By COLLIN GALLANT on June 27, 2020.
During the worst of the stock market crash in March, the City of Medicine Hat’s equities investment fund had lost $20 million, but proceeded to gain back about half those losses over the next six weeks, city councillors heard Thursday.
The city’s most recent financial statements give an overview of the rollercoaster ride that the city’s three-year equities investment fund took over several months as stock markets crashed in the wake of the COVID-19 economic shock, then stabilized.
“It should be no surprise that our returns are less than they are last year,” said Garth Glover, the city’s general manager of finance, during a presentation to council’s audit committee late Thursday.
The fund, managed by the Alberta Investment Management Corporation (AIMCo.), eventually posted a negative rate of return of 8.83 per cent over the first four months of 2020, according to city financial statements dated April 30.
The fund involves $164.7 million deposited by the city toward long-term horizon investment, mostly for funds related to gas well abandonment liabilities, but also a heritage savings endowment to capture new profits from commodity business units.
After a 14 per cent positive return in 2019, the fund’s market value reached $185.4 million in February, but sank below the value of the original investment as equity markets lost as much as one third of their value in March over coronavirus and global trade concerns.
Since then the fund has regained value to sit at $169.8 million at the reporting date, and Glover said that at June 20 the fund had regained $6 million.
Many large pension funds are also reporting losses in the eight per cent range after the turmoil on financial markets.
AIMCo’s overall portfolio booked a 10.2 per cent loss, though controversy has arisen over a hedging strategy that didn’t involve typical stock picking or hold and growth investment. Medicine Hat has a management agreement with the provincial government’s investment wing, and its unique investment strategy, officials have said.
Medicine Hat audit committee chair Coun. Darren Hirsch said the worst seems to be over, and its important not to panic sell.
“It’s a long-term investment and the strategy anticipates that there will be ups and downs,” he told the committee. “Quite frankly, we are invested and we’re staying invested. I say we stay the path with our prudent strategy.”
Beyond the steep drop in the stock market, the response by central banks to lower interest rates will affect the city’s low-risk investments as well, said Glover.
Falling interest rates, meant to boost borrowing helping companies to stabilize or go ahead with new projects, will also lower interest rates offered for GIC’s and fixed income funds.
Those sectors now make up 46 per cent of the city’s AIMCo portfolio after the value of equity holdings shrank in comparison.
The city also holds $274.4 million in funds that are managed internally and invested in more conservative avenues, such as GIC’s or short-term bonds.
Those holdings gained 0.82 per cent for the first four months of 2020, slightly less than a bond index that is used as a benchmark.