What it means
Large pools of public money need professional management. AIMCo was created by the province of Alberta to bring the investment of public sector pension assets, endowment funds and provincial savings under one specialist organisation instead of leaving each client to manage its own.
Its clients own the capital, and that shapes everything the manager does. Pension plans have obligations stretching decades ahead, so the mandate is long horizon investing within a risk budget agreed with each client, not a chase for the highest possible return this year.
The portfolio spans both listed and private assets. Public equities and bonds sit alongside infrastructure, private credit, property and private equity, and the private side is where a manager of this type expects to earn a premium for accepting illiquidity, meaning money that cannot be withdrawn quickly.
For a business the relevance is as a source of patient capital. Managers of this kind buy toll roads, utilities, pipelines, office portfolios and stakes in private companies, and they can hold them for a decade or more, which makes them very different counterparties from a short term fund.
Performance is measured against each client's own benchmark rather than one market index. Added value is reported as the difference between the portfolio return and the blended benchmark, and because the asset mix is unusual, that benchmark is itself a negotiated construction.
The governance point matters as much as the investing. A public sector manager has to balance client returns against public accountability, cost scrutiny and political interest in how provincial money is used, and governance arrangements at institutions of this type are reviewed and changed from time to time.
In practice
Real-world examples.
Example
A regional airport operator sells a 40% stake to a long horizon institutional manager rather than to a private equity buyer. The price is similar, but the holding period is expected to run beyond ten years, so the capital expenditure plan is not rewritten to suit an early exit.
Example
A pension trustee board reviews its manager and finds a return of 8.5% against a benchmark of 7.5%. Because the pool holds a large share of private assets valued quarterly, the trustees also ask how the benchmark was constructed before crediting the manager with the difference.
Example
A mid sized manufacturer raises $60,000,000 of private credit from an institutional lender instead of issuing public bonds. The pricing is slightly higher, but the covenants are negotiated directly and the loan can be drawn in stages as the factory is built.
Formula
Calculation
Added value = (Portfolio return - Benchmark return) x Assets under management
Cost ratio = (Total management costs / Average assets under management) x 100
Suppose a client pool holds $20,000,000,000 and returns 8.5% for the year against a blended benchmark return of 7.5%. Added value is (8.5% - 7.5%) x $20,000,000,000 = 1.0% x $20,000,000,000 = $200,000,000. The cost of running the money, including internal investment teams and external manager fees, totals $70,000,000, so the cost ratio is $70,000,000 / $20,000,000,000 = 0.0035, which is 0.35%. After costs the pool still beat its benchmark by $200,000,000 - $70,000,000 = $130,000,000, and that net figure is the one a board of trustees should be looking at. The numbers here are illustrative.Case study
Seen in the real world.
The following is an illustrative, fictional example. Prairie Grid Transmission, an invented utility, needed $400,000,000 to replace ageing network equipment and could not fund it from cash flow. Public markets offered the money but on terms that demanded visible returns within three years.
An invented pension pool managed by a long horizon institutional manager instead took a minority stake and a long dated loan, accepting a lower early return in exchange for regulated, inflation linked revenue stretching three decades ahead. The match worked because the pool's own obligations were just as long.
In this illustrative case both sides got what they needed: the utility rebuilt its network on a sensible timetable, and the pension pool secured the kind of predictable long dated cash flow that is genuinely hard to buy in public markets.
Watch out
Common mistakes.
- Describing AIMCo as a pension fund, when it manages money for pension plans and other clients rather than owning the liabilities itself.
- Judging a long horizon manager on a single year of returns, when the mandate is written around decades.
- Comparing its cost ratio directly with a passive index fund's, which ignores the cost of managing private assets.
Questions
People also ask.
Who does AIMCo invest for?
Public sector pension plans, endowments and government funds in the province of Alberta, each with its own mandate, risk budget and benchmark.
Why do institutions like this buy infrastructure?
Because long lived assets with regulated, contracted or inflation linked revenue match pension payments that stretch decades into the future.
Is this the same thing as a sovereign wealth fund?
Not quite, because a sovereign wealth fund normally owns assets on behalf of a state, while a manager of this type invests under mandates for separate client funds.
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