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Growth in a time of uncertainty

February 23, 2016 Raymond Gariepy, Special to the ATA News
Despite turbulent economic times, the Alberta Teachers’ Retirement Fund is experiencing growth in its assets and staffing levels under CEO Rod Matheson (left), chief investment officer Derek Brodersen and vice-president of pension services Peggy Corner.

The Canadian loonie is in tatters, oil prices are tanking and markets are manic, so it’s no wonder that grim-faced fund managers are exhausted from monitoring countless computer screens and hoarse from yelling “Buy! Sell! Sell! Sell!” into their phones.

Except that’s not the case at the offices of the Alberta Teachers’ Retirement Fund (ATRF), where a recent visit revealed no signs of stressed staff popping blood pressure medication or financial reports that read more like victim impact statements.

Instead, what was evident was a calm work environment and a chief executive officer who offered an upbeat description of a plan that’s experiencing robust growth and healthy returns.

“ATRF is a good news story and members should know,” said CEO Rod Matheson.

The fund has posted average annual returns of 12 per cent over the last four years and, in a period of unprecedented growth, has more than doubled its assets since 2009. Back then, the plan was worth $5 billion. Today, it’s worth more than $12 billion and is projected to be worth $20 billion by 2020.

“I wouldn’t call that evolutionary change. That’s almost revolutionary change,” Matheson said.

He attributes the growth spurt to a 2007 memorandum of agreement (MOA) between the ATRF and the Alberta government. Under the agreement, the government assumed responsibility for teachers’ share of an unfunded liability, a commitment worth about $2.2 billion.

The agreement was historically significant and a game-changer for teachers and their pension plan, Matheson said. Since 2007, active teacher members have been paying more into the plan than retired members have been drawing out in pensions, which means returns on investments remain in the fund and keep compounding, Matheson said.

Global portfolio
ATRF’s investment portfolio is managed globally, said Matheson, who has 30-plus years in finance and investment management with the provincial government.

The responsibility of watching over this portfolio falls mainly to chief investment officer Derek Brodersen, who has been with the teachers’ pension plan for 19 years and has extensive education and background in banking and investments.

Does overseeing $12 billion keep him awake at night? Brodersen acknowledges that at times he wonders if he’s invested wisely. But a major failsafe mechanism of the fund is diversification, which means that not everything is performing the same way at the same time. While some assets may decrease in value, others are increasing in worth.

Before 2009, ATRF’s investments were primarily in traditional vehicles like bonds and public equities. Since 2009, however, ATRF has invested in non-traditional asset classes like private equity, real estate and infrastructure — assets that may not show significant yield until 10 years down the road.

These non-traditional assets are labour intensive and “aren’t the kind of assets you just buy and forget about,” Brodersen said. For example, when a tenant vacates real estate owned by ATRF, a new tenant must be found.

What about Canada’s nose-diving currency? Well, Brodersen sees this as an opportunity. A faltering loonie opens doors. Canada’s manufactured goods become more attractive abroad and foreign companies will be drawn to Canada because of lower operating costs. The Canadian dollar value of ATRF’s American real estate holdings increases whenever the loonie drops.

Brodersen concedes that ATRF faces challenges as it explores new assets in which to invest. Globally, real estate, private equity and infrastructure are courted by many wealthy suitors.

“What’s attractive to us as a pension fund is attractive to other pension funds. Assets don’t come to you; you have to find them,” he said.

Investing globally to reap riches in far-flung countries can be a touchy subject. Does the asset meet ATRF’s ethical benchmarks? Brodersen acknowledges that investing ethically isn’t cut and dried. What one person considers ethical may be viewed as unethical by another. A good example is Alberta’s oil sands. Some people believe the oil sands are bad for the environment and should be shut down, whereas many others see wealth in oil extraction.

Brodersen articulates ATRF’s investment philosophy this way: “We have a fiduciary responsibility to our plan members. We are looking out for their retirement income and we do our best to ensure investments are wise, prudent and ethical.”

Staffing complexity
While its assets have more than doubled in just over six years, ATRF’s operation has quadrupled in terms of complexity, Brodersen said. This has brought rapid growth to ATRF’s staff complement. Ten years ago, the organization had half the number of staff that it has now, which would be about 80 if all the positions were filled, Matheson said.

