AIMCo: Vaporizing Billions, Bailing out Oil and Gas

The Alberta Investment Management Corporation (AIMCo) vaporized $4 billion last week, and has been bailing out failing oil and gas companies— as these same companies offload environmental liabilities to the public, and throw funding behind conservative political organizations. What’s going on?
Duncan Kinney of Progress Alberta joins Team Advantage to discuss their recent report, Alberta’s Failed Oil and Gas Bailout.

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Joel: Welcome to a special combined episode of The Alberta Advantage and the Progress Report. I’m your host, Joel, and joining Team Advantage today is Tyler —

Tyler: Hello.

Joel: Roberta —

Roberta: Hi!

Joel: And Progress Alberta’s very own Duncan Kinney. Duncan, welcome to Team Advantage.

Duncan: Hello friends! It’s so great — it’s a pleasure to be on the podcast.

Joel: Today, we’re going to talk about a report Progress Alberta authored titled “Alberta’s Failed Oil and Gas Bailout.” It spells out how AIMCo invested more than a billion dollars of pensioners’ and Albertans’ money into risky oil and gas companies with more than three billion dollars in environmental liabilities and how the people running those companies got rich through huge salaries, share buybacks, dividends,and conservative political connections. So. To begin: what is AIMCo, what does it do, and who runs it?

Duncan: Ah, the hard questions, you’re starting off with. I like it. I mean, I just want to preface this by saying, like, I just have some shitty communications degree, but this did feel like writing a thesis. And so it’s a 50-page report; by all means, read every page. There’s been lots of media coverage of it, too. But I’m glad that it’s finally out there and that we’re talking about it. So, AIMCo. AIMCo is the Alberta Investment Management Corporation. It is a Crown corporation, it is an institutional investment manager that is responsible for managing Alberta’s public sector pension plans and a handful of other boutique funds that the government of Alberta has. As of December 31st, these folks had $118,000,000,000 under management. It is very likely that number is going to go down by quite a bit when we get the next quarterly report, not only due to turmoil in the financial markets thanks to the Coronavirus, but also a certain $4,000,000,000 trade that instantly vaporized $4,000,000,000 worth of pensioners’ money that we just learned about literally the day before this report came out. So, good times. The other notable thing that AIMCo is responsible for managing is — aside from the pension plans — is the Alberta Heritage Savings Trust Fund. And this is the thing that Peter Lougheed set up; this is Alberta’s main long-term savings fund, it’s like our fossil fuel legacy, and now it’s a joke. I mean, it’s tiny; it’s $18,000,000,000 on December 31st. Again, that’s much likely to be — it’s going to be likely much smaller when we get the next quarterly report. And, yeah, that’s kind of AIMCo in a nutshell, I think.

Tyler: Sadly, that fund is what the Norwegian Wealth Fund was based on, and they took our idea and actually did what we were supposed to do, which is build a massive rainy day fund instead of this piddly little thing that just serves to supplement our general revenues.

Joel: Yeah, they actually used their fossil fuel, non-renewable revenues and put them all in this fund rather than just use them to operate a government, so — good stuff.

Tyler: Smart job.

Duncan: Yes, we live in an incredible province with very smart people.

Joel: Very smart. Alright, so now we have a sense of what AIMCo is. Is AIMCo truly independent? They seem to be taking some cues from the government while the government likes to say that AIMCo remains fully independent. Can the government direct AIMCo at all, or is it fully walled-off and independent?

Duncan: Well, this is the thing, is that the question of AIMCo has become a ery live political question, because, in the fall, Jason Kenney introduced a suite of reforms to the way pensions were managed in Alberta, and people are pissed, and people have every reason to be pissed. So there are kind of two big things that happened. One is that the Alberta Teachers’ Retirement Fund was transferred to the control of AIMCo. So, for like 80-some years — I don’t know how long, a long-ass time — the teachers have managed their own pension fund. And they’ve done a fine job at it. And even with AIMCo came around — because it’s only around 12 years old, it started in 2008 — even when AIMCo came around, ATRF was still split off from it, they were still managing their own pension fund, they were doing just fine. And in fact, their returns are much better, historically, than AIMCo’s returns. And so, over the objections of teachers, the ATRF was transferred to the control of AIMCo. The other big change that was brought in in the fall by the UCP was that pension funds can no longer leave AIMCo. You know? It is the Hotel California — it’s like, you can check out anytime you like, but you can never leave. It is a shotgun wedding. They are now married forever, whether you like it or not. Sorry, pension plans — eat it. And that also meant that a lot of people were pissed — not just the teachers, but everyone else whose pensions are managed by AIMCo — because AIMCo is not very good at its job of being an institutional fund manager, as we will learn further on, both in this report and thanks to news reports that have come out, also, very recently. And the question of independence — I mean, that’s an important one, right? I mean, ultimately, the board of directors of AIMCo are political appointees — which, again, is bad, and shows that it’s not truly independent. One of its contemporaries, the BCIMC — like, the AIMCo contemporary in BC — the majority of the board of directors of the BCIMC, their directors are appointed by the pension funds themselves. So the workers who are on the board of directors of these pension fund and manage them, they get to appoint the board of directors of their pension fund manager. In Alberta, the government gets to appoint the directors of the pension fund manager. So, again, not truly independent. And then, also, the government — written into the AIMCo Act is the ability to issue directives to AIMCo, to essentially tell it what to do. And —

