On The Record: Changing the game

PEI: What have your main goals been for AIMCo since you joined in 2008?

The big change that I’ve implemented is to try and run the same asset mix more cost-effectively and to fund the requests from our clients for more unlisted assets, mostly through direct investments. We used to have 85 external managers and now that’s down to something like a dozen, mostly in specialty mandates.
The total budget hasn’t changed much because the savings that we made, which are probably in the neighborhood of C$100 million, were redeployed – because our clients wanted to have more private equity, more infrastructure, more timberland and more real estate. So the total costs are still about C$250 million (not counting performance fees, which last year were sizeable). That’s a problem we’re willing to have.

What sets AIMCo apart from other Canadian pension plans?

We’re quite focused on unusual situations. We might have a real estate opportunity that looks a bit like private equity or a timberland opportunity that has a bit of real estate aspect to it. Those kinds of hybrid opportunities tend to be where we like to go, when we can find them. We’d also like to be known as a very good partner. I remember a transaction where one of our board members said “You could have made a lot more money off that deal.” We probably could have, but in the long run, being known as a reliable partner who treats fellow investors fairly will get you good returns – and you won’t have to squeeze for the last nickel to get there. That makes certain people come to you that otherwise wouldn’t come.

What is your current ratio of direct versus fund investments?

We’re trying to do about 70 percent direct and 30 percent eventually. We’re probably still somewhere around 50-50.

Have Canadian pensions demonstrated an ability to be successful lead investors?

The longest history of direct investing belongs to Ontario Teachers’ Pension Plan: I think when you look at their track record, it would suggest there is skill there. In doing illiquid direct investments ourselves, just the transactions cost savings were C$25 million last year. That’s not insignificant. As long as you can attract the [direct investing] talent, you should be able to do the same things that these other funds do. Not in all cases do they produce the excess returns of their colleagues. 

You’ve said that AIMCo is keeping its eye on “game-changing” technologies. What are some examples?

One of them is Bloom Energy. It uses a catalytic process that takes in natural gas and produces energy on the fly, so it’s become a very attractive technology to power applications like data centres, where reliability of generation is very, very important, because data centres cannot afford to go down. Reliability of supply is also why companies like Wal-Mart, FedEx and Google are very interested. Another investment is Kior. It takes in biomass and within a fraction of a second turns it into synthetic oil that can almost directly be used in a jet engine or diesel engine. That technology is very, very promising. These are probably ideas that will be a part of the biggest energy revolution in 100 years. ?