Hat which is managed by the Alberta Investment Management Corp. as of Aug. 31, 2019, as presented to council's audit committee in the fall of that year.--IMAGE COURTESY CITY OF MEDICINE HAT
cgallant@medicinehatnews.com@CollinGallant
Administrators and elected officials in Medicine Hat are not overly concerned about a $170-million investment fund managed by a provincial agency despite public-sector unions raising an alarm about potential political interference.
The Alberta Investment Management Corp. (AIMCo) handles provincial funds totalling $108 billion, including public-sector pensions and the Alberta Heritage Trust fund.
More recently it’s been central to a disagreement between the United Conservative government and the Alberta Teachers association. The province announced last fall the agency would take over management of the $18-billion teacher’s pension.
The ATA objected to limitations on member governance, and alleged the government could direct the agency to invest in the downtrodden oil and gas sector, putting the investment returns at risk.
City finance officials say they are satisfied that AIMCo, which manages city funds by agreement, is politically independent and the city has ultimate control of the money.
The sentiment was repeated by most councillors, though several veteran members say greater oversight may be needed.
“Frankly I was more worried about political interference by the previous government,” said Mayor Ted Clugston, who has strong confidence in the fund managers.
Coun. Kris Samraj said the city shouldn’t react to political squabbles, but Medicine Hatters do have a stake in prudent management of its funds.
“The city has a huge interest in making sure that AIMCo is properly operated without any political interference,” he told the News.
In 2017, the Alberta government extended large city investment regulations to Medicine Hat, allowing the city treasury to invest its relatively large holdings in equities. Typically, municipalities are limited to low-risk, low-return bonds and GIC’s.
Since then, funds deposited with AIMCo. for long-term gas well abandonment and a city trust fund have grown at a high rate, but officials say that beyond initially setting an investment strategy, they have little control over where the money is specifically invested.
Corporate services commissioner Dennis Egert said the city is confident that AIMCo is managed well by an independent board of directors.
“We allocate funds between different asset classes, AIMCo has an established pool of investments – global equities, Canadian or U.S. Equities, fixed-income – and we select the percentages and AIMCo makes the (specific) decisions for us,” he said.
“That’s why we’ve hired them, because they have that expertise.”
Egert also pointed to AIMCo’s “responsible investment” policy that avoids particular ethics questions. As well, it has long-supported efforts to push major companies to fully disclose environmental liabilities, but doesn’t specifically bar investments in exposed industries, such as the energy sector.
Coun. Darren Hirsch, who chairs the audit committee, said the city has followed standard and prudent procedure when creating the fund. It prioritizes asset growth against stability, rather than facets of “ethical” or “green” responsible investments.
“I’m comfortable that it makes sense for the City of Medicine Hat,” said Hirsch, adding that finance officials watch the fund more than council members, but he would prefer a closer look at what the specific holdings involve.
Coun. Robert Dumanowski, who chairs the corporate services committee, agreed.
“It’s a good question that maybe we haven’t asked yet,” he said.
The city fund reported a partial year rate of return of 10 per cent during an end-of-summer quarterly update. The city’s year-end financial statements typically are presented in March each year.
Having deposited $154 million the investments were worth just under $170 million on Aug. 31, 2019. The city’s annual financial statements are typically released later in March.
AIMCo management was also initially proposed to provide some level of assurance to the province that the investment strategy would be prudent. From the local viewpoint, it avoided the need to expand the city’s treasury department with specialized staff to oversee the fund. The agreement does require the city to pay a management fee.
“We pay them to manage the money,” said Cou. Jim Turner. “They’re the experts, but we’re on top of it as a council and in our administration.”
Other councillors appear pleased with the arrangement.
“Any fund has a level of return for a level of risk, and our rate of return has been compared to previous,” said Coun Jamie McIntosh.
Coun. Phil Turnbull said the government has as much or more to lose than pension plan members, because the public coffers may be called up to cover shortfalls.
“People get nervous about government interference versus private (management),” said Turnbull. “The government has a mandate to protect the pension plans of its employees.”
As for the city’s fund, Turnbull said “we could pull it out anytime we want, but we’ll keep watching the market.”
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