'No-hydrocarbon world is dreamland:' AIMCo CEO Evan Siddall on investment opportunities in 2024

‘It’s our job to invest in places where we can make money for our clients’

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Pensions plans made the political headlines in 2023 like seldom before, from Alberta’s threat to pull out of the Canada Pension Plan with more than half of the fund’s assets to Ottawa’s desire, stated in the fall fiscal update, to have the globetrotting trillion-dollar asset managers invest more at home. The Financial Post spoke to Alberta Investment Management Corp. chief executive Evan Siddall about these issues, geopolitics and how AIMCo is evolving its investment strategy for 2024 and beyond. This interview has been edited and condensed for space.

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Financial Post: What is your top concern as we head into 2024?

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Evan Siddall: I’m worried about things going wrong in the world. Geopolitics. I’m worried about the Middle East and Iran being drawn into a proxy war. And how does Israel exit from this? It doesn’t have cooperative neighbours, we know that. And what happens in Ukraine? If it’s going to end with Russia having annexed Crimea and the whole Donbas region, the lines of Ukraine will be redrawn. And then the rebuilding of Ukraine will have to occur, and who knows how that’s going to happen. Will Ukraine President Volodymyr Zelenskyy be alive or not? And then the complete imponderable is what does that all mean for China and Taiwan? I worry a lot about all this stuff. And how to position the portfolio accordingly. 

FP: How do these concerns play out in your projections for the economy and where to invest? Are there any bright spots?

ES: I actually think the U.S. economy will prove to be more resilient, and there’s a real productivity gain to be had there. I believe the AI hype. So I don’t share the fears of a moribund U.S. economy — except who knows what happens with the election on Nov. 5, right?

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Made in Canada

FP: There’s been a lot of talk lately about the federal government pushing Canadian pensions to invest more of their funds in Canada. You’ve publicly stated your view that pensions should be allowed to invest independently, based on returns, not geography. Would anything compel AIMCo to invest more in Canada?

ES: Canada is a pretty darn good place to invest. We do have substantial investments in Canada, 44 per cent, I think, at last check. And Canada is attracting interest from overseas. But we know you can mitigate risk through diversification and we have to do that for the benefit of our clients. The minister of finance and the government of Canada were careful not to tell us to do something, but the signals were something we felt we needed to react to because there’s this unhelpful talk about a dual mandate for pension funds. And we all feel this way: that we have pension promises to deliver on and that’s our job.  

FP: AIMCo does invest a larger percentage of its assets under management in Canada than some other large Canadian pensions. Can you talk about the reasons for that and what it means in this debate?

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ES: We have good reasons to invest in Canada. We need to have Canadian currency, we need to hedge against inflation. There’s good investment reasons why we would invest here, but our Canadian dollar and Canadian economic exposure is already high. If you were looking at a total portfolio and thinking about where Canada fits in the world, you’d allocate something short of two per cent to Canada. We have 44 per cent in Canada right now, that’s a pretty substantial bias. And that’s proper. 

FP: So no more interest in Canada?

ES: If the government of Canada wants pension funds to invest in Canada, it will privatize some of these assets that we might want to invest in from an infrastructure point of view. 

FP: Such as?

ES: The airports. 

FP: Is there more?

ES: Toll roads, bridges, ports, pipelines: These are all the types of things we invest in. 

FP: Any interest in the Trans Mountain Pipeline? When the government bought it in 2018, the plan was to sell it, and pension funds were listed as potential buyers.

ES: It was bought so it would get built. In fact, I worked with Bill Morneau on the purchase of that from Kinder Morgan. And so the government of Canada owns it until it’s built, which will be sometime in the spring of 2024 and then we’ll see what the government does. There’s a lot of interest around that pipeline. There are First Nations communities that will want to participate, some that are directly impacted by the pipeline, some that may just want to participate in this investment, and so it’ll be a complex consortium of owners that comes to own it. But we’ll look at it. I would think there almost certainly will be pensions in there.  

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FP: Do you have any concerns about the investing environment in Canada such as the potential for changes in the tax or regulatory regime?

ES: That’s always a concern. This is a big issue in transition finance, which is an area where we want to invest. Changes in policy, changes in carbon regulation, regulatory risk in the infrastructure business is significant. It’s another reason you want diversification. Policy risk doesn’t completely correlate — you can diversify some of it away by investing in multiple jurisdictions.  

FP: Is this more of a concern in Canada than, say, the U.K. or Europe?

ES: There’s policy risk everywhere. I’ll say this, though, things like coups and elections cause policy shifts and there will be an election at some point in Canada, and we’ll see what that means. I’m not going to get into the game of predicting either the election outcome or the implications of it, but who knows? 

Bullish on North America

FP: So I guess that’s a “stay tuned” on Canada. We noticed you made a large investment in cows recently in Australia through The Kimberley Cattle Portfolio, a large-scale cattle breeding business spanning almost three million hectares in western Australia. We have lots of cows in Canada. Why not make that investment here?

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ES: We have a pool with our clients called infrastructure and renewables, and renewables consists of row crops, permanent crops and livestock. We wanted to take a significant investment in livestock, and this is one of the very few opportunities that was of a size that would move the needle for us and was worth making. Sure, we can invest in livestock in Canada. But there aren’t operations of this kind of scale that are available for sale right now in Canada. That’s the answer. We’re global investors, we look for opportunities around the globe. And we already have some agriculture in row crops and a company called Lawson Grains that we’ve invested in in Australia, so we have networks there and know-how and insight. 