Tyler: Yeah, and there’s a very strange kind of messaging with that that the UCP has been pressed on, especially when these recent funds were brought into AIMCo. Kenney was always saying, “It’s an independent institution, it’s an independent institution.” So I think most people’s experience with this story probably stems just from these news reports and maybe Kenney press conferences, and their messaging is always — which is just a straight lie, really — that it’s fully independent, when it’s clearly not, it’s written into the Act, as you said, Duncan. And the fact that members of the Board are political appointees. So I think there’s this really strange confusion that’s happening with the public confidence where the UCP’s totally not being clear on this. So you could make an argument that, you know, there is a decent amount of arms-length, and, oh, we’ll know if the government tells them something specific, but there’s enough overlap there, and enough rules, that means that, you know, the government can make noises and people within AIMCo, within the Board, can understand and interpret those, right?

Roberta: Well, and I think we’ve seen — since the UCP was elected — how these supposedly-independent boards, at arms length from the government, have been treated. You know, they basically wiped out the membership of all the public boards of all the institutions, including universities and others, in order to appoint people that they knew would be, you know, susceptible — for lack of a better word — to this agenda that they’re doing. So, you know, to say that AIMCo is independent and operates at arms length is perhaps technically true, but we’ve already seen the government, when a board is not doing what they want, or they foresee that they might step in the way, they just replace all the members. And, in fact, we’ll see some overlap of that membership as we go.

Duncan: Yeah, and the very next Board appointment that we’re going to see at AIMCo — like, the next Board appointment that AIMCo gets from the UCP — there will be a lot of scrutiny on that appointment.

Tyler: Yeah, I was just going to say, you know — if your job is to be appointed to run this fund, you know, that’s a pretty good gig, and I’d imagine you have a decent little salary from having that position. And if you know that your job is reliant on political factors, and that you could be replaced, you know, there are certain pressures there that come in, whether or not they’re directly written into any official document or not.

Duncan: Yeah, like, the much-ballyhooed independence of AIMCo is a lie, right? The Canadian Pension Plan Investment Board — the CPPIB — is the gold standard for this. And you can get into the report, and we get into how poorly AIMCo fares when you compare it to the CPPIB on these issues of independence and just how arms-length it is. Like, it is just, quite simply, not. And it’s due to the way the Act was written — and even then, if you were to say this — Kevin Uebelein, the CEO of AIMCo, he can read, and I’m sure he reads the news. It’s kind of his job to.

Tyler: [laughs]

Duncan: And Kenney’s petro-fundamentalism on oil and gas is extremely obvious, right? Like, even that type of background influence is going to happen whether he is aware of it or not, right?

Joel: Duncan, you mentioned earlier that AIMCo vaporized $4,000,000,000. Let’s get into that a little bit. How, exactly, did they just set $4,000,000,000 on fire? Was it in some sort of massive ceremony, or was it less dramatic?

Tyler: Did they Joker-fy and set it all on fire?

Joel: [laughs]

Duncan: Yeah, there was a big statue of Moloch — there was a big stature of Moloch —

Joel: And lots of hooded figures, that kind of thing —

Duncan: —and there was a pile of money on the ground, and Kenney was there —

Joel: [laughs]

Tyler: Lots of chanting.

Duncan: Hooded figures, pig’s blood. It was weird. So this is an especially arcane bit of capitalist bullshit, which is — I mean, it’s all a scam, right? And this is how AIMCo ended up losing $4,000,000,000 ona  single trade. But essentially, from what I can gather, AIMCo had a huge bet — billions of billions of dollars, much more than the $4,000,000,000 that they lost — but they had a huge bet, essentially betting that the market was going to remain stable. And when the market was not stable — as it was recently, thanks to coronavirus, Saudi Arabia-Russia price war, maybe just, kind of, underlying conditions for a recession anyways — it went outside the kind of bounds of what the stability was according to the contract. And, essentially, when that happens, you essentially just have to pay out. You’re getting a cash payment every month when times are good, but when times are bad, you lose; you lose bad. And that’s where the $4,000,000,000 went, apparently; to some, I don’t know, probably hedge fund in Toronto or New York or something.

Tyler: Yeah, it’s a strange product, and the weird thing about it is, from what I’ve kind of read and understood about it, it seems to be a product that’s generally marketed and sold to individuals, but the way it’s described in the reporting, it seems to have the same characteristics like Duncan just described. So, you know, you’d put a hundred dollars in, let’s say, and you’d receive a coupon rate — so it’d be like a bond, and you’d receive that payment monthly or annually or whatever — and you can keep receiving that payment until certain conditions are met. And in this case, the conditions usually are that a specific market index — so, sometimes these products seem to be linked to Asian markets, or it could be linked to any market — goes over a certain balance. So in this case, I think the one’s I’ve heard about, usually it’s like a 30% drop in the market. And once that condition is met, basically, you lose all your future bond payments, but you also only get paid back your percentage of the initial premium you put up minus that drop in the market. So if it was 30%, you would only get paid 70% back. So in essence, that three billion, four billion that was lost, that may have been just 30% of that total investment, if that makes sense. But, again, because of the lack of transparency that AIMCo has, it’s actually very hard to know if that is the exact thing that they’re talking about in these articles when they say they made this volatility-based that went awry. There’s also something called portable-alpha, which is a strategy that AIMCo definitely does use in-house; Institutional Investor, which is a website that kind of monitors these large institutional funds, had a piece about this  —

