Canadian pension funds need to boost investment in areas such as promising market-ready technologies as the field for other non-traditional assets – including existing infrastructure – becomes too crowded for strong returns, says Alberta Investment Management Corp. chief executive Leo de Bever.
"Canadian pension funds are sort of sitting on their laurels," the AIMCo chief executive said during a wide-ranging interview with the release of the Alberta crown corporation's annual report on Monday.
Funds need to maintain that spirit of adventurism, he said,"because that's the only way you're going to earn excess returns."
Mr. de Bever, 66, has been the head of the now-$80-billion fund for six years but in April, announced he will be stepping down. On Monday, he said his board wanted a new chief executive who could take the helm of one of Canada's biggest pension funds for the next decade.
But until his successor is found, Mr. de Bever continues to focus on AIMCo's investments around the world on behalf of 28 provincial pension, endowment, and government funds.
He said investing in major "brownfield" infrastructure, or pre-existing projects, such as power lines might have been leading edge 10 or more years ago – and he was a one of the pioneers in this area at the time. But now pension funds are being priced out of the competition for these assets, he said, and he believes the cost of such investments means the original investment premise that "iconic assets" could earn a better return than stocks and bonds may no longer be valid.
He said the latest example is Warren Buffett's Berkshire Hathaway Inc.'s deal to purchase AltaLink, Alberta's largest electrical transmission company, for $3.2-billion. Mr. de Bever said by his calculations, the return on equity will be a "little skinny" at that price.
"Maybe that makes sense for him. It wouldn't make sense for us," he said. "What I've basically told my organization is we have to get more innovative in different areas. And we have to stretch ourselves."
He said while the Alberta government has left him alone when it comes to making investment decisions, the province has asked him in general terms to invest in improving the efficiency of the Alberta economy – to the extent he can make money at it.
One of the opportunities he sees is in the way his fund has not fully used its ability to deploy a lot of capital, its ability to wait a number of years for returns. He said the opportunity staring AIMCo in the face is the commercialization of new technology, especially in Alberta's energy sector.
To that end, Mr. de Bever wants to use $500-million from the Alberta Heritage Savings Trust Fund to put towards large-scale commercialization of technology, at least half of which would be used towards technology to make fossil fuel extraction, upgrading and pipelines more efficient and environmentally friendly. He said while it isn't part of his mandate to help Alberta export its bitumen, he noted that each time he travels to Europe, he is peppered with questions about the Canadian energy industry's "social licence" to operate – and the domestic and international opposition to oil sands production based on environmental concerns about the land, water and increasing greenhouse gas emissions.
"I frankly think there are a lot of innovations out there that can deal with these issues."
He also said investing in "greenfield" infrastructure, such as new toll roads, bridges or railways, to be used by commercial operators – in under-served parts of Canada, including Fort McMurray's oil sands region – could also be a solid route to returns, he said.
"I like to combine what's desirable with what's profitable. But it always has to be profitable for me to do it," he said.
Mr. de Bever said he's proud of the fund's 12.5 per cent net investment return in 2013, AIMCo's strongest performance since becoming a crown corporation in 2008, and a result he said was better than the markets by about one per cent.
"Obviously we had a good year."