March 31, 2023 (fiscal 2023) costs of $993 million increased compared to the budget of $895 million largely driven by calendar year 2022 investment performance in excess of benchmarks and four-year average performance results which included the strong calendar year 2021 performance. Strong calendar year 2021 performance was a key driver contributing to the $1,074 million of costs in the prior year. Total four-year fund return of 5.9% outperformed the benchmark of 5.3% and resulted in total excess returns, net of costs, of 0.6%. AIMCo’s performance costs are partially driven by performance measures which include four-year average returns.
Third-Party Costs Before Performance
Third-party costs were lower than budget driven by the softened public investment market that has depressed external assets under management on which the fees are based and reduced third-party management fees to $386 million. The increase in third-party costs compared to the prior year is driven by the full year cost impact of the assets from Alberta Teachers’ Retirement Fund (ATRF), Workers’ Compensation Board of Alberta (WCB) and Alberta Health Services (AHS), which were largely externally managed, that transitioned in the prior year.
Third-party pursuit costs are non-recurring in nature and are based on the amount of capital deployed, number of investment pursuits and complexity of each investment activity resulting in cost fluctuations in any given period.
AIMCo Costs Before Performance
AIMCo costs before performance were $222 million or 10% higher than budget. The variance to budget is primarily due to strategic initiatives to develop AIMCo’s Corporate Strategy. The increase over the prior year was also driven by growth in headcount to support the assets transitioned from ATRF, WCB and AHS and escalated system maintenance and data costs.
Performance costs are difficult to budget as they largely depend on future investment performance. Total performance costs of $358 million for fiscal 2023 were driven by strong performance from third-party fund managers that delivered returns in excess of benchmarks and AIMCo’s strong four-year investment performance.