"Canadian pension funds are sort of sitting on their laurels and they've become less innovative," Leo de Bever told reporters Monday after AIMCo released its annual report.
"We have to get more innovative in different areas and we have to stretch ourselves. And stretching within existing asset classes means going for more difficult assets."
AIMCo is an Alberta Crown corporation that manages $80 billion in assets on behalf of 27 pension, endowment and government funds. Last year, AIMCo earned a total net return of 12.5 per cent, versus 10.2 per cent in 2012.
De Bever, 66, is planning to retire after six years at the helm of AIMCo. The hunt is on for de Bever's successor, but no timeline has been set for his departure.
De Bever said one opportunity that's "staring us in the face" is commercializing new technology — especially in the energy sector. That could mean improving the oilsands upgrading process or transporting crude more efficiently, among other things.
AIMCo said earlier this year it would allocate $500 million — about three per cent of the province's Heritage Fund — toward such investments. AIMCo is most interested in investing in technologies that are on the brink of becoming commercially viable, but need an injection of capital to get there.
"Energy is the area where commercialization of technology has the longest lead time," de Bever said.
But it can also deliver very strong returns long term, so "you have to have the courage of your conviction" to invest in it.
"Not to put too fine a point on it, when you look at the history of innovation, it's usually taken 20 or 30 years for new concepts to be embedded in the industry. As an economist, when I look at the energy industry in Alberta, we have to somehow figure out a way to take 20 years of innovation and implementation time and compress it into five."
AIMCo is targeting a 15 per cent rate of return on its innovation investment over 10 to 15 years, but de Bever said it could do better than that.
Investing in infrastructure is seen as a "ho hum" activity for pension funds these days, but it wasn't always the case.
De Bever recalls "no one wanted to touch it" during his time at the Ontario Teachers Pension Plan, which lasted from 1995 until 2004.
"They thought it was so weird relative to stocks, bonds, private equity and so on that I didn't find any champions to take it on," he said.
With a glum outlook for bonds, de Bever said investing in new infrastructure projects could be a good alternative.
Alberta, for instance, needs roads, bridges and electrical infrastructure to keep up with its growing population, said de Bever.
"I like to combine what's desirable with what's profitable, but it always has to be profitable for me to do it," he said.
It's easy to get discouraged by economic growth forecasts, but de Bever said he tries to look past them when deciding where to invest.
"I feel that if you don't like the future people spell out for you, then imagine a better one and figure out how you can implement it," he said.
"I don't have to solve the whole problem. I just have to solve the bit that I can get my arms around."
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