AIMCo earned 7.5 per cent return last year as stocks propped up private assets

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Alberta Investment Management Corp. aims to take advantage of pressure in private credit and infrastructure, positioning itself as a buyer when some fund managers sell off assets to raise cash.

The Alberta-based pension fund manager made a 7.5-per-cent return last year as stocks did well and private assets struggled, according to a news release.

The diverging performance of public and private markets was a key reason why AIMCo fell short of its internal benchmark by 2.7 percentage points. More than a third of its assets are private, but those portfolios are generally measured against stock indexes that surged in value last year.

AIMCo’s balanced fund – which reflects a typical mix of assets held by its 17 core clients – earned 7.6 per cent in the year that ended Dec. 31, and missed its benchmark by the same margin.

The balanced fund has an average annual return of 7.2 per cent over 10 years.

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After a tough start to the year, when tariff threats and policies shocked markets and AIMCo earned 2 per cent through the first six months, the fund’s full-year performance was “a nice improvement,” chief investment officer Justin Lord said in an interview.

AIMCo invests on behalf of pension, endowment, insurance and government clients in Alberta. Total assets increased to $194.7-billion, compared with $179.6-billion a year earlier.

AIMCo’s portfolio of publicly traded stocks gained 19.4 per cent, propping up the fund’s performance. But its private equity portfolio earned just 3 per cent, while infrastructure increased by 3.3 per cent and real estate lost 2.2 per cent.

“It was a challenging year for private asset classes,” but those investments “offer important diversification within our clients’ asset mix over a longer period of time,” Mr. Lord said.

At a bleak moment in private markets, however, AIMCo is spending more time looking at potential deals, “in infrastructure in particular,” Mr. Lord said.

Upheaval in regulatory policies drove down valuations for some assets, he said, and as the market adjusts, some of the deals available now offer more attractive rates of return.

“There’s a fairly extensive opportunity set in the infrastructure asset class right now that the team is focused on,” Mr. Lord said.

That could include infrastructure assets in Canada if they meet the bar for expected risk and return, he said.

AIMCo also sees an opportunity in private credit, a market in turmoil after several large funds faced a rush of redemption requests from investors. The pension fund earned 7.9 per cent on its private debt and loan portfolio last year, and “we’re of the view that this asset class will continue to grow,” Mr. Lord said.

The gloomy sentiment stems mostly from liquidity issues some funds are having as nervous clients try to pull money out, he said. And that gives an advantage to funds with cash to deploy and patience to wait for loans to be repaid.

AIMCo is in a position “to take advantage of dislocations should they present themselves,” he said.

So far, AIMCo hasn’t seen a change in the rate of defaults or loans showing signs of strain, he added, “but we’re certainly spending time stress testing the book.”

The losses in AIMCo’s real estate book reflect “a slow bottoming process for the real estate market in general,” Mr. Lord said. But AIMCo is “seeing attractive deal flow,” especially in residential and industrial properties, as well as retail outlets that sell necessities.

He also said it is a priority to name a new head of the pension fund’s real estate arm, a role that has been vacant since last summer, and overseen by global head of real assets Peter Teti in the meantime.

Since Mr. Lord was named CIO last summer, he has reviewed AIMCo’s investment strategy. Rather than making any major pivot, he said he focused on centralizing key functions and on managing risk and liquidity to allow the fund to be flexible.

AIMCo’s annual report, which breaks down the fund’s performance in more detail, will be released in June.