Leo De Bever is the CEP of the Alberta Investment Management Corp.Tory Zimmerman
Alberta's new public investment fund manager didn't realize the tempest it was triggering when, in April, it injected $280-million into oil field services giant Precision Drilling Trust. The ensuing cries of political favouritism and bailout for debt-laden Precision have been a rude initiation in Alberta's raucous public life for Leo de Bever, CEO of the Alberta Investment Management Corp. (Aimco). He now sees the controversy as an opportunity to educate Albertans on the arm's-length mandate and philosophy of the Crown corporation, whose $70-billion portfolio includes the Alberta Heritage Savings Trust Fund.
What are you reading on those long plane rides across Canada?
Some of it has to do with how do you learn from past mistakes. Have you read Charles Kindleberger's book on chaos and panics [ Manias, Panics and Crashes: A History of Financial Crises] There doesn't seem to be anything new under the sun. The question is, having just gone through one of those things again, how do we get back up? What do we do, if anything, to avoid what we seem to do every 10 to 20 years?
We've had 400 years of stock markets and every 10 years, we seem to have a reasonably big crisis. Every 40 years, we have one like last year when banks go bankrupt and people get really angry about the result.
But like Pogo says, "We have met the enemy and he is us." We all get engrossed in the speculative process, some through our houses, some in other ways.
Will we do it again?
It looks like that. Karl Marx had a famous quote, saying the financial system is inherently unstable and banks are so levered that eventually they have to go bust - just because things happen - and that will be the beginning of communism. I think he got it right except the last part.
When you read books on the Crash of 1907, the Great Depression, or the 1873 railroad speculation, it seems the pattern is immutable. We tend to get carried away with a disruptive technology. We create too much credit to try to take advantage of it, prices go way out of sight, the thing crashes, and everyone looks around and says, "What just happened? Who's to blame?"
Are we in danger of another imminent bubble, given the huge buildup of government debt?
That is the thing that disturbs me most. As a long-term investor, you might say, "In the last 25 years, bonds were actually a pretty good place to be because we were riding interest rates down from 20 per cent to 2-3 per cent." But what are you going to do for an encore?
So government bonds are obviously not a great place to be because interest rates will have to go up. So that makes equities look more attractive, which they probably are anyway, given the low-valuation starting point.
So can we prepare for this?
Behavioural finance is becoming very popular and I don't know if you saw James Montier's book [ Behavioural Finance: Insights into Irrational Minds and Markets] It is very instructive. But it is very frustrating because it tells you why things happened in the past but it doesn't really tell you what you can do to take advantage of it. The timing of some of these things is so erratic.
Some people made big money in shorting certain instruments, but other parts of their portfolios got hammered.
You couldn't just be concerned about the stuff in your portfolio, but the stuff in other people's portfolio that could have impact on yours. It's called the dandelion risk. You try to keep your little patch clean and clear of dandelions, but good luck if all your neighbours have dandelions.
It's a real serious issue but I don't know how you deal with it because it requires transparency. One of the lessons of 2008 was that transparency wasn't there.
In fiscal instruments and hedge funds, transparency was denied?
It was. The organization I just inherited had a whole bunch of hedge funds that refused to give us transparency. So the rule has gone out: Transparency or get our money back. If I'm going to lose money and I understand what the strategy was, okay, that's my fault. But if I don't know, what am I going to tell my board? "I lost a pile of money and I have no idea how I did it"? It just doesn't go over.
Can you run a major investment manager out of Edmonton?
You can. Have you ever seen Warren Buffet's quote? He says once a year, he goes from Omaha to New York. He asks all the right questions, he goes back to Omaha and he thinks about it. That's just about enough interaction with New York.
The social aspect of investing is probably overdone and you have a tendency to get into group-think. We do have our strategy geared more to being relatively isolated. We rely more on quantitative thinking as a result, and that doesn't rely as much on being near the bar district in Toronto or New York.
In coming here from another public investment fund in Australia, did you trade one fishbowl for another?
The fishbowl doesn't bother me. I've got a relatively thick skin. But I do have a very clear way of operating, and that is: if there is a right way to do things, I'll do it. If it doesn't suit you, argue with me. But I'm not going to waver unless you have a better argument. That's the only way to go.
And if your masters don't agree?
We'll get to that when we get to that. Precision Drilling is the one that put us in the news. It was a good example because it was very encouraging to have people have a look at us and see what we are doing. The response was: "That's what we asked you to do, so let's get on with it."
It caused the [Alberta]government a lot of heartache because Aimco or its predecessor had never done anything remotely similar. In the background, there was still the memory of an outfit called Vencap, which had invested in some stuff people thought wasn't appropriate.
Some critics accept your basic argument but hold off approval until the deputy finance minister is no longer on Aimco's board.
I think that is a discussion we are having. When I took this job, there were some things I knew were going to be problems, and it seemed to me this might be one of them.
But you have to understand that if you were in the position of the Department of Finance and you are the bureaucrat who ran this thing for 20 years, it is very difficult to give up control of this kind of thing.
That's because you really feel that running risk in the political spectrum is the wrong thing to do. But if you run it as a commercial manager, that's what you are in business for. You take calculated risk to make a return on that risk. In government, it is about not running any risks at all because it can only have a downside.
Were you surprised by the reaction to the investment in Precision?
With the benefit of hindsight, maybe. But if this had been Ontario Teachers, if this had been Ontario, this wouldn't have caused a ripple. This happens all the time.
What I really started to catch on to was that most of the population didn't really understand what Aimco was, or its new mission. So I am spending a lot more time trying to tell that story.
You once said, "I'm never dogmatic about much of anything"...
I was talking about my views on investment - whether, as time changes, certain tradeoffs become different. You have to be flexible enough to take in new information. If you stick with something to the bitter end and you don't recognize the evidence that suggests things are changing, you're probably on a very dangerous road.
What are you dogmatic about?
That has more to do with ethics. Maybe it is my stubborn Dutch background - the tendency is to say: "What is the right way to do this? Can you pursue it?" I want to be able to sleep at night. Or five or six years from now, when I retire, I want to say, "Look, I made the most of this. I did it in the best way possible. I did it for the benefit of the people I serve." I want to be proud of that.
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Leo de Bever
Title: Chief executive officer,
Alberta Investment Management Corp., Edmonton
Born: June 4, 1948, in Zevenbergen, the Netherlands
Education:
BA in economics,
University of Oregon
PhD in economics,
University of Wisconsin
Career highlights:
1975: Joined Bank of Canada in Ottawa; rose to chief forecaster.
1991: Chief economist, Nomura Canada.
1994: Spent nearly 10 years with Ontario Teachers' Pension Plan, rising to senior vice-president of research and economics.
2004-2006: Executive vice-president, global investment management, Manulife Financial.
2006: Recruited as chief investment officer of Victorian Funds Management Corp., Melbourne.
August, 2008: Joined Alberta Investment Management Corp. as CEO.