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AIMCO WTF
76 Plays4 years ago
Learn how Alberta's most incompetent pension fund manager, AIMCo, vapourized $4 billion of pensioner's and Heritage Trust Fund money and how they've shovelled more than $1.1 billion towards likely to fail oil and gas companies with more than $3 billion in environmental liabilities.
Our guest this week is Greg Meeker, former chair of the Alberta Teachers' Retirement Fund, and one of Alberta's most knowledgeable and outspoken commentators on pensions.
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Transcript
Introduction and Welcome
00:00:15
Speaker
Friends and enemies, welcome to The Progress Report. I am your host Duncan Kinney. We're recording today from my bedroom here in Amiskwichi with Skygan, otherwise known as Edmonton, here in Treaty 6 territory. And today we're talking about everything wrong with AMCO.
00:00:30
Speaker
It's a subject about which we can talk about a lot of things. And to help us walk us through this subject, we've got Greg Meeker. Greg is the former chair of the Alberta Teachers Retirement Fund, that is the pension fund for teachers. And he is one of Alberta's most knowledgeable people on this subject in Alberta. And most importantly, he's able to speak freely because he is the former chair of the Alberta Teachers Retirement Fund. Greg, welcome to The Progress Report. Hey Duncan, thanks so much. Thanks for having me.
00:01:01
Speaker
Yeah, so, okay.
Understanding AIMCO's Role
00:01:03
Speaker
There's a bit of context and a bit of scene setting I think we have to do here in case we've got listeners who are not aware of what we're talking about when it comes to aimco and why this is all very important. So let's just take a few seconds at the beginning of the podcast to kind of lay it all out.
00:01:20
Speaker
AMCO stands for Alberta Investment Management Corporation. It is a Crown Corporation that was started in 2008. Essentially, it's the Crown Corporation that's responsible for managing Alberta's public sector pension plans. It's also responsible for managing a couple of other government-based or endowment funds. And most importantly, the Heritage Saving Trust Fund.
00:01:43
Speaker
Most notably, yes, this is the thing that what Peter Lahid set up back in the late 70s to kind of save our non-renewable resource revenue for a rainy day. And yeah, AMCO is responsible for investing that. Absolutely. And every Albertan, every taxpayer in Alberta has a dollar invested with AMCO, whether it's through a pension or through the Heritage Saving Stress Fund.
00:02:07
Speaker
Exactly. Right. And, and as of December 31st, 2019, that heritage trust fund was worth $18 billion.
AIMCO's Scale and Governance
00:02:14
Speaker
Uh, I expect it'll be a worth quite a bit less, uh, come the next quarter, but sorry. Did I hear 118 billion? No, no 18 billion. Oh yeah. I'm sorry. I got that backwards with the month. Yeah. Sorry. Thank you.
00:02:28
Speaker
No, no, no. And yeah, $18 billion for the Alberta Heritage Trust Fund. But it's easy to be confused because the total amount under AIMCO controls $118 billion, which is a fair bit of money. I'm not an expert. That seems like a lot of money. I don't know. Maybe? It is. It's absolutely a huge amount of money. And in fact, it puts AIMCO, in terms of assets under management, it would be described as large. It's in the large category, for sure.
00:02:58
Speaker
And governance oversight and the strategic direction of AMCO is provided by the board of directors. Those folks are appointed by the finance minister. And the controlling legislation, in case you want to go look it up while we're talking about it, is the Alberta Investment Management Corporation Act. And there's not just the context of what AMCO is, but there's also the political context of why we're talking
AIMCO's Pension Management Merger
00:03:19
Speaker
about it. And there was a bit of a shotgun marriage between AMCO and Alberta's public sector pension plans. Greg, why don't you kind of walk us through that?
00:03:28
Speaker
Well, INCO, I mean, a couple of things to remember here is that INCO is really not that old, right? I mean, when you talk about investment organization, going back about 10 or 11 years isn't a long time. So that's something to think about. INCO was conceptualized as a crown corporation to take care of the investment function of what used to be the Department of Finance. And it's done that. Back in the day, that was
00:03:57
Speaker
It was assigned the task of investing the public sector pension plans, except for Alberta Teachers Retirement Fund. The Alberta Teachers Retirement, again, a little odd, but it had been separate because it had been jointly sponsored between Alberta Teachers and the provincial government ever since 1939. So they ran their own investment operation. Just so you know, it's a little bit bigger than the Heritage Trust Fund. It's about $20 billion.
00:04:26
Speaker
But AMCO was charged with all the other pension plans, most notably the Local Authorities Pension Plan, the PSPP, the Public Service Pension Plan, and the FFPP, the Special Forces Pension Plan.
Political Impact of AIMCO's Monopoly
00:04:41
Speaker
And right from about the 1990s forward, those three pension plans were supposed to become jointly sponsored like the Alberta Teachers Retirement Fund.
00:04:55
Speaker
It happened at a snail's paste, though, and it was only last year that they were finally granted joint sponsorship and what joint sponsorship means is that those pension funds actually the workers get a 50% role in running the pension fund. So prior to last year, all of those three local authorities pension plan, for example,
00:05:23
Speaker
The trustee of the plan was the Minister of Finance. And, you know, it's a little bit unfortunate because, of course, the workers need to have a voice in their pension and in decisions that are made around it. So when you become jointly sponsored, one of the things you get is you get the choice. You can pick your own investment manager, which up until that time had always been in code.
00:05:51
Speaker
You could also outsource or use different, you could make decisions in a different way. And there was now going to be a corporate board that was going to be in charge of making decisions about the plan that workers were going to be on. So it wasn't going to be just straight up the Minister of Finance. And of course, with the 2019 budget, right in the tail end of last October, that all changed. Bill 22 was introduced, which said straight up,
00:06:21
Speaker
that these plans will remain joint-sponsored in Maine, but they will be restricted to investing with AMCO and investing only with AMCO. And, of course, the teacher's plan was going to be stripped of their independence, and they were going to be forced to invest with AMCO and only AMCO as well.
