Competition for Real Assets Forces Alberta Pension Fund to Get Creative 

(Bloomberg) -- Alberta Investment Management Corp. is being forced to get creative in its hunt for real assets like office buildings, timberland and wind-power installations as rival pension-fund managers pile into the increasingly popular sector.

Chief Executive Officer Kevin Uebelein, 59, says the manager for 31 Alberta pension, endowment and government funds is looking to buy into companies that have strong existing assets and top management teams that can build on those bases -- a practice he refers to as platform investing -- rather than just buying into existing projects or those under development. That strategy is necessary as rivals shift more of their funds into illiquid assets, threatening to bid up prices and drive down returns, Uebelein said.

“There are too many dollars chasing too few projects,” Uebelein said in an interview. “That’s one of the reasons why doing things like platform investing is where we’re going to find the opportunity to create greater returns and generate better value.”

AIMCo had 28% of about C$108 billion ($83 billion) in assets under management at the end of last year in illiquid assets. That segment returned about 13% last year, topping the 8% gain of its benchmark, according to the company’s annual report released last week.

An example of AIMCo’s platform strategy is its more than 90% stake in Spanish wind-power developer Eolia Renovables de Inversiones, where the firm “invested as much in the management team to continue to grow its portfolio of renewables as we did in the starter set of solar- and wind-power generators” it already has, Uebelein said.

Overall, AIMCo’s funds returned 2.3% last year, topping their benchmark’s 1.3% return. The biggest gains and widest margins of outperformance came in the illiquid-assets segment. Within that category, renewable-resources investments returned 15%, beating their benchmark by 8.8 percentage points. Private equities returned 14.7%, topping their benchmark by 6.5 percentage points. Infrastructure returned 13.7%, beating its benchmark by 7.5 percentage points.

Fixed Income

AIMCo’s money-market and fixed-income investments also outperformed, rising 1.7% versus a 1.2% advance for the benchmark. Those gains helped make up for sluggish performance in public equities, which declined 4.6%, more than the 3.1% drop for their benchmark index.

Other Canadian provincial pension funds topped their benchmarks last year as well. Caisse de depot et placement du Quebec posted a 4.2%return, topping its 2.4% benchmark. Ontario Teachers’ Pension Plan had a 2.5% gain, beating the 0.7% advance for its benchmark. The performance among funds varies as their provinces require them to manage different types of assets.

Other Canadian pension fund managers have bolstered their holdings of illiquid assets, seeking steadier returns. Canada Pension Plan Investment Board CEO Mark Machin said in May that the company’s real-assets portfolio, which helped it add C$32 billion to its assets last year, will continue to grow while its public equities segment will shrink.

AIMCo is headed in a similar direction because the predictability and duration of those types of investments are well-matched to its clients’ liabilities, Uebelein said. They’re also a good bet in the current market, in which much of equities’ current rally has been narrow and fueled largely by dovish talk from central banks, he said.

“You haven’t even seen the markets roll over, but the central banks are already taking very overt action to try to talk those markets up,” Uebelein said. “There’s an interesting period here where you could see the economy roll over and the central banks propping up the risk assets for a while -- but not forever.”

--With assistance from Paula Sambo.

To contact the reporter on this story: Kevin Orland in Calgary at korland@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, Carlos Caminada, Jacqueline Thorpe

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