But filling these positions is difficult even though Alberta produces many qualified university graduates in the areas of business management and economics, Brodersen said.

“Some skill sets are uncommon because they are honed by years of experience … and a particular skill set is likely more readily available from Toronto, Canada’s financial centre,” he said.

Despite the recruitment challenges, over the next five years, Matheson foresees significant staffing growth across all levels of staff in both of ATRF’s “core businesses”: investing plan members’ money and providing pension services. By 2020, ATRF’s staff will be about 140, Matheson estimates.

“That’s tremendous growth. We’re in a growth mode because the plan is growing,” he said.

The addition of 50 to 60 employees will further squeeze ATRF’s office space. A tour of the fifth and sixth floors of Barnett House, which ATRF currently occupies, confirms that office space is maxed out, with some staff crowded into cubicles no bigger than bus shelters.

“We have almost outgrown the space we have,” said Matheson.

The Alberta Teachers’ Association is converting second-floor meeting rooms into offices for ATRF.

Amongst Alberta public sector plans, ATRF is unique with respect to its physical needs because it’s a “completely-under-one-roof pension plan,” Matheson said. That’s why one option on the drawing board is for the Association to build new office space for ATRF.

In the end, whatever the decision, “we have to do what’s right for plan members,” Matheson said.

Heart of the operation
If ATRF’s investment team represents the organization’s brain power, it wouldn’t be a stretch to say that Peggy Corner is the organization’s heart. As vice-president of pension services, Corner oversees ATRF’s benefit information specialists and the staff who assist teachers with their inquiries.

An employment engagement survey of members conducted last fall earned a positive “engagement score” of 83 per cent. Furthermore, a biennial survey conducted in 2015 found that 95 per cent of plan members rated ATRF’s services and communication as “good” to “excellent.”

Corner emphasized that people contact is really important to ATRF. A snapshot of ATRF’s 2015 annual report shows that, last year, the pension fund held almost 800 personal interviews with teachers at ATRF offices and conducted a further 1,110 interviews around Alberta. About 600 teachers attended seminars offered at teachers’ conventions, and an additional 1,250 attended seminars offered in 19 locations across the province. Staff handled about 3,000 email inquiries and processed 1,080 online pension applications, almost half of which were submitted online.

Corner says ATRF endeavours to “provide services the way plan members want” and to provide “enough channels for plan members to find what’s right for them.”

Although delivering pension plans is a “steady-state business environment,” Matheson noted that the investment side is changing, the communications needs of members are evolving and the delivery of services to members is changing. And it’s no small feat to deliver services and communicate with approximately 78,000 plan members.

One of those delivery/communications channels is the relationship ATRF has with ATA retirement consultants. These consultants organize preretirement sessions for teachers all over Alberta and invite ATRF’s pension counsellors to present a seminar called Steps to Retirement.

Corner is noticeably proud of ATRF’s numerous communication initiatives. Pension benefits staff are a phone call away, and the organization publishes a members’ newsletter: Pension Points. ATRF’s website ( provides members with access to investment performance, plan services, members’ financial statements and ATRF’s annual report.

“Our most recent enhancements to the website include an interactive game in the Teachers’ Lounge called Who Told You That?! Plan members can test their pension plan knowledge by taking a quiz. We have also implemented Reggie the Registrar to assist plan members to register for MyPension or to retrieve a forgotten password,” Corner explained.

The interactive website provides answers to basic questions, so teachers contacting ATRF are better informed and focused with their questions. This proactive approach, Corner said, “gives members what they need even if they don’t know what they need.” ❚

Specialized teams handle service and investment

ATRF’s pension services department has 20 staff and its benefit services area has 13 staff, including pension counsellors who conduct personal interviews with plan members in the Edmonton office, as well as at locations throughout Alberta.

Counsellors also present ATRF’s seminars entitled Your Pension Matters and Steps to Retirement. Benefit information specialists calculate members’ benefits and process plan member data received from school boards. ATRF’s seven data services staff maintain active plan member and pensioner data.

On the investment side of ATRF’s operation, private equity and infrastructure assets are managed by a private investment team of 11 staff. A team of six staff manages the fund’s real estate portfolio while external property management firms handle the day-to-day management of all properties.

