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Alberta Targets $173 Billion Fund to Wean Itself Off Oil Revenue

Scott Crockatt, vice president of communications and external relations at the Business Council of Alberta, talks about the influence of Trump's energy policies

(Bloomberg) -- Canada’s top oil-producing province of Alberta plans to boost its wealth fund roughly tenfold to C$250 billion ($173 billion) by 2050 in a bid to wean itself off volatile natural resources revenue.

The government formed a corporation to oversee the C$24.3 billion Heritage Savings Trust Fund and seek opportunities to raise returns to 9% annually from about 7% now, it announced Wednesday. It also passed legislation that requires the fund to reinvest its returns rather than distribute them to the province. 

Provincial pension fund manager Alberta Investment Management Corp. will continue investing the C$25 billion currently in the Heritage Fund, and the new Heritage Fund Opportunities Corp. will set guidelines for managing that money. 

The new entity will also directly oversee a C$2 billion injection to the Heritage Fund this year, focusing on partnerships with other global investors and investing in “areas that matter to Albertans, such as technology, energy and infrastructure,” a news release said. 

The goal is to reduce Alberta’s reliance on resource revenue, which makes the province “susceptible to the highs and lows of global energy markets, which can change rapidly and unpredictably,” the government said. 

Alberta projects it will collect C$20.3 billion in non-renewable resource revenue in the current budget year — largely driven by higher royalties for oil sands bitumen — which accounts for more than a quarter of its total inflows. 

“When the royalties dry up or start to become significantly smaller, the only tool a government has is to seek more revenue through the tax base,” Alberta Finance Minister Nate Horner said in an interview. “By being diligent and allowing this to grow, by the time we get to C$250 billion, we’ll have the ability to use this in an annual way to help offset revenue needs within government.”

Horner didn’t share the size or budget for the new Heritage Fund corporation, beyond saying it will be “quite small” in comparison with Aimco. Joe Lougheed, a partner at the Dentons law firm and the son of former Alberta Premier Peter Lougheed, will chair the new entity.

The projection for 9% annual returns would outperform the 6.3% annualized return generated by Norway’s sovereign wealth fund since 1998 and the 6.8% annualized return of the Abu Dhabi Investment Authority over the past 30 years. 

The projection would also beat Aimco’s 6.1% average annual return in the five years through 2023. The Ontario Teachers’ Pension Plan, which manages about C$256 billion in assets, on par with Alberta’s goal for the Heritage Fund, averaged 7.2% in the five years through 2023.

Horner said Alberta’s new manager will be able to outperform its larger rivals because of its smaller size, adding that the 9% target is “relatively conservative.”

“Our size allows us to be quite nimble, especially in the early days, and seek out those great deals,” Horner said.

--With assistance from Layan Odeh.

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