00:06:43
Speaker
It sounds a bit like Hotel California. You can check out any time you like, but you can never leave. Duncan, it always just drives me nuts when you get people who are into competition for capital and competition for investment dollars, all of a sudden want the landscape where there's no competition.
00:07:02
Speaker
Yeah, it's an enforced monopoly now, right? These pension plans are now, again, a shotgun marriage to AMCO. They can never leave. AMCO is their pension fund manager no matter what. And great. And I think that leads us to the two big AMCO stories that have just kind of come out recently, which is why we're doing this podcast.
The $4 Billion Loss Explained
00:07:22
Speaker
And in 2008, we had the big short. In 2020, we've got the big fuck up. Oh, the big short, man. What a great show that was, eh?
00:07:30
Speaker
It was a good movie. But just like in 2008, there were these arcane derivatives, synthetic CDOs, this, that and the other thing. You needed Margot Robbie in a bathtub to explain to you how it all worked. You know, Duncan, it's not that much different this time. Exactly.
00:07:52
Speaker
what Alberta aim Co aim Co aim Co is on the wrong end of a four billion dollar trade aim Co this is this this is the news story that I'm burying the lead here four billion dollars of aim Co's money was vaporized in a trade it's gone it's never coming back you're probably a series of trades but you know a series of trades that happened probably over two weeks a very short period of time
00:08:18
Speaker
and it's this like arcane investment strategy where they were betting against volatility and it turns out the market was extremely volatile you know whoopsie daisy and you know the best relatively short explanation I've heard
00:08:34
Speaker
on the most likely scenario and how this all went down comes from a podcast from Bloomberg called Odd Lots. The person you're going to be hearing speaking is a man named Ben Iford. He's the chief information officer of QVR Advisors. He's also another capitalist pig dog. But he does explain it in a relatively way. So let's go to that clip. And the most popular types of products in the recent market environment that we've had for the last decade or so, where interest rates are very low,
00:09:02
Speaker
are essentially what are called reverse convertible autocollable notes, which is a lot of words, but the idea is effectively the retail investor is looking to generate a coupon, so a fixed income out of the equity market.
00:09:19
Speaker
And the way that you do that in this environment is you sell some kind of optionality, right? And so these notes typically the way they work is that the investor might get, let's say a 5% or a 7% annual coupon unless or until
00:09:35
Speaker
one or more of at least one of the underlying equity indices that the note is linked to is down by, let's say, 30% or 40% at some point during the life of the note. And in that eventuality, at the point where that happens, the note is triggered into a knockout state.
00:09:53
Speaker
and the investor loses that, say, 30% or 40% of their investment. So the investor puts in $100, they're going to get $107 back unless the market's down. But if the market at some point is down, let's say 40% in, let's call it the Euro stocks or the Nikkei or the S&P, then the investor is actually just going to take a 40% loss at that point. Does that feel like the most plausible explanation of the
Ramifications of Financial Loss
00:10:18
Speaker
big fuck up?
00:10:19
Speaker
Yeah, well, I might throw something a little different on it, just a little more terminology. But yeah, that's entirely plausible. And Duncan, it's interesting here because INCO's trading strategies are proprietary. So even though they've committed to investigate this money that's evaporated in the most expeditious of ways, it's likely that both you or I will never hear about exactly what happened in there.
00:10:48
Speaker
And we're relying on rumors that seem to be coming from traders that work on the floor of trading houses in New York City. Yeah, like the worst part about this is that if AMCO is losing $4 billion, there's some other guy on the other end of that trade getting that $4 billion. Oh, absolutely. Whoever was buying up uncapped variant swaps a year and a half ago from AMCO suddenly is now extremely wealthy.
00:11:15
Speaker
Yeah, exactly. It's a kind of derivative contract, except the ones the INCO were using were apparently tied to volatility and that people would pay INCO money in order to take the extreme volatility off the table for whoever these people. I think it probably could have been investment houses and pension funds from across the United States and around the world.
00:11:41
Speaker
And so apparently they've used the strategy for a couple of years already. Apparently the strategy is paid between six and eight percent over those couple of years. And then all of a sudden we hit a recession that pretty much everybody in the Western world had been predicting for the last year. Now, obviously it was hastened and exacerbated by this whole COVID, but the world was ripe for a recession. Volatility goes off the charts.
00:12:10
Speaker
And well, apparently $4 billion go down the drain. Yeah. Like that's the thing, right? Like there's no, like, there's no, there's no asset that they're holding onto that might go up over time. Like it's just the wrong end of the trade. You exactly are hitting it on the nose because you know, imagine if you held Home Depot stock, right? You owned a big chunk of Home Depot and sell lumber. They sell building supplies are all over the place.
00:12:34
Speaker
I mean, I would never own Home Depot stock, but I can understand your example, yes. Okay, but it's only one that you would. General Electric is another example. Another favorite company of mine. But yeah, it's for your example, go ahead. Yeah, but for example, purposes, if you own a bunch of the stock, the COVID-19 kits, their business instantly suffers, right? Like almost every business across the country. And so their stock price gets cut in half.
00:13:04
Speaker
But you, as an investor, one thing you can do is you can you still own that piece of the company. You can wait until cobit 19 is over. You can wait until the economy gets back on its legs and then the stock price will re in play. This isn't like that. This is a derivative contract that expired.
00:13:21
Speaker
It's like insurance, it's done, the money's gone. Yeah, and the reason why we are getting into this arcane bit of capitalist bullshit is because the amount of money at stake is incredible, right? To lose 4 billion dollars on this means they must have been 8 to 10, maybe 12 billion dollars into this as a strategy.
00:13:39
Speaker
They needed to have a lot of money in to be to lose that much money. And for a while it was paying out. And for a while they were clocking returns and then all of a sudden you snap your fingers and you're fucked. It's gone. Yeah. Yeah. Absolutely. It's gone. But let me just put a little bit of a different spin on it. You're right. They were into this strategy big time. This wasn't a tiny strategy for them. So they're into the strategy big time.
