Pension manager AIMCo turns unconventional to boost returns

CALGARY, Alberta, June 23 Mon Jun 23, 2014 5:52pm EDT

CALGARY, Alberta, June 23 (Reuters) - Alberta Investment Management Corp (AIMCo), the C$80 billion ($73.7 billion) provincial pension manager, is steering clear of investments tied to existing roads, bridges and transmission lines as their growing popularity squeezes returns.

AIMCo Chief Executive Leo de Bever said on Monday the company is pushing into late-stage venture capital and newly constructed infrastructure as it looks for above-market returns for the pension and provincial government funds it manages.

Investment in land or transmission lines "has become commonplace," de Bever told reporters. "The returns on it have started to diminish."

De Bever was one of the early pioneers of investing pension funds in infrastructure. While a senior vice-president at Ontario Teachers' Pension Plan in the 1990s, de Bever bought a 25 percent stake in AltaLink, which controls half of Alberta's electricity-transmission network. Warren Buffet's Berkshire Hathaway Energy acquired the company from SNC-Lavalin Group Inc last month for C$3.2 billion, a price that kept pension funds out of the bidding.

"The price gives ... about a 5 percent return on equity," de Bever said. "To me, that's a little skinny. These assets are trading at very, very high prices."

Rather than look to existing assets to provide the long-term payouts needed by pension funds, de Bever said AIMCo is looking to play a role in funding new infrastructure construction in fast-growing areas like Fort McMurray, Alberta, a booming city of 77,000 in the heart of Canada's oil sands. As well, it is looking at providing late-stage venture capital for energy-technology companies.

"We have to get more innovative in different areas," he said at a press conference. "We have to stretch ourselves and stretching ... means going for the more difficult assets."

De Bever points to AIMCo's investment in bankrupt Australian timberlands controlled by Great Southern Plantations as an example of the fund manager's search for unconventional assets offering above-market returns.

"It was a huge mess and everybody else looked at it and said it's going to take a long time to sort it out so why would we get involved?" he said. "Us being long-term investors said 'Hey this is a perfect opportunity because if we can straighten this out and we can buy it cheaply then presumably the return is going to come'."

AIMCo is looking to its unconventional investments to replace low-return assets like bonds whose prices are threatened by rising interest rates.

De Bever, 66, plans to retire from the fund manager once an executive search for his replacement is complete. ($1 = 1.0730 Canadian Dollars) (Reporting by Scott Haggett)

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