Duncan: It’s the paper of record for hedge fund douchebags. [laughs]

Tyler: — right, right. And, you know, if you can learn the language a bit, there’s a lot of useful information. But maybe you want — one short quote that I pulled from an article that I’ll just talk about, that I think is interesting, because, in this whole article, they didn’t mention many specific ones, but one of the ones they did mention was AIMCo. So it says: “Portable alpha hasn’t made a sustained comeback the way some crisis-era products, such as mortgage-backed securities, have. Rather, it’s become the domain of a small number of sophisticated asset allocators and specialist managers. The Alberta Investment Management Co., for example, reportedly leverages its hedge fund portfolio via an internally managed portable-alpha strategy.” Now, it doesn’t really matter — you know, I don’t think people have to understand what the portable-alpha strategy is, it’s basically just— in the market we exist in, or in the world we exist in, interest rates are very, very low, and the way that we have financialized our retirement funds means that these funds need to find return, they need to find yield, wherever they can get it; and to do this, they’re having to look at riskier and more complicated financial instruments to do so. And portable-alpha is just one strategy of leveraging the money you have to maybe look into some riskier investments, or maybe investments that your passive investment strategy wouldn’t normally tap into. But, obviously, these are giving you a higher yield for a reason, and that’s usually to do with the fact that they have higher risks. And when the markets drop as fast as they have with COVID —you know, there’ve been similar-sized drops in the past, but none have been this fast — all of these products start going completely haywire, and even attempts made to, kind of, hedge against them, or, kind of, lower your losses by making other oppositional bets and trades, they start falling apart when markets deteriorate this quickly, too. So it’s something that’s obviously affecting everyone, but the more often you’re using these risky, more complicated instruments, the more likely you are to see big, big losses when these shocks happen.

Duncan: I mean, just to jump in, there is a hilarious little aside in the Institutional Investor story on AIMCo’s volatility training blunder. And it is: “Canada boasts some of the world’s most sophisticated and best performing public investment funds, which essentially operate like Wall Street firms but siphon profits to ex-bus drivers and retired nurses. AIMCo is not among that top tier, experts and data suggest.”

Tyler: Great burn. [laughs]

Joel: [laughs]

Tyler: But that is interesting because I think what they say there, you know — when they say “sophisticated strategies,” what they mean is they’ve got a lot of very smart — I’m going to use the term “smart” here, but — people who are able — 

Duncan: Huge brains. Just massive, massive fucking brains.

Tyler: —yeah, big brains that can that run very complex models and very complex strategies and understand, at a very technical level, how all these different instruments work. So, “sophisticated” certainly can mean when things are going smoothly, or when things are progressing along a path that, you know, can be foreseen to some degree. Then you can get big returns. But, obviously, like, something like coronavirus happens, or the 2008 financial crash happens; most people aren’t foreseeing these things, they aren’t building these massive shocks into their models. So as soon as something like this happens, all those sophisticated plans kind of crumble and, in fact, can make the losses much, much worse than if you just had a very basic passive investment strategy. So it makes investors and these pension fund managers look very, very good when times are going well, but then they can look very silly when big shocks happen.

Duncan: Yeah, I mean, I remember Cory Doctorow was writing about this on Twitter, I think, and he was, like, reminiscing back to 2008, right, and the financial collapse that happened then, and — you know, he read some book by some scammer — some professional fraudster wrote a book, and he read it back in the day, before the whole — before 2008 — and it was like, yeah, when people started seeing things that you don’t understand — when things become intentionally complex — like, they’re running a scam on you, right?

Tyler: Right.

Duncan: And then Cory Doctorow went back and looked at a lot of the language that was used by the people who were selling these products that blew up the world economy for however long — still, really — these synthetic CDOs and these collateralized debt obligations, and they had financialized the mortgage industry. I mean, it was all bullshit, right? And it was wrapped up in this veneer of kind of, like, “Oh, yes, we’re very smart and this is going to make money here. Trust us.” But it seems like AIMCo has kind of fallen into the same trap, right? I mean, in a world of, like, climate emergency and growing inequality, you know, rampant inequality — to think that the market wouldn’t face some kind of massive shock at some point, you know, and that you were going to have some 8 to 10 to 12 billion dollar bet that nothing was going to happen is, like, super fucking dumb.

Joel: And the funny part to me is that, like, multiple mainstream outlets throughout the last year or two have been saying “Oh, the market is probably due for some sort of correction at the very least, or we’re probably looking at a recession, given a number of factors.” And all this did not seem to penetrate the big brains at AIMCo.

Tyler: Yeah, and the difficulty, too, I think we have to be honest with, here, is that, you know, this is a structural problem with the way that pensions are managed today. So we recorded an earlier Alberta Advantage episode that was kind of solely focussed on the financialization of pensions, and it’s kind of a hard and pretty dry subject. But, essentially, pensions, now, due to the way they’re structured, they have to get more and more creative because they need to get a certain amount of return to continue to pay out. Pensions, specifically defined benefit pensions that are normally, now, only exist within government agencies — so there’s usually a very big liability with those, and you know what you’re going to have to pay out, you know, in the next year, and you can get a pretty accurate number on that. And in order to keep up with the pace of what you’ve promised to your employees, you have to find returns on the money that you’re investing; and because interest rates have been low for so long, people are having to take really big risks to find that return to pay out the promised pensions. Now, in that episode, we talked about maybe a better model, which is one that’s much more weighted to a pay-as-you-go type of funding arrangement, which is much more similar to the way we fund other public goods like schools or things like that, where, basically, people who are working pay more of their tax and that tax goes to just paying, you know, in this case, it would go to pay a larger portion of retirement peoples’ needs. But in the current climate that we’re in, people who run these funds are incentivized to take these really big risks. So, you know, there are definitely bad actors who take risks where they shouldn’t be, or there are people who just make mistakes, right? This happens all the time. But the structure is set up so, if they don’t do anything and they basically just put all of their money into bonds, they’re actually not going to be able to keep up the liabilities that they have to service with the pensions.