00:14:07
Speaker
the 4 billion they lost that they admit to, because they haven't even admitted that that's the final number. The 4 billion they've lost so far is 4% of the entire fund. So they might have lost half of the money in the strategy. It might have been a 50% loss in the strategy, which produced, which was so large, it worked out to be a 4% loss in the entire fund.
00:14:34
Speaker
Yeah, absolutely wild. Like, these are the people who are managing, you know, pensions for nurses and bus drivers and civil servants. Like, this is not some hedge fund that is just like playing around with rich people's money.
Governance Failures and Accountability Issues
00:14:46
Speaker
You know, that's another super important point, because when you talk about governance structure, blame here, of course, falls down to the executive that AMCO, who I'm sure are not sleeping right now, for good reason, and the board of AMCO, right? They have to
00:15:01
Speaker
They're the ones that's clearly in their purview to make sure situations like this don't happen. And it's crazy how this got to this point. Like if you have a strategy that's going bad, that happens for institutional investors. But why didn't the strategy get shut down when you lost $500 million?
00:15:30
Speaker
versus a billion versus four billion, right? Yeah, it boggles. And the fact that when you kind of learn how this strategy might have worked, and the fact that there probably was a very large amount of money put into this strategy, there's a very real likelihood that they were leveraged, that they were borrowing money in order to execute this strategy.
00:15:49
Speaker
Oh, guaranteed, yes. And if they were borrowing money, the very real possibility they were borrowing money from the Alberta government, and that this would have had to have been approved by someone in finance, perhaps even the cabinet minister, the minister of finance himself, Travis Taves, if not the deputy minister. Well, to tell you the truth, they probably had a borrowing facility with other financial institutions. They may have enough assets.
00:16:12
Speaker
I don't think they need to ask for permission to tell you the truth. Which is, again, also scary. But I mean, this at the very least, this had to have gone across the CEO CEO's desk. And oh, absolutely. And I haven't seen him in the media yet. But I mean, I imagine he I mean, I don't understand how he can continue after this. Yeah, it would be hard for me to think how that would happen to, you know, never, you know, same with the people.
00:16:40
Speaker
You know a little further down the line. Hey, but you know I did see on LinkedIn just yesterday They're advertising for a risk analyst at INCO. Yeah, I think I say senior, but it's probably a medium-level job You should apply. Did I say senior? Oh, I couldn't recall well. You know I Somebody sent it to me and said I ought to apply
00:16:59
Speaker
But I mean, the other reason why this is such a big story is that the transfer from the Alberta Teachers Retirement Fund to AMCO still hasn't happened yet, right?
Teachers' Reactions and Negotiations
00:17:11
Speaker
And so... So the first thing is my phone blows up with teachers phoning about, you know, have they got ETRF money? Have they got Teachers Retirement Fund money over at AMCO yet? Were we a part of it?
00:17:26
Speaker
The short answer is no, we weren't because the transfer hasn't happened. They're still with a gun to their head.
00:17:34
Speaker
The Alberta Teachers Retirement Fund is still negotiating an investment management agreement with AMCO. Well, I mean, good for the teachers, bad for everyone else. But it's like, why would any pension plan, let alone the teachers, let AMCO manage their money? Why would they trust them if they're just going to be on the wrong side of a $4 billion shady credit volatility derivative swap thing, right?
00:17:57
Speaker
It's funny, if you're talking about rabid capitalists, the institutional investor magazine from New York, they had this newsletter that only goes out to their private clients. It had some of the harsh, harsh words in it for ANCO, let me tell you. They are the B team, I believe. They were described essentially, right? Well, they said this morning, well, I'll read two sets. First, can he threaten to pull out a CPPIB?
00:18:27
Speaker
And now his admin is forcing the better performing Alberta Teachers Fund into INCO, or as one insider calls it, the Tiffany Trump of Canadian pension funds. Yeah.
00:18:42
Speaker
Well, I mean, no one really cares about Tiffany Trump. She's the forgotten Trump. But the AMCO certainly seems to be bad at their jobs, and they deserve all the barbs and all the jokes made at their expense because they fucked up.
Progress Alberta's Report on Risky Investments
00:19:01
Speaker
Yeah. And then this report comes out literally the night before Progress Alberta releases our report. This is something I've been working on for months. And I'm not exactly scooped or big footed. I mean, I think they are complementary stories. It does show a pattern of mismanagement.
00:19:22
Speaker
at AMCO, but we release our report. The title of this thing is called Alberta's failed oil and gas bailout, how AMCO invested more than a billion dollars of pensioners and Albertans money into risky oil and gas companies with more than $3 billion in environmental liabilities, and how the people running those companies got rich through huge salaries, share buybacks, dividends, and conservative political connections. Oh, yes. In other words, the story of Alberta.
00:19:51
Speaker
The story is really just the history of Alberta condensed into a 50-page thing on the stock market. And this is written by myself, my colleague Jim Story of Progress Alberta, and also Regan Boycek. And again, what a fantastic job. It's a spellbinding reading for those of you who have a little interest in how financial things run.
00:20:11
Speaker
if you wanna know who the bad guys are too, I feel it lays that out. But we'll put the link in the show notes so that you can download it. And it did get a lot of coverage as well. The Canadian press wrote it up and it did kind of go across the country. I think there was a lot of interest in AIMCO considering the $4 billion that they just lost.
00:20:33
Speaker
But yeah, so this report comes out. We've put a lot of work into it. And really, I mean, where do we start? Where do you want to start on the Progress Alberta report? You know, it's like, where do you start on any of this? It's funny. It's all connected, even separate events. I would start from the governance. Yeah. Well, let's start out with the government of Alberta. Let's start out with how it all started, right? The Alberta Growth Mandate.
