University pension plan drops AIMCO as fund manager

Last month, the Universities Academic Pension Plan released their 2020 annual report.

In his introductory message, UAPP chair Geoffrey Hale said that

Late in [2020], at its December meeting, the Board decided, on the recommendation of the Investment Committee and after extended consideration, to allocate the public equities portfolio to a different investment manager.

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2020 UAPP Annual Report, p. 5

Later in the report, we find out that the entity managing the UAPP fund is managed by Alberta Investment Management Corporation, otherwise known as AIMCO.

The majority of UAPP’s investments, totaling 77.5%, are
managed by AIMCo. During 2020, AIMCo managed UAPP’s public equity investments, alternative investments, private mortgages, and real return bonds, along with some universe bonds.

2020 UAPP Annual Report, p. 16, emphasis added

AIMCO is a provincial crown corporation and institutional investor established to manage several public funds and pensions. According to their website, they manage funds for the following 8 other public pension plans:

• Alberta Teachers’ Retirement Fund
• Local Authorities Pension Plan
• Management Employees Pension Plan
• Management Supplementary Retirement
• Provincial Judges & Masters in Chambers Registered Pension Plan
• Provincial Judges & Masters in Chambers Unregistered Pension Plan
• Public Service Pension Plan
• Special Forces Pension Plan

Anyhow, as you can see in the quote above, it’s fairly clear that AIMCO was managing public equities for UAPP, and although it the report doesn’t explicitly states that UAPP dropped AIMCO, it does say they’re choosing a new investment manager for public equities.

Because it doesn’t specifically mention AIMCO by name as the fund manager they’re dropping, I reached out to the UAPP for clarification and received an email with the following statement:

AIMCo managed UAPP’s public equities in 2020 and was replaced in early 2021 as the public equities manager. The report covers up to December 31, 2020, but some of the commentary speaks to the future.

To be clear, UAPP dropped AIMCO from just their public equities portfolio. Presumably they still manage their “alternative investments, private mortgages, and real return bonds, along with some universe bonds”.

So, why did UAPP drop AIMCO as their public equities manager?

Well, let’s look at performance of public equities.

According to page 22 of the annual report Canadian public equities saw a 1-year return of -3.4%. The benchmark index was 5.6% for one year. That means there was a net value loss of 9.0%. The 4-year return was slightly better but still a loss: 3.8% actual return against a 6.5% benchmark, for a net value loss of 2.7%.

Foreign equities (outside of US and Canada) also had bad news. Its 1-year return was 5.5%, but the benchmark was 14.4%, so they saw a net value loss of 8.9%. Their 4-year return was 9.4%, but the benchmark was 12.0%, a net value loss of 2.6%.

The global equities (includes domestic, Canadian, and international) didn’t perform well either. It saw a net value loss of 8.9% (5.0% return compared to 13.9% benchmark) for the 1-year metric and a net value loss of 2.6% for the 4-year (9.4% vs. 12.0%).

About 21% of UAPP’s foreign equity portfolio includes an emerging markets pool. It, too, performed poorly: 9.1% net value loss for 1-year and 2.7% loss for 4-year.

That means that none of these public equity portfolios performed as well as hoped under AIMCO’s management, on either a 1-year basis or a 4-year basis.

I know that all seems like a lot, so maybe this table will help. The first 4 are the public equity funds.

Asset class	Term	Return	Benchmark	Net value
Canadian	1-year	-3.4	5.6	-9.0
	4-year	3.8	6.5	-2.7
Foreign	1-year	5.5	14.4	-8.9
	4-year	9.4	12.0	-2.6
Global	1-year	5.0	13.9	-8.9
	4-year	9.4	12.0	-2.6
Emerging	1-year	7.1	16.2	-9.1
	4-year	9.1	11.8	-2.7

Now here’s how they compare with other funds that UAPP owns:

Asset class	Term	Return	Benchmark	Net value
Fixed income	1-year	11.8	10.7	1.1
	4-year	6.4	6.0	–0.4
Alternative	1-year	7.4	2.7	4.7
	4-year	9.1	2.8	6.3
Real estate	1-year	-14.0	-5.2	-8.8
	4-year	2.4	3.8	-1.4
Private income	1-year	4.7	6.8	-2.1
	4-year	8.1	7.7	0.4
Timberland	1-year	-8.3	4.8	-13.1
	4-year	10.9	5.7	5.2
Private equities	1-year	37.8	7.3	30.3

In most of the non-public-equities funds, performance was better than the benchmark for either the 1-year or 4-year returns. Alternative funds were the only ones with positive changes to net value for both 1-year and 4-year and real estate were the only ones to have negative change in both. There were no 4-year results for private equities because those funds started in only 2017.

Compare that with the public equities investments. All but one outlook—4 years for foreign public equities—performed worse than the benchmark. The average performance was -5.8% below the benchmark; if you include just the losses, the average drops to -6.3%. And 4 of them hovered around the -9% mark.

I’m not a fund manager, but that doesn’t seem good.