Roberta: Well, and this is one of my biggest concerns with this AIMCo debacle, is that the previous Conservaative government had been trying very hard to get LAPP and other pension plans onto a defined contribution system rather than the defined benefit, partly because of what Tyler was just talking about, and partly, also, it’s way more expensive for them to do the defined benefit. And so I worry that they’re going to use this lost $4,000,000,000, or some of these other issues, to push this agenda again and push us all onto this defined contributions. And the reality is, I mean, pensions — as you’ve talked about, as we’ve talked about on this podcast many times — are deferred wages, that I have agreed to take less wage and put money into a pension that my employer is also contributing to, and that I’ve made life decisions based on what that pension is supposed to be. I’ve been told it’s a defined benefit, so I know what I’m going to get at the end of all this, and now they’re trying to flip it on us halfway through. And now I agree that our pension system might not be the right one, but I really worry about the political agenda here and, I mean, aside from the larger political agenda of oil and gas and the petrostate — I worry about what this is going to mean for the future of those pensions plans.

Duncan: Yeah, and the future of these pension plans is something that, I mean, the conservative movement and Jason Kenney have their eyes on and have openly talked about for a long time. And so I think this is where, kind of, my report perhaps steps in and kind of fills in some of the gaps, right? And it’s like, it’s bad. So not only do you have AIMCo blowing however many billions on this silly trade — that, you know, this is money they’re never going to get back — but you’ve also got them shovelling 1.1 billion dollars at a bunch of dodgy oil and gas firms, a lot of them with connections to the convservative movement.

Tyler: Alright. So AIMCo doesn’t really have a great track record; it seems to be underperforming at best, or suffering from sheer incompetence at worst. Let’s move on to this report that Duncan and others worked on.

Joel: Which, specifically, looks at AIMCO’s role at bailing out the oil and gas sector. In 2015, the Alberta government — led by the NDP — instituted the Alberta Growth Mandate. 3% of the Heritage Fund was allocated to this mandate, and it had a very broad mandate to meet a range of conditions. Could you explain what this mandate was and how it got interpreted?

Duncan: I mean, there was a bunch of conditions — quote unquote “conditions” on it — but, essentially, it was, like, an invest local mandate. If you were a company that existed in Alberta, essentially, you could potentially be invested in through this mandate.

Joel: Yeah, so the growth mandate — from what I’ve seen — had a range of things, like: create new jobs in Alberta, build new infrastructure in Alberta, diversify Alberta’s economy, support Alberta’s growth, connect Alberta companies to export markets and develop subject matter expertise within Alberta. So all that —

Duncan: Yeah, they should invest in us, man. We are developing subject matter expertise within Alberta on podcasts.

Joel: Yeah, podcasting as a growth industry.

Duncan: Where’s our money?

Roberta: Well, we are The Alberta Advantage, so come on, now.

Tyler: I don’t think we’re going to get much AIMCo money, I have to say.

Joel: So the NDP government attempted to have its arms-length investment company dedicate 3% of the Heritage Fund to this kind of invest local initiative. And that — on the surface, it doesn’t necessarily sound bad. What did AIMCo end up doing with this mandate?

Duncan: Yeah, you know, it’s very fuzzy, it’s like, “Buy local,” you know. So two out of every three dollars that AIMCo invested under this mandate ended up going to oil and gas projects or oil and gas companies. That’s bad. I mean, there are other things that happen in Alberta beyond oil and gas —

Roberta: What??

Duncan: — but that’s where AIMCo decided to focus the money from this mandate, into going it. But then — I mean, the Alberta Heritage trust Fund portion of this debacle is only around 15, 20%. But it really kind of provides the kickstart to get AIMCo investing in these small oil and gas companies and these oil field services companies. So once AIMCO’s under the hood of these companies — and we’re talking about companies like (I’ll get into the details of what these companies are), but, like, Pine Cliff Energy, Calfrac Oil Services, you know, Journey Energy — once they get under the hood of these companies with this Alberta growth mandate investment, then they also turn around and become this kind of, like, private equity player, this vulture capital operator, where they’re making big loans to these companies at high interest rates, usually with options to buy shares built into the proposition. The way they interpreted this mandate, the companies they decided to invest in after — like, the further money they decided to throw in after the mandate, I mean, that is the really troubling part, right? I mean, the sectors of the economy that they are investing in — the oil and gas junior and intermediate producers, oil field services companies — like, this is a sector of the fossil fuel industry that is doing very poorly and, like, conventional oil and gas hasn’t made a profit in, like, a decade, according to the analysis in our report. Regan Boychuk has this — he’s gone into CAPP’s data, and the CAPP’s own data shows that conventional oil and gas is essentially a dead proposition. And this is why they can’t get any money. You can’t talk about the conventional oil and gas industry in this province without them whining about the fact that they can’t raise capital. And the reason that they can’t raise capital is that capital has looked at them and said, “Yeah, you’re done. This is a mature basin, you’re not making any money, this isn’t Saudi Arabia, why would we invest in you?” But this did not stop the intrepid folks — the huge brains at AIMCo — from throwing 1.1 billion — that we know about — into these oil and gas juniors and intermediates and oil field services companies.

