A billion is BIG! In money terms, it’s a stack of crisp $100 bills 1.6 kilometers high (not end-to-end; we’re talking pancake-style).
So Sandy McPherson and his four – yes, just four! – staff manage the equivalent of a 4-kilometer pile of $100 bills for Edmontonians.
Sandy’s the City of Edmonton’s Chief Investment Officer. He and his three-man, one-woman team of portfolio managers and investment analysts are charged with managing, growing and producing revenue from fully $2.5 billion in the City’s endowment, pension and long term disability funds, working capital and reserves.
And they’ve done a bang-up job of performing over the years! Their results have been in the top 25% compared to similar fund managers.
Over the last decade, their efforts have produced $750 million in investment income that the City uses to fund capital projects. Moreover, the added value of the funds, as compared to their benchmarks, has been more than $200 million.
“If previous and current politicians had not been as wise about establishing and protecting these enormous pools of money, taxes would have had to rise by 7.5% 10 years ago, and stayed there ever since,” says Sandy.
He notes it would have been very easy for the City to spend the $465 million revenue from the sale of Edmonton Telephones’ in 1995. Instead, Council created the Ed Tel endowment fund, which has since grown to more than $800 million and has produced more than $660 million in dividends to help keep property taxes down.
“We’re very lucky we have that fund,” he says, “not many cities have endowment funds of any kind.”
Sandy’s team manages about half of the funds internally. Internally-managed funds are mostly fixed income, but the team’s mandate has recently expanded to include large-cap Canadian equities (stocks).
Ten external management firms, who have won rigorous competitions for the right to manage slices of the balance of funds, each have detailed mandates from the City that focus them on specific kinds of investments.
“We’ve diversified our investments all over the world and amongst many asset classes. That’s all to reduce risk and, at the same time, maximize revenue to benefit taxpayers,” he says.
Sandy says one of the keys to the investment team’s success is that they have taken progressive steps to broaden and deepen the City’s investment portfolio.
“A great example of broadening is our move into some investments in global infrastructure. We have stakes in wind farms in both Australia and Ontario, renewable energy projects in the UK, and several Canadian Public-Private-Partnership (PPP) projects.
“And we’ve increased our depth by recently freeing up some of our management firms to expand from investing only in large-cap companies, allowing them to find the hidden gems in medium- and small-cap markets as well.”
Sandy’s excited about his team and their success; you can tell as he describes their strengths in his mile-a-minute conversational mode, which very likely reflects the number of things he must have to think about every day.
“I’m really a hands-off manager,” he says. “I try to keep to the big-picture and the general direction and let the team do their excellent work.”
“This work is extremely fulfilling. The team is great, and the markets are very dynamic … we have to stay on our toes all the time.”
The management of our funds is overseen by an investment committee appointed by the City Manager. It includes five external business and investment leaders, and two internal members.
A testament to the respect Sandy’s team has earned from the investment community is the fact that Sandy is an external member of both the City of Calgary and the University of Alberta’s investment committees.