The city is looking at ways to maximize returns on investment as 2022 approaches.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
Medicine Hat’s investment portfolio has grown over 2021, but changes to how the city invests its sizable reserve funds and uses them could be coming in 2022.
This week’s meeting of the audit committee heard that long-term funds managed by the Alberta Investment Management Corporation earned nearly 12% return through nine months of the year.
Mid-term funds followed the bond market in slight decline, but sizable short-term and cash holdings scraped out a 0.8% increase in an environment of incredibly low interest rates. That’s 16 times greater than a comparable benchmark fund.
Finance heads, though, told council members on the committee that world financial markets are extremely hard to predict, and they are looking for ways to maximize returns.
That includes a return treasury study which suggests expanding areas into infrastructure and potentially real estate asset classes only four years after it was granted permission to trade and hold equities.
“We should be able to increase our returns by about $10 million per year,” said corporate services managing director Denis Egert.
The goal from a new Strategic Assets Allocation, adopted in July, is to rebalance holdings by next summer to return 3% above inflation from the holdings that now total $550 million.
“Inflation is a concern in the short and medium term, but we expect a few points better than that,” he said.
Egert also said suggestions to change how the city accesses extraordinary profits from its quickly growing Heritage Savings reserve, worth $51.9 million, will come forward in the 2023-2024 budget cycle.
That could allow the typical proceeds of a few hundred thousand dollars to be earmarked for specific capital projects, rather than go into a general infrastructure pool.
A relatively new mid-term, largely fixed-income fund managed by Manulife showed mixed results. About half the $74-million balance is invested in poorly performing Canadian Bonds (where the city lost 2.5%) and half in more stable global bonds (where the Hat’s upside was 0.8%).
A note states the city is now contemplating “the viability” of the city’s relationship with AIMCo., after the provincial government agency announced it may raise fees by about one-third.
Specific to the AIMCo. fund, which includes long-term funds set aside for oil and gas field reclamation, its balance sat at $237.8 million on Sept. 30. That marks an 11.66% increase since Jan. 1.
That compares to a benchmark fund performance of 8.7%, and reverses the comparison from 2020 when the benchmark nearly doubled the city’s 6.2% return.
It was created in 2017 with an initial deposit of $140 million, and $38 million has been added since. Overall, the fund has gained about $50 million in value since March 2020, when it briefly lost value compared to deposits.
City council in 2020 approved a debt-financing plan to cover initial abandonment activity since fixed borrowing rates were much lower than the return earned with the AIMCo. fund.
The first payments on that $80-million debenture is due in 2025, according to documents provided at the time.