Tyler: I think the thing for me that is very interesting is — and you allude to this in your report (well, you say it explicitly) — is that not only — so look, if you looked at hedge funds, investments funds, pension funds around the world, a lot of them are obviously going to be invested in oil and gas, and a lot of those bets are not looking so hot right now, right? But that’s normal — oil and gas companies are big; they generally, in the past, have been decent investments, right, outside of any of the other concerns. However, something that your report brought up, which I think has been really interesting, is that, bu AIMCo’s own admission, they are overweighted in Alberta’s oil and gas. Could you speak to that a little bit, Duncan?

Duncan: Yeah, they don’t say overweight Alberta oil and gas. There are a couple public statements made by the CEO of AIMCo, Kevin Uebelein, where he vey explicitly states that, like, “Yes, we believe in Alberta, and we think that we know Alberta best.” And, yes — relative to Alberta’s size in the world economy, or even the North American economy, AIMCo is way overweight, or way long, in Alberta. And that’s not just oil and gas; that’s real estate and a handful of other things, like WestJet or Shaw or whatever. But, like, come one; the vast majority of the publicly traded equities that you get in Alberta are oil and gas companies. So it means, yes, they are overweight, they are long, Alberta oil and gas. And —

Roberta: Sorry, I just wanted to say something about that because I think, like, a Crown corporation that’s involved in investment should be investing in things that might not be profitable in a general marketplace. I mean, this is how we get electrification in rural areas in Saskatchewan and all sorts of other things that Crown corporations might invest in that might not be profitable, that are being done for a social good. But I don’t think that there is any argument that can be made that would hold any water that these investments, in particular, are of that ilk. You know, investing in oil and gas, we might make the argument that they’re a local benefit, and we need to invest in our economy, but the clear route that we’re taking is not going to be an oil and gas fossil fuel future. And so, even if a Crown corporation should be allowed to invest in things that might not be overly profitable because they drive a social good, this is not one of those examples.

Tyler: I think the problem with that, too, it’s one thing if the Heritage Fund is making those investments, right, because that’s an amount of money that is detached specifically from peoples’ pensions. But for AIMCo specifically to be taking risky investments and, you know, under the guise of, “Well, we’re investing locally.” Well, you’re not just investing with this pool of oil money; what you’re investing with is — like you said earlier, Roberta — peoples’ wages that they’ve actually put into this.

Roberta: Absolutely.

Tyler: So I think that’s when it becomes really challenging, and some of the issues of how to actually view a company like AIMCo, right? And all the big — you know, CPPIB has the same issue is, it’s a government institution, but it has to act in the market as if it’s just a normal hedge fund and needs to make returns. So it’s a very strange thing, when there’s a lot of political demands placed on this institution that, really, is only trying to respond to the needs of its pensioners, of the people who have money invested there — or at least it should be. So you get this weird overlap where, as we said, it’s not truly an arms-length thing, it seems to be over-invested in what is a small portion of the global economy that they have access to invest to, and those investments — while maybe propping up some businesses which, you know, I think people on this podcast would argue is a bad idea — is actually having negative consequences for the people whose money that they have invested with them. So it’s a very complicated thing to untangle.

Roberta: Mhm.

Duncan: I mean, the other thing here is that AIMCo has just proven itself to be useless — and not just useless, but actively bad, right? You could have fired three quarters of the staff at AIMCo and they could have just invested in an index fund and they would have been doing far better, right?

Tyler: Right, exactly.

Duncan: And AIMCo has never met the performance benchmarks set out by it, by its biggest pension plan, the LAPP, the Local Areas Pension Plan — this $50,000,000,000 pension plan, the single largest customer that AIMCo has — over the entire existence that AIMCo has been a thing, a going concern, it has never met its benchmarks, never been above its benchmarks. Those benchmarks are just index fund performances. Like — [laughs] — like you could literally fire 80% of the staff and invest in an index fund — if you’d done that five years ago, obviously not now — and Alberta’s pensioners would be way better off. Like, the whole idea that these people at AIMCo are uniquely capable of generating massive returns and beating the market is idiotic, right? And especially, it’s idiotic when they vaporize $4,000,000,000 on the wrong side of this volatility trade, or when they throw a billion dollars at companies that an idiot political hack operative journalist — whatever you want to call me — can see are terrible bets. And these companies were in trouble before the latest crisis — the latest crisis means they’re very likely to go under. And why AIMCo is investing these, I don’t know. But we call this report a failed bailout, and the reason why we call it a failed bailout is 1) the Canadian government is in the midst of this — they’re trying to throw money at the oil and gas industry. But there are lessons that, you know, the government of Alberta, the government of Canada can learn from this, and that is: this industry is, for all intents and purposes, is done, right? If you’re bailing out a boat that’s already sunk, is that really a bailout? That boat is just at the bottom of the ocean. Like, there’s no amount of money that is going to make conventional oil and gas profitable again, or oil field services profitable again, and that’s what AIMCo bet a billion dollars on.