00:21:02
Speaker
Well, the Alberta Growth Mandy, yeah, the NDP were ruling the government not that long ago, and they came out with an Alberta Growth Mandy, which, you know, I would have, I argued against at the time, and as I would say in hindsight, it's the wrong thing to do, but they're just literally directing INCO to have a portion of their funds invested in Alberta. And in fact, there's different times when I was the chair of the ETRF that ministers of finance would
00:21:30
Speaker
call me into their office, a whole bunch of them. I was a chair for 10 years. And a couple of them asked, well, is ETRF, right? Are you guys going to invest in Alberta? And I would say, usually, we don't have a specified growth mandate. If there is investment opportunities in Alberta that are good, investment opportunities will invest in them. And if there isn't, well, we won't. So that's what I would have said at the time.
Alberta Growth Mandate and Oil Investments
00:22:00
Speaker
But I mean, your research to show this Alberta growth mandate could have been used to help grow and diversify Alberta's economy.
00:22:12
Speaker
But you might as well drop the other shoe, that didn't happen. That did not happen. Just spoiler alert, the aim code did not invest in diversifying the economy. The Alberta NDP's very first budget in 2015, they come up with this Alberta growth mandate, and it's incredibly broad. It's like, essentially, invest in any company in Alberta and it counts.
00:22:36
Speaker
And they set aside 3% of the Alberta Heritage Trust Fund to do so. Without using pension funds? Yeah, at least they're not using pension funds, just our money, just the people of Alberta's money. And then you look at what they've invested in over the past three, three and a half years, and two out of every three dollars that they've invested are going into oil and gas projects or oil and gas companies.
00:22:59
Speaker
And this is really the start of it all. I don't think they would have necessarily started looking at these companies if they didn't necessarily have this Alberta growth mandate prodding them to do it. And then they fell into the habit of looking at these oil field services companies, of looking at these oil and gas junior producers or intermediate producers, and they talked themselves into investing in them.
00:23:23
Speaker
Then, not only did they invest in them through the Heritage Trust Fund, but then they started throwing pension money at them.
Environmental and Financial Liabilities
00:23:30
Speaker
This is where they get under the hood of these companies with the Alberta Growth Mandate money, but then they turn into this hybrid, vulture capital, private equity player loaning these companies
00:23:43
Speaker
you know, big sums of money at high interest. We're talking 7, 8, 9, as high as 10% interest. I mean, I'm not a financier, I'm not a bank expert, but that's like high interest, right? You're paying that kind of interest when you can't get money from a bank or an investor. Yeah, absolutely. That's private equity interest loans.
00:24:07
Speaker
And so they kind of get into this shady business of being this private equity player in Alberta's, in the dodgiest part of Alberta's oil and gas sector, right? Junior oil and gas companies and oil field service companies are not exactly stable. They don't exactly make a lot of money. And a lot of them, and they tend to go bankrupt all the time. Well, you know, and this goes back
00:24:34
Speaker
Everybody looks at the history, right, and they don't look forward. And if you look back into the history, right, there are lots of small and mid-cap oil producers in Alberta have made money, but really that's not an area that's made in conventional oil and gas. That's not any
00:24:49
Speaker
an area that's made any money in the last 10 years, right? All of the money that's been made per se, all of the opportunities been in the oil set. Yeah, Regan Boycek, one of the co-authors of the report, he's pulled together data from CAP, CAP's own data, the lobby for the oil and gas industry. He's pulled their data and they're like, conventional oil and gas in Alberta is broke. They don't make any money. They haven't made any money in the past 10 years. And that's why they can't get anyone to invest in them.
00:25:15
Speaker
Right. Like you could not read a story about the conventional oil and gas or the oil and gas junior world without hearing them or seeing them whine. It's like, oh, capital doesn't want to invest in us. Well, yeah, of course they don't. They're not going to make any money with you. Right. I'm just going to say, Duncan, you know, there's a certain pipeline that Alberta taxpayers have a billion dollars in now. And, you know, I just you've got to ask the question, do we have a billion dollars of a pipeline because
00:25:43
Speaker
all the institutional investors as taxpayers, all the institutional investors thought it was a bad idea? Absolutely. Capital did not want to invest in this pipeline. That's why they had to go to the next sucker. One of the companies that EMCO has invested in has already gone bankrupt. That company is called Trident Exploration. It turns out that EMCO was $60 million into Trident Exploration. That was discovered through the receivership documents.
00:26:08
Speaker
And that's just like the one company that's gone under now, the one company that's gone under already. But it's very likely that a lot of these companies that AMCO has invested in are likely to go under in the near term.
00:26:23
Speaker
And this is a real double kick in the ass, because not only do we, as Albertans, lose out through our investments in the Heritage Trust Fund, not only do the pensioners and EMCO lose out because these companies are either going to become worthless or they're going to get swallowed up for pennies on the dollar by larger companies, but then these companies also have $3.1 billion in environmental liabilities, according to the Alberta Liability Disclosure Project.
00:26:51
Speaker
And so we get it both ways. We get it when the companies go bankrupt because AMCOs and the Heritage Trust Fund is invested in them. And then we get the pay for the privilege of cleaning them up as well. So that's $1 billion into these companies. And then there's $3 billion in environmental liabilities. It's equivalent, when you look at it that way, in risk. I mean, it's not an instant vaporization. It's going to happen in drips and drabs over the next few years. But it is just as bad as the big fuck up, right? Yeah.
00:27:21
Speaker
Oh, it sure is. It just takes a longer period of time to sort of play out.
00:27:28
Speaker
And then the environmental liability section here kind of goes into detail of how we got here. And it really is a failure when it comes to the regulator that the money was not set aside when times were profitable to pay for the cleanup when they were not. And now that this industry is not profitable, the conventional oil and gas industry is not profitable, we are going to increasingly see a crisis when it comes to these unfunded environmental liabilities.
00:27:53
Speaker
And AMCO didn't create this crisis, but they certainly are enmeshed in it and they certainly facilitated it and they certainly invested in these companies.
Provincial Government's Cleanup Plans
00:28:01
Speaker
Then again, have $3 billion in environmental liabilities on their book. There was just an announcement today that they're going to, the provincial government is talking about how they're going to spend their billion dollars that they got from the federal government on, on well cleanup. That's one, one billion, even just, just from these handful of companies that AMCO has invested in. There's three.