FP: Shifting gears slightly, what are your expectations for the global economy in the coming year, and how does that play into your investment strategies?

ES: I think I mentioned that I think the U.S. economy will prove to be more resilient than people think, and there will be a productivity dividend for sure. That being said, there are implications for regional banks in the U.S. that will cause pressure to deleverage in the private equity space and in real estate and places like that, and so it’s going to be kind of a tale of different outcomes. But I’m long-term constructive on that. Canada will benefit through trade, as we do with the U.S., but Canada has an affordability problem. I’m not going to go too far down the housing path, but that’s one. Housing, food, all these things are causing a lack of consumer confidence and a lack of business confidence that may hold back the Canadian economy. But, overall in a world that feels weaker in general, North America is a pretty good place to be. 

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FP: You’ve just opened an office in Singapore, with an eye towards more investment in Asia. Have you changed your view there, given your relative bullish outlook for North America?

ES: That’s really long, long, long term. China is cheap but it probably should be. The current administration is not the most business friendly. And I think this rapprochement between Chinese President Xi Jinping and U.S. President Joe Biden in San Francisco probably means we’ll have a relatively benign 2024 between those superpowers, but long-term that tension continues to separate them. I’m not sure I believe in a bipolar world, but I don’t believe in a unipolar world where the U.S. hegemony persists either. 

FP: And how will this play out in your investment strategy?

ES: We have three per cent of our assets in Australia. We have less than three per cent in Asia writ large. Asia is growing faster than anywhere and our focus is not China — that’s why we’re in Singapore — but it’s a lens on China. We’ll hire people who know something about China, we’re going to hire people who know something about India, we’re going to move some folks over who are infrastructure experts. We’re going to grow in that area very, very slowly. We’ve just co-sponsored a new fund by a company called Seraya Partners, which is AI and Asia-oriented and that’s the kind of thing we’ll look at carefully. But if we do nothing over the next one or two years in Asia but get smart, that’s worth the effort of three or five people. 

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FP: And what about your plans for an office in New York? Is it a quicker timetable there?

ES: We haven’t even officially opened the office. I think we signed the lease three months ago. We hired David Scudellari from PSP (Public Sector Pension Investment Board) who ran their credit investments and private equity business. We have some dry powder in that area and it’s an area where our clients want us to expand. So that’s the first effort in New York. It’s also allowed us to think differently about the partnerships that we have: We invest in private equity, infrastructure and real estate funds, many of them are located in New York. We want to be better partners for them and have them be better partners for us so that we have an ongoing dialogue on things like geopolitics. I had a half-hour call with Larry Fink of BlackRock this morning because we have a substantial relationship with BlackRock. That access really gives us insight that we can use to deliver value for our clients that we have not taken advantage of in the past because we’ve just spread ourselves too thin. 

FP: Do you think participating in such talks will lead to more investments in the U.S.?

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ES: More investments, or maybe just how to position our portfolio or our clients’ portfolios relative to, you know, the outcome of the U.S. presidential election. Will Nikki Haley prevail over Trump? Probably not. But let’s see how that works through the primaries. Biden looks like the only Democrat who can beat Trump. But if there’s a Biden presidency, you probably think Kamala Harris ends up finishing it. He’s not a young man. We don’t know her, so I’m not sure what it means but we’re talking to people who maybe can help us. 

‘Value over values’

FP: Speaking of the U.S., following a global drive to put environmental risks at the forefront of investment decision making, there’s been some pushback on prioritizing ESG. Is that affecting the AIMCo view and strategy?

This no-hydrocarbon world, I think, is dreamland

ES: Our perspective on this is value over values. It’s our job to invest in places where we can make money for our clients, not to impose our values on our clients’ money. And so we’ll continue to invest in oil and gas, which has paid off. With oil at $80-plus, it’s not a bad investment. This no-hydrocarbon world, I think, is dreamland. And that’s good for Canada long-term. I also think the best investment opportunity facing long-term investors right now is in transition finance, because we have the patient capital. We can invest in it now and it’s clearly where the world is going, low carbon. So for us, to invest in opportunities to decarbonize is a high priority. Our clients agree. A dozen of our clients have signed up for a new pool that will be dedicated to this investment objective in particular. 

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FP: Is that within or beyond Alberta?

ES: That’s global. Right now, the great places to invest are in Mexico or the U.S. because of the U.S. Inflation Reduction Act (which includes incentives to accelerate the rollout of clean energy). 

FP: Are you affected by the Alberta’s government’s pause on new renewable energy project approvals through February?

ES: Well, I’m going to stay away from policy questions. I’ll just say it’s a big old world and there are many places to invest that aren’t affected by that. And we’ll see what happens in Alberta. 

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FP: Speaking of Alberta, has AIMCo been approached about possibly managing a new Alberta Pension Plan if the province pulls out of the Canada Pension Plan?

ES: Our perspective on that is it’s a policy political question, and that’s for policymakers, not for us. I have not been approached for my advice. If asked, I’ll probably not give it because policy is for policymakers. 

FP: What if you’re asked whether AIMCo is set up in a way that would make it feasible to manage a potentially large chunk of the current CPP assets alongside the assets of your other clients?

ES: The way we work is we manage the funds the provincial minister of finance, the treasurer, tells us to run. And we’ll do what we’re told. Again, that’s his call. 

• Email: [email protected]

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