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Alberta Heritage Savings Trust Fund sees negative 4.1 per cent returns

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After the Alberta Heritage Savings Trust Fund reported a 4.1-per-cent loss on returns in the first quarter, officials say that’s largely because of hits to the stock market.

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The report released on Aug. 31 for the period ending June 30 saw the fund’s market value decline by about $900 million, to $19.1 billion from a high of $20 billion at the end of last year. After deducting some $1.2 billion earmarked for the province’s general revenue fund, its assets were estimated at about $17.9 billion.

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At a legislature committee meeting Monday, Lowell Epp, an assistant deputy minister in Treasury Board and Finance, said the first quarter results were not unexpected.

“I’d like to bring you good news, but the first quarter was anything but,” said Epp, adding the fund’s mandate is to maximize returns over the long term, so it has to take risk.

Over the past five years, it’s had an average return of 6.5 per cent, which is just above its target of 6.4 per cent.

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The challenges faced by the Heritage Fund, the province’s long-term piggy bank, aren’t unique and the report noted that they have affected asset managers on a global scale.

“Rising interest rates and global growth concerns are both large factors that influence the value of investments, which is evident in the performance results,” it noted.

The decline in value was driven mostly by public equity holdings — stocks traded on exchanges — which made up 37.6 per cent of the fund’s total investments, but fixed-income investments that typically include less-risky bonds also took a 4.6 per cent hit.

Alberta Investment Management Corporation (AIMCo) CEO Evan Siddall told MLAs on the committee it’s impossible to say if the fund will recover its losses this year, as quarterly reports reflect a snapshot of the market and make estimates about how much assets are worth.

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“They do fluctuate a lot and long-term a investor can tolerate those fluctuations, and we certainly hope to regain those losses, but … I would not predict or promise that. I don’t have that crystal ball,” he said.

Sandra Lau, chief investment officer at AIMCo, said in general, stock markets saw a decline of 10 to 16 per cent, depending on the region.

“We have seen a drastic sell-off in the stock market in the last quarter, which is the worst quarterly (sell) off we’ve ever seen since the COVID crisis,” Lau said.

The fund benefited from gains to what it calls “inflation sensitive investments” including infrastructure and real estate. Those earned 4.6 per cent and made up 33.6 per cent of the total portfolio over the quarter.

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With its last fiscal update, the UCP government pledged to add $3 billion of it’s $13.2-billion projected surplus to the Heritage Fund.

At the committee, Siddall also touched on AIMCo’s goals of expanding investments internationally, including in Asian markets, and towards “transition finance” investments in a lower-carbon intensity economy.

“While we believe there will be a future for hydrocarbons in the world, the net-zero commitments of some will require additional discipline around de-carbonization. We think there’s money to be made for long-term investors in that area and we’re exploring opportunities there,” he said, adding the investment manager plans to present a new investment strategy to its board in a couple of weeks.



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