00:28:20
Speaker
You know, it's funny, the almighty doctrine of the polluter shall pay, right, is really taking a beating here. There's such a demonstrated passing down of these wells from companies that were totally viable, companies that are a little less viable and less viable, until finally, they're one that's holding on by its fingernails. But all throughout this, the governance of those companies, the executives, many of them get paid salaries in the millions of dollars,
00:28:50
Speaker
When the company is done and goes into bankruptcy, nobody's asking for any of the bonuses back. Yeah, they're all doing quite well. And that's something that we do get into in the report is the executive compensation.
Case Studies of Poor Investments
00:29:01
Speaker
And let's just dive into a couple of these companies here while we have a minute.
00:29:06
Speaker
Pine Cliff Energy is the first one that we talk about in the report. They're a natural gas producer. They've received $49 million in investment from AMCO, and they are pretty much a straight gas play, it looks like. They might have a couple of secondary oil wells, but it seems to be just natural gas. I don't know if you know this.
00:29:24
Speaker
But the natural gas industry is not doing well, and there's been massive low prices. Low prices have been massively low for years. As a result of shale, shale gas, you bet. Shale gas in the States. The share price when AIMCO initially invested on August 12, 2016 was $1.03 a share. The share price when we looked on March 31, 2020, the end of Q1 this year, $0.10 a share.
00:29:50
Speaker
And those types of losses are very typical in value. Those types of losses in value are very typical when we kind of look at these companies that AMCO has invested in. And that's March 31st. I mean, maybe that's kind of just as COVID is getting started. But even when you were looking at the numbers in February and January, these companies were not in good shape.
00:30:11
Speaker
And the thing about Pinecliffe, and the thing about a few of these other companies, is that the terms of their debt that INCO has with them are getting renegotiated on very favorable terms to these companies. Just in the fall, Pinecliffe and two other companies that we'll get into had their debt renegotiated on very favorable terms, pushing it out into the future.
00:30:30
Speaker
And a lot of these companies are only existing by the grace of their creditors, the banks, companies like AMCO, perhaps ATB, who aren't calling them in, who still believe somehow that these companies are going to be able to pay them back. And so, you know, Pinecliffe is this example.
00:30:54
Speaker
What is this? Yeah, in June 2019, AMCO bought an additional 4.6% of outstanding public shares. They started investing in 2016 and they kept investing just last year. And just for our own edification, the CEO, Philip Hodge, he made $467,000 last year, just FYI. Yeah, that's good to know. Was that all salary or part salary, part bonus? That's total compensation. That includes everything. Salary and bonus together.
00:31:22
Speaker
salary, bonus, and share awards. Another good one to talk about is Akuma Resources slash Paraday Energy. So, Paraday Energy bought up Akuma, but AMCO has invested in both. AMCO owns around 15% of Paraday. Paraday is essentially a gas company that is betting that it can build an LNG terminal on the East Coast in Nova Scotia.
00:31:44
Speaker
And this is a tiny company by market capitalization. And just recently they acquired all the sour gas assets of Shell Canada, a big company, Shell Canada. They have a lot of money, a lot of assets tied to Shell, the massive oil and gas company. They acquired all of Shell Canada's sour gas assets in Alberta.
00:32:02
Speaker
And when they did that, CNRL, the largest oil company by production in Canada, and Sinovus, another big producer, were telling the regulator, telling whoever would listen, that this company is very likely to not continue as a going concern, and that the $500 million
00:32:19
Speaker
in oil field liabilities that they were acquiring were very likely to end up with the Orphan Well Association. And profitable oil companies like Sonovus and Sanderl are the ones who end up paying into the Orphan Well Association, so they did not want this to happen. However, the regulator approved it, and Paradise now the proud owner of all of Shell Canada's sour gas assets. Yeah. Wow. My God. So has anybody ever, I'm sorry to just change the topic here for a bit, but it just jumps in my mind.
00:32:47
Speaker
So W. Brett, has anybody kept an accurate tally to see how many orphan wells his companies have left behind? Ah, well, I'm glad you asked. No, I mean, we have done a bit of that. And we have tracked down a couple of Brett Wilson's orphan wells. W. Brett. Sorry, just for people who are not familiar with what people like to jokingly call Brett Wilson or W. Brett Wilson, the notorious shithead oil and gas financier and media personality. W. Brett.
00:33:16
Speaker
So we had tracked down a couple of his orphan wells, and we had even tracked down a landowner for one of them. And we were going to go out there and report a podcast and take some pictures and talk to the landowners. But then a coronavirus hit, and we were not in touch with those landowners at the moment. We had had some lovely conversations over the phone. Phyllis seemed like a lovely lady, and she seemed willing to entertain us and have a chat about the orphan wells that are on her land.
00:33:45
Speaker
She had no idea who Brett Wilson was. But unfortunately, face-to-face interviews put a bit of a kibosh on those. But we did track down a couple. I thought his eagle would have been big enough to have an engraved plaque with his picture on the orphan well.
00:34:02
Speaker
Yeah, I mean it is emblematic that this rich asshole who's constantly in the media calling for whatever, calling for environmentalists to be hanged, that of course he's got some oil and gas company that went bankrupt that he was the chairman of that has like a dozen wells in the Orphan Well Association's care, like of course.
00:34:23
Speaker
Let's get into another company here, Ember Resources. So Ember is a little hard to kind of project out or to give you a ton of detail on because they are a private company.
Transparency Concerns vs. Teachers' Fund
00:34:33
Speaker
But when Aimco invests in private companies, it's very worrying because it's a black box within a black box, right? Like, as we will get into later in this chat, like, Aimco sucks ass and they do not tell anybody anything about what it is they are doing. Well, you know what? And just let me tell you, that's a real issue for teachers, okay? Just so you know.
00:34:51
Speaker
Like the Alberta Teachers Retirement Fund, quarterly, as requested by the Alberta Teachers Association, quarterly, they list every one of their assets on their website and yearly they do it in their annual report. And it's all of their assets, all the publicly traded assets, as well as the private equity assets and the private equity partners that they're working with. So you go over to the INCO annual report, you will see no such thing.
