The latest addition to the fund is made up of $2.6-billion drawn from the province’s surplus, with an additional $200-million from the government.Jeff McIntosh/The Canadian Press
Alberta’s government has contributed $2.8-billion to a provincial wealth fund that now stands at $30-billion and fleshed out the board of directors for a new corporation that was set up to make the fund grow faster.
Premier Danielle Smith’s government created the new Crown corporation, called the Heritage Fund Opportunities Corp., or HFOC, late last year. It will oversee a plan announced in January that aims to boost the assets held by the province’s Heritage Savings Trust Fund to at least $250-billion by 2050.
The new infusion of cash, announced Friday by Ms. Smith and Finance Minister Nate Horner, was made up of $2.6-billion drawn from the province’s surplus, with an additional $200-million from the government to bring the fund’s assets to $30-billion.
The Heritage Fund was established in 1976 by former premier Peter Lougheed and has been invested by the province’s main pension fund manager, the Alberta Investment Management Corp., or AIMCo. The fund was created as a provincial backstop to fill future gaps left by declining revenue from oil and gas royalties.
For now, AIMCo will still manage most of the $30-billion in Heritage Fund assets, but the HFOC will own the assets, advise AIMCo and invest the fund’s newest pools of cash with a sovereign wealth fund-style approach.
AIMCo promotes Justin Lord to chief investment officer, will lead revamped investing mandate
Alberta appoints former prime minister Stephen Harper to chair AIMCo board
The province has framed the HFOC as a step to “modernize the fund’s management.” Where AIMCo’s investments are governed by the risk tolerance and liquidity needs of a pension fund with obligations to retirees, Mr. Horner said the HFOC should eventually be able to make bigger-ticket investments with a freer hand.
“We found that there would be potential for enormous opportunities to have an expert, arm’s length agency like HFOC that could not only advise AIMCo on how to invest their portion of the Heritage Fund assets, but would also have the opportunity to invest in different ways,” he said. “By being separate, they’re able to have more dry powder on the sidelines.”
As the Heritage Fund grows, it will be up to HFOC to decide how to invest new funds, through its own deals or through AIMCo.
The province previously named Joe Lougheed, a Calgary-based partner at the Dentons law firm, as chair of the HFOC. On Friday, the government announced five additional board members: deputy finance minister and AIMCo director Kate White, Switzerland-based Jacqueline Curzon, Finnish businessman Jouko Karvinen, Alberta Indigenous Opportunities Corp. chief executive Chana Martineau, and Alberta-based corporate director Mary Ritchie.
The province expects to eventually expand the board to 11 members.
To set up the HFOC, the government has relied on help from investment consulting firm PNYX Group, and the newest pot of funds is invested in basic short-term financial instruments for now.
Once the HFOC is established, it is possible it could take over control of more of the Heritage Fund money currently managed by AIMCo, but “only if it proves itself, if they’re finding greater returns than AIMCo,” Mr. Horner said.
“That’s kind of why I like this process: They would have to prove it first,” he added.
AIMCo manages $180-billion of assets for 17 pension, endowment, insurance and government clients, and has global offices and experienced investment teams. The province overhauled AIMCo’s leadership late last year in an abrupt purge of senior executives and board members.
At times, previous governments in Alberta have dipped into the Heritage Fund to pay for spending priorities, but the current government’s fiscal framework dictates that investment income must be reinvested, allowing the fund to compound more quickly.
If Alberta succeeds in increasing the Heritage Fund to $250-billion – Mr. Horner said the government’s projections suggest it could reach $270-billion by 2050 – future governments could withdraw some income to “offset any decreases we may experience in resource royalties,” he said at Friday’s announcement.