Thread by @yomeeks

This is your daily pension announcement: I have a nightmare every night. It goes like this: AIMCo is in the Minister of Finance's ear telling him a whole bunch of untruths about saving money by moving ATRF assets to AIMCo. #handsoffmypension #noireallymeanit

So many of you are coming back from meeting your MLA with "this will save each teacher $500 per year". Not true. In my nightmare AIMCo under-performs by 1% each year which costs teachers and the GOA a full $200 million each and every year. #ABteachers #whocausedarecession

Let me explain where the $500 dollars "savings" allegedly comes from. AIMCo has said they can reduce investment costs of ATRF assets by 0.2% of assets an almost $20 billion dollar plan. That is $40 million saving split equally between the contributing GOA and teachers.

So with nearly 40,000 teachers saving $20 million means saving $500 each. This falls down on the assumption that AIMCO can earn the same return or better than ATRF. They have a low probability of doing that. In a future tweet I will go into how we can estimate that probability.

Today I want to explain investment costs and ask the question: can AIMCo reduce costs by 0.2% of assets? (Spoiler alert the answer is not likely.) ATRF investment costs last year were $0.84 per 100 dollars. So to invest $100 of our assets it cost 84 cents.

Good deal since that investment made money. AIMCo last year had a cost of $.53 per 100 dollars invested. You can just picture AIMCo telling Travis "hey we can bring that cost down by $0.20". As I pointed out in a previous tweet bigger is better with economies of scale. #donttouch

The economies of scale really only apply to conventional stock and bond portfolios; as soon as we move into private equity, real estate and infrastructure this correlation falls down.

Let us cut apart ATRF investment costs of $0.84: it is made up of two components $0.17 operating costs $0.67 management and performance fees.

AIMCo operating costs are about $0.12 per hundred. So, conceivably they could move ATRF operations from $0.17 to $0.12 and voila we would save $0.05 (that $5 million)! But wait, they told Travis that could save $0.20 per $100.

One can reasonably conclude that AIMCo told the minister they could save the remaining $0.15 per $100 from management and performance fees.

AIMCo should know that most of those management fees are coming from private equity, real estate and infrastructure which are usually locked up for 7 – 10 years, so IF there was cost savings there it would take at least a decade to see.

And as has been pointed out, these asset classes for AIMCo under perform ATRF’s historically by a substantial margin..

But that is not the worst....

AIMCo should know that the performance “fees” are not really fees at all, they are profit sharing arrangements paid to partners upon success of the investment. AIMCo has lower performance fees because their assets, get this, do not perform as well.

So AIMCo wishes they had higher performance fees. It would mean their assets were performing better. The opening proposition was that AIMco could reduce costs by $0.20 a 24% savings. Upon further investigation I would conclude that they

could cut costs by $0.05 or a savings of 6%. Any other savings would not be had for at least 10 years if then. The rest of the cost savings would more likely come from under-performing assets which would cost (potentially) hundreds of millions in returns.

Never mind the substantial transition costs of moving the assets to AIMCo. #handsoffmypension #ABteachers

Keep fighting. We are on a mission from God. @TheTweetOfGod