00:35:19
Speaker
and we will get into how we fix AMCO because that is definitely one of the ways that things that need to be improved but I mean we only know that Ember resources received 48 million dollars from AMCO because of literally like a tossed off sentence in a committee meeting
00:35:35
Speaker
There's a standing committee on the Alberta Heritage Savings Trust Fund. And once a year, there's a standing committee that gets to talk to the CEO of AMCO and his deputy. And there's just a talk-talk sentence like, oh, $48 million into Ember. Yeah. And that's it. There's no other documentation. There's no announcement online. There's nothing on this Ember.
00:35:55
Speaker
And Ember is like a coal bed methane company. Anecdotally, we've heard from landowners and people who are associated with, you know, like landowners' activism that Ember is refusing to pay or is severely cut back on what they're paying for landowner leases.
00:36:12
Speaker
and it's very likely that they're probably not paying their property taxes as well. They also acquired a bunch of assets for a modest amount, that's a quotation from the receivers of documents, of 1,100 of Trident Explorations' old oil wells. That's the company that went bankrupt that we talked about earlier. So that's fun, that's a good time.
00:36:32
Speaker
I'm
00:36:51
Speaker
When AIMCO purchased their shares originally, shares were $3.11. AIMCO later purchased nearly 7 million shares, shares at $4.14 in November 2017. As of March 31st, 2020, CalFRAC Well Services shares were 29 cents a share, 29 cents a share.
00:37:15
Speaker
Yeah, that's a kick in the ass. Based on corporate documents, though, it does appear that AMCO's loan to CalFRAC has been repaid. So AMCO is just not sitting on any kind of debt from them, but just substantial shares, but at well over what the current price is. So that's a good time.
00:37:33
Speaker
The other thing about Calfrac that we've got to bring up is that Calfrac directly cut a check to shaping Alberta's future, the pro-Kenny pack, for $50,000 before the last election there. So that's a good time.
00:37:50
Speaker
And the founder and chairman, Ron Matheson, is also a substantial contributor to Kenny and conservative causes. We were able to total up, when you add up the $50,000 from Kalfrack, $235,000 total that this one man had been able to funnel to various political parties and leadership races and packs just over the past three years. So that's a good time. We're really glad AMCO's pumping money into those guys.
00:38:22
Speaker
Yeah, we got Western Energy Services, just another kind of mediocre energy oil field services firm. IMCO purchased $11.4 million worth of shares of Western Energy Services at $1.25 a share in September 2017. The share price at the end of March this year, 20 cents. The CEO of Western Energy Services made just under $900,000 in total compensation last year too, so he seems to be doing okay.
00:38:55
Speaker
of the
00:39:17
Speaker
Yes, so they've made high-interest loans a couple times. Terms of their repayment of those loans have been renegotiated at least once. We did discover that in 2018, EMCO Finance was used for a share buyback, which I don't understand why EMCO would be like, here, take our money and then enrich your shareholders.
Underperformance Compared to Index Funds
00:39:36
Speaker
But again, the people at EMCO seem to be asleep at the switch.
00:39:41
Speaker
On October 7, 2016, when the original investment in Journey Energy by AMCO occurred, the share price was $2.05. On March 31, 2020, the share price had fallen to $0.27 a share.
00:39:54
Speaker
And one thing that you see when you kind of go through the report as well is that a lot of these companies, when you look through their management information circulars or their corporate documents, they'll quite often have performance graphs. And this is something that the executive compensation consultants will create in order to justify to the directors that they should be paying, what they should be paying the executives.
00:40:18
Speaker
And every single performance graph that we were able to pull for a company that AMCO invested in, they all did worse, all except one, Enterflex, did worse than an index fund. And usually well, well, well worse, well below what you would have gotten if you would just put $100 in an index fund five years ago.
00:40:37
Speaker
Journey Energy, for instance, if you had thrown $100 into Journey Energy five years ago, that $100 would be worth $16.20 today. If you would put $100 into an S&P TSX Composite Index Fund five years ago, it would be worth $94.80 today.
00:40:57
Speaker
OK, last company, and then we're going to get into how we fix this bullshit. OK, last one. Last company is called Razor Energy. They're a small oil and gas junior. They received $45 million from AMCO, a $30 million loan in January 2017, and a further $15 million in January 2018.
00:41:17
Speaker
Uh, they're very notable because in October 2018, um, you know, eight months or nine months later after, uh, or 10 months later after they had announced another $15 million from AMCO, Razer announced that it would begin paying a dividend.
00:41:31
Speaker
And this is something that EMCO would have had to have acquiesced to. EMCO would have had to have said yes to this because they owned 14% of the company. They would have had to have consented to this dividend, and they did, amazingly. And Razer, this tiny oil and gas producer, engaged in an aggressive dividend and share buyback program that sent $6.5 million.
00:41:51
Speaker
From the start of it, from the start of this program in October 2018 to the third, like in a year, let's say, in one year, they were able to flow six and a half million dollars back to shareholders through dividends or share buybacks. The two biggest shareholders in the company, aside from AMCO, are the CEO and the CFO.
00:42:12
Speaker
they would have benefited substantially from this dividend and share buyback strategy. So there you go. Razor energy, Aimco again, asleep at the switch. You'll have to see it. Let's stop being depressed about all of the money that's just being thrown over the transom by Aimco.
00:42:31
Speaker
And let's actually talk about how we fix aimCo. And let's talk about how we actually make this institution not dogshit. I mean, there are serious structural left-wing critiques of pensions already, which I think podcasts like The Alberta Advantage have done very good work on.
00:42:51
Speaker
You know, these large pools of capital have their own kind of logic and they're not necessarily, even though they are controlled ostensibly by workers and therefore the benefit of workers, there still could be, for instance, been investing in things like Cargill that are actively harming workers or private prisons. Another example of, yeah, something that's harming people.
00:43:16
Speaker
Concentration camps, let's be real. But even if we acknowledge off the top that pension funds are problematic, we can still make them better.