Joel: Yeah, and I just want to bring this home a little bit; could you maybe name some of the companies, specifically, that got some of this money?

Duncan: Ah, yes.

Joel: And then, maybe, tell us, like, how did they do, how did those investments fare?

Duncan: I’ve got some favourites here. Okay. So the most hilarious one to start off with is a company called Perpetual Energy. Perpetual Energy is this oil and gas junior; it’s sort of on the cusp between oil and gas junior and oil and gas intermediate, 10,000 barrels a day is sort of the cutoff there. But Perpetual Energy is run by this lady named Susan Riddell Rose. She’s the daughter of Clay Riddell, who’s this famous oil man who made a ton of people in Alberta, like, a whole shitload of money. Anyways, Perpetual Energy is hilarious for two reasons. One, AIMCo invested in it after it engaged in the very controversial offsale of a whole bunch of shitty gas wells onto a Chinese company. And this Chinese company essentially took all the value that was available in these gas wells from a hedge that was, the production was kind of guaranteed to get a certain amount of profit over a certain amount of time, but one that hedge expired, the company went bankrupt and all of the wells were dumped onto the Orphan Well Association. And this has resulted in a lawsuit, and it really, kind of, gets to the heart of the other thing that we haven’t really had a chance to get onto, which is the environmental liabilities of these companies that AIMCo is investing in. And so that’s a fun little wrinkle in Perpetual Energy. The other fun little wrinkle in Perpetual Energy is that — [laughs] — these executive compensation consultants that they hire that the boards of directors justify to end up giving these executives such high salaries, they often make these things called performance graphs. And what these performance graphs will do, is it’ll be a hundred dollars that you have invested in the company over the past five years, and they’ll graph it out. And Perpetual Energy’s graph over the past five years starts at a hundred dollars and, by the time you get to the most recent year, it is at one dollar. It has lost 99% of its value the past five years.

Joel: And correct me if I’m wrong, but that seems like a bad investment. I don’t know how investment works that well, so that would be a bad investment, is that right?

Roberta: [laughs]

Tyler: [laughs]

Duncan: I think so. I mean, I am not an investment expert, but losing 99% of your value is bad. And if you get into the report, right, not only do we have these performance graphs, but we also have the value that AIMCo paid. So AIMCo paid $1.75 a share and bought $4,500,000 worth of shares in March 17th 2017. The share price of Perpetual Energy today is $0.03, you know? Another favourite of mine is a company called —

Roberta: Oh, before you move on from that one, I just want to mention, also, that Riddell Rose is also one of the recent UCP appointees to Mount Royal University’s board of governors, which was also considering a new investment strategy and also is involved in all of this pension stuff. So, you know, I think we see the overlapping connections here as well in this system.

Duncan: Oh, hell yeah. She’s also on the Red Tape Reduction board.

Roberta: Yeah.

Duncan: And she’s also a huge donor to conservative political parties and causes over the years. Over $40,000 that we were over to track, I think, over the past decade, just from the Elections Alberta financial disclosures. So yeah. Perpetual Energy, there’s a wonderful story there. Another one that I love to bring up when talking about individual companies is Razor Energy. Again, another small oil and gas junior. It received $45,000,000 in investment from AIMCo; $30,000,000 in 2017, another fifteen in 2018. And these investments were notable for their extremely high interest rate of 10%, which is, like, very high. And it just shows, kind of, how dire the situation was for these companies, that they’re getting loans at 10% interest. That’s, just, very high. But then you get into Razor and it gets even worse. Later in 2018, Razor announced that it would start paying a dividend, and it also started engaging in a share buyback program as well. And in just one calendar year, the data that I was able to gather, they were able to shuffle $6,500,000 back to shareholders through this dividend and share buyback program, I mean, largely paid for with AIMCo’s money; I don’t know how you can see it any other way, or how they would set it up so it wouldn’t be. And the two biggest shareholders in this company, aside from AIMCo, are the CEO and the CFO, who collectively own 20% of all the outstanding shares of this company. So —

Tyler: Weird.

Duncan: Yeah, strange, right? And, again, the share price for Razor — when AIMCo made their initial $30,000,000 investment in 2017 — $3.21 a share. The share price in January 2018, when they re-upped and invested another $15,000,000 in Razor Energy, was $1.60 a share. The share price as of March 31st, 2020, is $0.12 a share.

Tyler: Ouch.

Duncan: And the other thing that this report has — if you want to get into it, I mean, maybe this is being petty, but I did pull together the executive compensation table of all the executives and directors — and the CEO of Razor Energy, he pulled in $218,000 in total 2018 compensation. So, I mean, nice work if you can get.

Roberta: I was just going to say — I mean, we see this all the time with bailouts and corporate welfare, and even with investments, which we may put into this category or not — but we see this all the time, that there’s no strings attached, that it goes to share buybacks or CEO compensation. And at the same time, you know, all we’re hearing is “Jobs, jobs, jobs,” and “We need jobs in the energy sector.” But even AIMCo — even if we could give it the benefit of the doubt of investing in an Alberta-based industry to try and advance that industry — it’s still not doing it, because it’s still not putting any of those strings on the money, it’s still not forcing this money to actually go into job creation or any other thing. Not that it would anyway, but, you know, these share buybacks and these compensation packages just really get under my skin.