A committee of senior investment staff meets regularly to look at global markets. Staff working in investments have backgrounds in financial institutions, pension plans, investment firms, accounting firms and brokerage houses, as well as governments and utilities companies.

“Virtually all staff have business or economics degrees, some of which are MBAs. We also have accountants, business valuators, real estate appraisers, a lawyer and a lot of chartered financial analysts in the group,” said chief investment officer Derek Brodersen. “There’s a lot of brain power around here and it would be crazy for me not to take advantage of it.”

ATRF’s pension counsellors are available to meet one-on-one with active or retired plan members. During 2014-15, 800 members visited the ATRF office for a personal interview and 1,110 interviews were conducted at locations throughout the province.

Diversified holdings

Private investments associate Jordan Foote (left) and senior fixed income analyst Michael Rauf are part of a team of more than 30 investment professionals that manage ATRF’s assets.

Featured here is information about pension fund assets managed by the Alberta Teachers’ Retirement Fund (ATRF). Percentages of asset investments are from the ATRF 2015 Annual Report (

Traditional Investments
The bond market is an avenue for participants to issue new debt (primary market) or buy and sell debt securities (secondary market). New securities usually take the form of bonds, which may include notes and bills. About 26.5 per cent of ATRF’s assets is in fixed income: universe bonds (15.5 per cent), long-term bonds (9 per cent) and money market (2 per cent).

Public equity
A public equity market deals with equity securities that are listed on a stock exchange. About 43 per cent of ATRF’s assets are in public equity markets.

Non-Traditional Investments
Absolute return
Absolute return assets, which include managed futures, hedge funds and other multi-asset strategies, are invested using a strategy aimed at achieving investment returns that are relatively stable and largely uncorrelated with more traditional assets. About 10 per cent of ATRF’s assets are defined as absolute return. All of these assets are managed by external investment partners.

Infrastructure investments involve investing in the basic physical systems of an industry or a country — roads, bridges, ports, pipelines or power grids. An example of an ATRF infrastructure investment is South Staffordshire Water, a regulated utility in central England that supplies fresh water to approximately 1.5 million residents, said Derek Brodersen, ATRF’s chief investment officer.

About 4 per cent of ATRF’s assets are in infrastructure.

Private equity
Private equity involves investing in companies that are privately owned and not publicly traded on a stock exchange. An example of an ATRF private equity holding is Norwegian software services company Visma, which provides enterprise software, outsourcing and consulting services to hundreds of thousands of customers throughout Scandinavia and northern Europe, Brodersen said.

About 8.5 per cent of ATRF’s assets are in private equity.

What’s involved in managing private equity and infrastructure?
ATRF invests in private equity and infrastructure through limited partnerships and investment funds. The plan also frequently invests directly in companies alongside those fund managers, which gives ATRF a greater ability to manage diversification in the portfolio and reduce its costs, Brodersen says.

Teams that manage ATRF’s infrastructure and private equity portfolios travel frequently when meeting with current or potential investment partners, and when conducting detailed due diligence on specific investment opportunities.

Real estate
ATRF’s real estate investments are in income-producing properties, such as office buildings, retail centres and apartment complexes, says Brodersen. One of ATRF’s real estate investments is 61 Broadway, an office building in the heart of Manhattan’s Wall Street financial district.

About 8 per cent of ATRF’s assets are in real estate.

What’s involved in managing real estate?
In some cases, ATRF partners with firms that are experts in a particular property type or geographical area. ATRF agrees on a strategy with each firm, which is then responsible for executing the strategy. The strategy might involve a minor renovation, a significant development or a change in the leasing approach.

“When ATRF owns a controlling interest in a property, our internal team makes all critical decisions but outsources the day-to-day management of the property (for example, collecting rent, paying bills, clearing snow, cleaning windows) to a property management firm,” Brodersen said. “In general terms, our real estate team is involved in all the significant decisions that could impact the value of our investment and outsources the less critical decisions.”

When contemplating real estate acquisitions, ATRF staff visit the actual site, whether it’s a shopping mall, office building, industrial warehouse, apartment complex or vacant land. ❚

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