Suggestions for AIMCO Reform
00:43:29
Speaker
And I think that's what I want to talk about now. So if you had a handful of things, say they make you a finance minister, God willing, or say you're able to become God Emperor of Alberta's pensions, what would you do to fix AMCO?
00:43:44
Speaker
Well, the first thing is get rid of the governance structure. The governance structure they have is more appropriate for a hedge fund and less appropriate for a pension fund. And so they have to realize that they're the largest clients, add them all up. They outnumber the heritage, they outnumber the street investment clients by a whole bunch. So they need to get in line with that. And when I say that, the INCO board right now is our, you know, they come up with their own recommendations for who should be
00:44:11
Speaker
appointed to the board, and they forward recommendations to the Minister of Finance, and they're approved in cabinet. So, you know, when you say the government has no direct control, what the government means is they don't get in and try to nitpick this investment over that investment. But, you know, if you were, if you want to get appointed to the board, I mean, it's, it's, there's lots of oil and gas ties, lots of Alberta oil and gas ties, right?
00:44:39
Speaker
Well, they're not going to appoint me, and I doubt they would appoint you, even though you would be responsible. Yeah, well, you know, some people have said, but you're right. I highly doubt I'll be invited in. But, you know, so lots of strong business connections there, which is great. But what you're missing is you're missing the people who have their money invested in the fund. None of them are on the board at all. And you will see that if you look at LAP on the LAP board, well, what do you know? There's workers. And if you look on the ATRF board,
00:45:08
Speaker
What do you know? There's teachers on the board. And it's been shown again and again that when you talk about governance that it's kinds of things, people who are on the board who have money getting taken off their paycheck to get put in this investment fund, they take a far more serious tone with costs than, you know, other people would, than business people.
00:45:33
Speaker
If you look in B.C., they've got a successful umbrella organization that invests all of the pension money on the public sector. It's called BCIMC, the Investment Management Corporation of British Columbia. But you will see every pension fund that is a member of BCIMC puts members on the board of BCIMC. In fact, a majority of the board of directors are appointed by its pension plans that are a part of it, right?
00:46:11
Speaker
Okay, so if I could summarize your two big points here, pension plans should be able to essentially run and control and appoint the board of directors of AMCO. Absolutely. They have a role in setting executive compensation and incentives. And pension funds should have the freedom to leave AMCO as well whenever they see further notice.
Need for Accountability and Strategy Review
00:46:31
Speaker
Absolutely. They should either be able to go pick up a private player if they wanted or to be able to leave and hire their own investment managers if they want.
00:46:42
Speaker
Yeah, like, I mean, what's I mean, if they were able to do this, they could just fire 80 percent of the staff at EMCO and just go passive investing, put it all in an index fund and probably get far better return than they would get out of EMCO. Right. Take a look at these at this four billion dollars that just got flushed down the toilet that removed the value adds to the above benchmark performance that EMCO has had for the last five years. So you would have been better for the last five years.
00:47:11
Speaker
by paying these people a salary and telling them to stay home from work. Do not manage any investments and having the entire portfolio in different indexes. And just having one person manage the index or, you know, would take a small team of people to do that. But just index the entire thing. Then you would be, if you had done that five years ago, you would be in the same state as we are today.
00:47:33
Speaker
Yeah, you could have rubber-roomed them, and they told them, you still get paid, just don't go into work, and we'll let Johnny in, index funds, just manage everything, and yeah. But you know, that's the key role for the board, because if you're on the board of a pension fund, and the pension fund cannot turn in regularly above benchmark performance, and if you recall, in 2019, so before COVID, before all this crazy stuff, in 2019, INCO came in
00:48:02
Speaker
0.5% beneath benchmark. So if you're hitting under the benchmark regularly, you're saying that you should have these people stay at home and replace them with an index fund.
00:48:16
Speaker
Okay, so the two big things to start off is pension funds should be able to point a majority of their members to the board of directors, and pension funds should be allowed to leave AMCO and seek another pension fund manager if they wish. Some of the other things that are in the report that we suggest is that AMCO should regularly publish an inventory of their investments. We talked about that earlier. I don't think that's very controversial.
00:48:39
Speaker
One thing that the government can immediately do is they can rescind the Alberta Growth Mandate Directive.
Transparency of Government Directives
00:48:45
Speaker
There is no reason for that to continue to be on the books when you look at our report and actually read it. Or, by all means, do your own analysis, if AMCO will let you, of government. But I don't imagine that those investments are doing very well relative to anything. They might be doing better than vaporizing $4 billion in a trade, but that would be about it.
00:49:05
Speaker
Yeah, but there you're picking little black things out of pepper with that. Yeah, and we should get rid of the part of the legislation, the part of the AMCO Act that allows government to issue directives to AMCO. That should just not exist. Well, how come we always get second best in Alberta? That's what I want to know. I mean, the CPPIB, the Canada Pension Plan, I believe it's in the statute that
00:49:32
Speaker
if they ever get delivered a directive by the federal government that it has to be cabled in the legislature so everybody can see it. I would be fine in knowing when the government gave directives to AIMCO and when they didn't, right? But that's not even public in Alberta. Well, they claim they've never delivered one. Yeah, I mean, we don't know. They're not obligated to tell us.
00:49:54
Speaker
Not, uh, no obligation at all. Yeah. Right. And if, and if the government wants to tell CPP IB what to do, the Canada pension plan, what to do, it is, it requires more sign on than it requires to change the constitution. Like you absolutely.
00:50:10
Speaker
you know like there's just really no way there's like no functional way for government to tell the candidate what to do like it is functionally arm's length while aimco is not like there's a lot of talk about the canadian model amongst kind of like pension plan losers like when you when you kind of die well revered all over the world
00:50:28
Speaker
when you dive into the literature on this, like I've done a little bit in research for this podcast, but there is no way that AMCO is an example of the Canadian model in any meaningful way. When you look at the ability to apply directives, when you look at how involved finance is when it comes to setting strategy, when the fact that, I mean, CPPIB still has political appointments, unfortunately, I think that's a failing of CPPIB.