Tyler: One thing we haven’t really touched on is the fact that AIMCo is incredibly opaque. And this makes what Duncan was able to do with this report very impressive, because it’s very hard to actually find what AIMCo’s invested in, which makes unraveling their successes or failures or good bets or bad bets very, very difficult to do. And sometimes, you know, you have to ask the question: well, if all their peers are transparent and AIMCo is not, why is that? And maybe it’s become the fact that, because they keep underperforming, they don’t want people to see all the mistakes they’re making so people can criticize them. But it also means that they can make these investments that — in theory, this “invest in Alberta” mandate, you know, if the people who created it were here, would probably say that what they intend is that that investment goes in Alberta to create more jobs or to improve the compensation for workers or expand opportunities for workers in this province. But one of the things that we see from this report is: a lot of that money is actually being siphoned off to investors. And if you look a little bit into who actually invests in publicly-traded companies, it’s a very, very, very small percentage of the world’s population who own the vast majority — 80% or more — of these shares and portfolios. So what we end up seeing is this subsidization that had the intention of, you know, creating opportunity for working-class Albertans actually just being put directly into funds that are owned by people, in many cases, that don’t actually even live in Alberta, that are already incredibly and throwing around their money and investing and doing the things that rich people do.

Duncan: Yeah, it’s absolutely wild. And wedo touch on that in the report, like, the things that need to be done to fix AIMCo, and the transparency around investments is one of them, and it’s one of them that can be done tomorrow, right? But to come back to Razor. Another two fun facts about Razor is 1) that AIMCo would’ve had to have consented to that dividend and share buyback program happening because, as a major shareholder, they would’ve had a say, and 2) Razor Energy has a quarter of a billion dollars of environmental liabilities on its books. That’s one company with $250,000,000 worth of environmental liabilities on its books. That’s according to estimates made by the Alberta Liabilities Disclosure Project. Like, if AIMCo is not looking at that amount of cleanup, like the amount of environmental debt that they carry and not looking at that when they’re making these investments, again, they are making a huge mistake, they are constantly fucking up. I mean, one company that we should probably talk about, too, is Calfrac. And keen listeners of the podcast and of Alberta politics know that this was kind of embroiled in little — there was a news cycle that the UCP kind of used and hit the NDP on with this, but, I mean, the NDP did not do themselves any favours. They kind of pumped up — there was a $200,000,000 loan that AIMCo made to Calfrac, and then the NDP uses this as evidence that AIMCo, this Alberta growth mandate, was diversifying the economy, when Calfrac is just an oil field services company. And so this Calfrac investment is notable for a few reasons. I mean, one of which is that Calfrac relocated a bunch of its operations to the United States a couple years, or like 18 months, after receiving this investment. And then, two, Calfrac wrote a cheque directly, just like, straight up, $50,000, “here you go,” to Shaping Alberta’s Future, which was a Jason Kenney PAC. And Ron Mathison, who was the co-founder and chair of the board of Calfrac, was also a huge conservative mover and shaker and funder of the conservative movement. And, by our account, over the past three years, he had thrown $235,000 through a company he either controls, or personally, at various conservative political parties, leadership races, or PACs. And so, I mean, NDP, please don’t tout your investment company that is literally financing your opponent to beat you in the next election.

Joel: Yeah, what’s amazing about so much of what’s in this report is that, okay, you’ve got these junior oil and gas companies that are basically getting subsidized by AIMCo so they can basically offload their responsibilities onto the public, and then the people running those companies are largely entwined with the conservative movement and are dumping all of this money into either convservative parties or conservative PACs. So it seems bad all around; public subsidies from multiple ends so more conservative evil can happen in the world.

Duncan: It’s bad, it’s bad.

Tyler: I’m not a fan, personally.

Duncan: I don’t disagree. And AIMCo has either shown a remarkable blindness, ignorance, and stupidity, or they’re just doing it on purpose. But when you look at AIMCo’s past performance; like, they had $5,000,000 into the companies that run private prisons, the company that was running concentration camps on the American-Mexican border. They eventually divested on that after pressure from various pensions plans, but, like, they didn’t even think that that would be a bad thing. I mean, on December 26th just last year — a day, Boxing Day, which I get all my important investment news on — it was announced that AIMCo had partnered with a global investment to purchase two thirds of the Coastal Gaslink Pipeline — this is the pipeline through Wet’suwet’en territory that sparked nationwide blockades and roadblocks of ports and highways and railways, notably — and, like, I don’t think they had any idea that their investment in the Coastal Gaslink Pipeline would be controversial. And then, again, jumping into bed with these shitty oil and gas juniors and oil field services; like, of course these folks are politically connected, like, they are the shittiest part of the coservative movement They are the wallet, they are the financiers of the bad part — I mean, it’s all bad, but — these are the people, these are the beating heart of the conservative movement in Alberta, and AIMCo’s like, “Here’s hundreds of millions of dollars, do what you will.”

