leave it to de Bever?

I'm back in Alberta for the next month and should have some blogging opportunities that I haven't had since leaving at Christmas. It has been a month since the Alberta budget was announced and at the time the Wildrose Alliance proposed "saving" $2.41 billion by cutting capital spending in the current year. A point in need of emphasis is that this "spending" is not, in fact, spending in the economic sense because although it would reduce the bleeding down of a line item on the asset side of the balance sheet, the money is going back into another line item on the same (asset) side. The REAL issue is the conversion of investment into consumption, not the conversion of investment into other forms of investment. On that front, Wildrose has had little to say, leaving it to others to take the government to task with regards to REAL spending. On March 19 the Calgary Sun published an op-ed by Marcel Latouche, head of the Institute for Public Sector Accountability, where Latouche observed that "close to 60% of some governments’ operating costs are made up of wages and benefits" and that "the taxpayer can no longer suffer the burden of increasing labour costs while financing the huge pensions required in the coming years as a large number of baby boomer civil servants retire." The Alberta Federation of Labour discovered a provincial politician associated with IPSA, and he wasn't Wildrose but Progressive Conservative. Indeed, the AFL wrote to the premier demanding that PC MLA (and Housing and Urban Affairs Minister) Jonathan Denis "publicly disassociate himself from the IPSA."

But maybe Wildrose still has a point, namely that it is better that public money remain in the form of a financial asset (i.e. a fund managed by Alberta Investment Management) than a physical asset? Perhaps, if Wildrose actually advanced that thesis with some supporting argument. In fact, there is ongoing concern that AIMCo has interpreted its hard won mandate to operate at arm's length from the client (government) to mean its transparency obligations to the client are limited. With respect to due diligence, the record is less than perfect, an example being AIMCo failing to discover until too late the ownership interest that a party to a Mississauga property transaction had despite the fact that the person's sharing of a last name with Mississauga's mayor, who was also pushing the deal, should have raised suspicions that the person was not a "simple real estate agent" but the mayor's son with a conflict of interest.

AIMCo CEO Leo de Bever came to Edmonton in 2008 after two years as Chief Investment Officer for AIMCo's equivalent in Victoria territory, Australia: the Victorian Funds Management Corporation. De Bever was halfway through his contract at the time he left for Alberta. In 2007, VFMC put a billion Australian dollars into a fund that, under a previous name, had been sanctioned by Australian securities regulators in 2002 and 2003 and moreover had several shady directors. A PwC valuation later concluded that the investment had lost more than 40% of its value, and a law firm's review of VFMC's due diligence claimed that "Investigations lacked rigour and consideration of key matters seemed to be superficial or non-existent." Yet an Australian newspaper observed this month that VFMC "made headlines in 2008 when some of the biggest ever public sector bonuses were paid to executives who presided over the losses."

Now in the interests of full disclosure, I've repeatedly applied for positions within AIMCo (not least because they are the dominant employer of financial analysts in Edmonton) and their apparent unwillingness to hire me may lead some to conclude I'm just jealous of those whom AIMCo has hired for big bucks. But given that an opposition member in the Victoria assembly (who is now Treasurer for the territory) once said "we have grave concerns about the way the VFMC is being managed", one has to wonder how an Alberta opposition party can be so unconcerned with the way AIMCo is being managed that it recommends money remain under its managment over being converted into a physical asset and then markets the recommendation as deficit reduction. Is a new bridge certain to still be there for the Alberta's next generation whereas a financial asset would not be? Not necessarily. The point is rather that it this is a question worth considering.

Image credit: Ron Tandberg

UPDATE:

Liberal MLA Hugh MacDonald, who has easily been the most effective MLA on the Heritage Fund committee, questioned the government about the size of bonuses and costs ultimately paid by the taxpayer last December and again this month,