00:50:50
Speaker
But like AMCO could be like BCIMC, it could have directors that are appointed by the pension plans. I think we've developed a list of things that could be enacted very quickly, very easily that would make AMCO far better than what it is now.
00:51:09
Speaker
I don't know how it can continue in its current state. I mean, I don't know how the CEO can continue in his job. It is inconceivable to me that you could wake up one morning, go to your job and learn that under your watch, $4 billion was just vaporized. And then additionally, the next day, you could go and read my report, Kevin Hubel and read the report, that AMCO has invested more than a billion dollars over the years into shitty oil and gas companies that are very likely to fail in the near term.
00:51:39
Speaker
guy. Like you're bad at your job. I would agree. It's interesting because they are all relatively quick, easy to do and don't cost a ton of money either. But you know, and that's where I get to sometimes as I despair at casual influence, right? And that's a harder thing to get to. So I'm just imagining and I just bear with me for a second because again,
00:52:09
Speaker
I'm just speculating here. But imagine if you were the chief executive officer of an investment fund. And technically, you didn't report to the legislature. But you were around there frequently. And imagine you had a premier who was super heterosexual, who was totally into oil and gas. I mean, would that encourage you more to go and invest in small and mid-cap oil and gas
00:52:37
Speaker
companies that didn't have much of a chance? I think it certainly sends a signal that Kevin Nubeline interpreted properly. And you can go into the report, you can see his public statements on how they are long Alberta and how they are over-saturated and heavy on Alberta investments.
Call to Action for Better Pension Management
00:52:54
Speaker
And there's really no way to interpret those is that they are over-invested in oil and gas. And it's like, sorry bro.
00:53:02
Speaker
I do want to close on one other hopeful thing. Not only are we offering up useful ways to fix AMCO, and please government and AMCO, listen to this podcast and please institute these suggestions immediately. But I would tell you that that's very unlikely to happen and that in fact we are going to have to engage in collective struggle here in order to get the pensions that we want, pensions that we deserve, pensions that are humane and just and not the kind of pensions that we have now.
00:53:27
Speaker
And I think that this mismanagement is an incredible opportunity for political parties and civil society and unions to organize members and get members involved in collective action because there's nothing that sharpens the mind and gets people involved in collective political action than knowing that some fucking idiot in a suit just torched billions of dollars of your pension and then they're going to face absolutely no fucking consequences.
00:53:55
Speaker
Yeah, absolutely. And I know that the ATRF and the ATA have mobilized their teachers a lot on this issue. I know that other unions have mobilized and talked to their members about this issue. Please continue to do so. Continue to invest in communicating this to your members.
00:54:15
Speaker
Invest in organizers, invest in people who can hear and listen to these concerns and actually get these people to get to talk to each other and themselves and to the people who need to hear it because this isn't going to happen on its own. As much as I would like to be able to listen to this podcast and for them to make this all better, they're not going to do it unless we make them.
00:54:35
Speaker
And that would be my message to the folks who do have the influence, who are able to kind of, who are a part of unions who interact with AMCO on a regular basis. Perhaps they're on a pension board. Now is the time to press your advantage because people are pissed. People are angry. And usually people don't think, usually people don't think about AMCO. Usually AMCO is not top of mind. It is in a pretty incredible set of circumstances that has brought us here. Yeah, yeah, yeah, absolutely. In fact, I think they do.
00:55:04
Speaker
best to stay off the front page of the paper and stay in the business section. But the fact of the matter is they're on everybody's front page now. So it is a remarkable set of circumstances and a remarkable sense of timing as well with all this other stuff that's been going on at the same time. Exactly.
Closing and Listener Engagement
00:55:26
Speaker
Greg, I think we're going to leave it there. Thanks so much for coming on the pod. How can people follow you? What's the best way for people to kind of get into your brain and learn more about pensions? I know you've got a very good and active Twitter account. How can people follow that? Well, yeah, that's at YoMeeks on Twitter. YoMeeks, because it's something one of my students called me back in the day. Hey, YoMeeks, every day I came in the room, and that was the cheerful greeting I got. So that's my Twitter handle, and I regularly follow pension and
00:55:55
Speaker
Inco related news and commentary from Alberta here. And I've learned a lot from Greg, and if you want to learn more about pensions and how they work in AMCO, he's a fantastic follow on Twitter. Thank you. Yeah, no problem. And folks, if you like this podcast and if you want to keep hearing this podcast, if you want more people to listen to this podcast, there are a few things you can do to help us out.
00:56:18
Speaker
Please share us on your various channels, you know post us up on your Facebook wall You know is text us to your friends say like hey, don't you have a pension with that's managed by aimco? These fucking idiots talked about it for an hour and I actually learned a lot send it to those people They definitely need to hear this conversation
00:56:36
Speaker
Another thing that really helps us out is reviewing us on the podcatcher of your choice. If you've got Apple Podcasts, review us on Apple Podcasts. It really is helpful for people to help find us. And it actually makes me feel better. I go in and read them sometimes. It's nice to pick me up. But it actually really does help the algorithm when it's determining what podcasts to put in front of people.
00:56:55
Speaker
And if you really like what we do and you really want to support us, you can join the 250 other people who regularly contribute monthly to keep this independent media project going. So you can go to theprogressreport.ca slash patrons and you can put in your credit card, become a monthly contributor. We would really appreciate that.
00:57:13
Speaker
Also, if you have any notes, thoughts, or comments that you think I need to hear, I'm on Twitter at Duncan Kinney, and you can reach me by email at DuncanK at ProgressAlberta.ca. Thanks so much to Cosmic Family Commonest for the amazing theme, thank you for listening, and goodbye.
00:57:28
Speaker
Did you know that Progress Alberta is part of a national community of leftist podcasts on the Ricochet Podcast Network? You can find the Alberta Advantage, 49th Parahel, Kino Lefter, Well Reds, The Progress Report, Laffy Sales, Out of Left Field, and Unpacking the News, as well as a bunch of other awesome podcasts at Ricochet Media or wherever you download your podcasts.