Tyler: Yeah, I also want to circle back on the environmental liability aspect of this. Because I think the thing that’s really scary about that is — well, there’s multiple facets to it, but — these liabilities exist. This land needs to be reclaimed, these wells need to be plugged up and cleaned up. And, right now, the intention is that the firms themselves are contributing to a fund or they’re paying for it themselves. And you can read a lot about how insufficient the current funding for that cleanup is. But, if a lot of these companies that may go bankrupt are not held accountable to be, first, paying for the environmental liabilities, those are going to get dumped onto the province, and those are going to become the responsibilities of the government of Alberta. And what do you think a conservative government is going to do if they all of a sudden have this massive additional expense that they weren’t dealing with? They’re going to start making cuts, and those cuts are going to come to the public sector. And those cuts could, again, come directly to pensions for new or not-yet-retired employees, could come, obviously, in job losses, which we’ve already seen. So all of these things have internal knock-on effects within the province outside of, just, you know, the headline of “We need to clean up all the damage that these oil and gas companies have done.”

Duncan: Yeah, we get kicked in the ass twice, right? Like, AIMCo gets to lose all the money it invested in these shitty companies, and then, when these companies go bankrupt, we get the pleasure of cleaning them up, and we get to bear that cost as well. Because industry — we have a regulator that hasn’t actually done its job and collected the money necessary to do that, to clean up those wells once those companies are no longer around. So yeah, it sucks. And, like, did AIMCo cause the unfunded environmental liability crisis? No. Are they neck deep in it? Abso-fucking-lutely. And so this is why — these are the lessons that we can, hopefully, the federal government is going to learn from when it comes to dispensing this money to oil and gas. Like, you cannot invest in companies like a Razor Energy, or Ember Resources is another one that’s in the report — they just have massive environmental liabilities, and they have nowhere near the amount of money to clean them up, right, because they’re tiny, right. The fact that we got into this position is just evidence that our system is broken. But then AIMCo just comes along and makes it worse.

Roberta: So, Duncan. After you’ve made this report, and investigated this all in such detail, what do you think we need to do going forward? How are we going to fix this problem and get AIMCo under control?

Duncan: What is to be done? So, we do have a bunch of calls to action in the report, and they’re things that the government and AIMCo can do to improve and be measurably better. And the very first thing is just: tell us what the hell you’re investing in. There must be a quarterly review of what your investments are. And if you’ve got some super-secret private equity thing, throw it on a delay; three months later, four months later, tell us about it. We need to know what it is you’re invested in, one. And, second, they’ve got to divest of these risky, shitty oil and gas investments. At the very least, they need to immediately divest from all the juniors and oil field service companies, because there’s no way around it, those are just bad. AIMCo’s gotta become really arm’s-length, and a part of the way you can do that is abolish the part of the act that allows government to issue directives. That should no longer be part of the AIMCo act, starting tomorrow. But the two most important things that the government can do to make sure that AIMCo is actually, legitimately independent is that they have to stop doing government appointments — or, at least, if they’re government appointments, it’s a minority on the board, and a majority of the directors of AIMCo must be appointed by the pension plans that AIMCo manages the funds for. And by ensuring majority control of the pensions, you ensure that they are setting the direction, that they are responsible for hiring and firing the investment manager who is ultimately responsible for executing the investment strategy. Like, that is really the only way to ensure that. And then, finally, when — and say that doesn’t even work, say the pension fund still fucks up. Pension funds must have the freedom to choose another fund manager if they wish, and just leave. And those are a few demands that the pension plans and people who have their pensions managed by AIMCo can start to organize around and start to rally around. And I think it’s worth — you know, Alberta Advantage goes over this in their pension podcast,but it is worth reiterating, right? Like, this is awful, this is terrible. AIMCo’s fucked up huge, this management is incredibly awful for people who have had their pensions managed by AIMCo or are going to get a pension management from AIMCo in the future. But if you’re a union, if you’re a political party or an organizer, if you’re a civil society group, use this opportunity to engage people in collective action, you know, to organize around this issue. Because people who might not otherwise be political sure get fucking political when they learn that their pension is being fucked with by some pencil-neck shithead kid in a suit in some office tower in Edmonton. And, like, don’t waste this opportunity is how I’d want to close that out.

Roberta: I can’t reiterate that enough, about how pensions get people riled up. Trying to get people riled up about any kind of political issue, about anything else, is so difficult, but as soon as you go after people’s pensions, watch out. And that’s why I’m a little bit surprised that they’ve done some of this work, though nothing should surprise me anymore.

Joel: Duncan, thank you so much for joining us here on The Alberta Advantage and sharing what you’re found in your report with us. If our listeners want to read the report and find out more about it, where should they look?

Duncan: So definitely go to If you google “Alberta’s failed oil and gas bailout” and “Progress Alberta,” that’s going to be the best way to get it. Tee URL is, but if you just google “Alberta’s failed oil and gas bailout” and “Progress Alberta,” you’re sure to find it. You can read the report there. We also have an email tool where people can email their MLAs, and MLAs who are on the standing committee on the Heritage Trust Fund, so that they know about it as well. And you can find that on our various social media accounts as well. And yeah, thanks again — just thanks again for the opportunity to talk to people about this. It’s an arcane subject, but, weirdly, it’s huge in the news right now, so it’s just, kind of, weird timing.

Joel: Yeah, on behalf of The Alberta Advantage, thank you so much for joining the team, and —

All: Bye!

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Kate: The Alberta Advantage is part of a loose affiliation of left-wing podcasts hosted by the bilingual journalism collective Ricochet, who you can find at Our podcast is primarily supported through Patreon by listeners like you. We use the money for equipment and other semi-serious pursuits and, as a thank you, we send out fun packages with grain elevator-themed stickers and tote bags a couple times a year. You can support us at Thanks so much for listening, and take care out there.

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