WHAT
IS THE VALUE OF THE ALBERTA HERITAGE SAVINGS TRUST
FUND?
On November 15, 2006, Finance Minister
Shirley McClellan released the Alberta
Heritage Savings Trust Fund 2006-07 Second Quarter
Update that states the Fund’s fair
value stood at $15.4 billion as of September 30,
2006, an increase of $2.8 billion from September
30, 2005.
Investment income is expected to
be $1.15 billion, an increase of $237 million from
the Fund’s original budgeted income at the
beginning of the fiscal year.
Budget 2006 included a $1
billion deposit into the Heritage Fund. In September,
$400 million of this amount was transferred to the
Fund, along with $250 million for the advanced education
endowment.
Net investment income earned by the
Heritage Fund, less the amount retained in the Fund
for inflation proofing, is transferred to the Province’s
main operating fund, the General Revenue Fund. For
2006-07, $283 million will be retained in the Heritage
Fund for inflation proofing.
Since the Heritage Fund was created
in 1976, nearly $29 billion has been allocated to
fund Albertans' fiscal priorities including debt
repayment. The Heritage Fund played a large role
in the province becoming debt free.
IS
THE HERITAGE FUND FORECAST TO MAKE MONEY THIS YEAR?
Yes.
The Alberta
Heritage Savings Trust Fund 2006-07 Second Quarter
Update forecasts investment income of $1.15
billion.
Net investment income earned by the
Heritage Fund, less the amount retained for inflation
proofing, is transferred to the Province’s
main operating fund, the General Revenue Fund. For
2006-07, $283 million will be retained in the Heritage
Fund for inflation proofing.
HOW
MUCH MONEY IS THE GOVERNMENT PUTTING INTO THE HERITAGE
FUND THIS YEAR?
The government has committed to a
$1 billion deposit into the Heritage Fund from the
estimated 2006-07 fiscal year surplus, along with
a $283 million allocation to the Fund for inflation
proofing. This is on top of a $1 billion deposit
and $382 million for inflation proofing in the 2005-06
fiscal year.
The Access
to the Future Act was proclaimed on October
6, 2005 and provides for the transfer of up to $3
billion from the General Revenue Fund to the Heritage
Fund for the purpose of supporting post-secondary
education. In 2005-06, $750 million was placed in
the Heritage Fund for the advanced education endowment.
An additional $250 million was deposited into the
Fund in September 2006.
WHAT
HAPPENS TO THE INVESTMENT INCOME EARNED BY THE HERITAGE
FUND?
The investment income earned by the
Heritage Fund, less the amount retained in the Fund
for inflation proofing, is transferred to the province's
main operating fund, the General Revenue Fund, to
help pay for priority programs.
Over the past 30 years, investment
income from the Heritage Fund has benefited Albertans
in many ways. More than $28.6 billion in investment
income has been transferred to the province's General
Revenue Fund to support program spending in areas
such as health care, education, infrastructure,
debt reduction and social programs.
HOW
IS THE HERITAGE FUND INVESTED?
The investment
objective of the Fund is to optimize long-term financial
returns subject to an acceptable level of risk.
It is
a balanced plan based on two important concepts:
diversification to manage risk, and a long-term
planning horizon to earn greater returns.
The Heritage
Fund's portfolio consists of stocks, bonds and real
estate, private equities and absolute return strategies.
About
half of the Fund is invested in equities. Historically,
equities have outperformed fixed income securities
over the long-term.
A good
example of this would be $100 invested in bonds
in 1925 would be worth approximately $6000 today;
however, if the same $100 were invested in the equity
markets, it would be valued at over $170,000.
By legislation,
Alberta Finance operates under the "Prudent
Person Rule". This assigns to the investment
manager the responsibility to restrict investments
to assets that would be approved by a prudent person.
WHO
KEEPS TRACK OF THE FUND'S INVESTMENTS?
The investment
portfolio of the Heritage Fund is managed by a group
of highly qualified and experienced professionals
in Alberta Finance's Investment Management Division
(IMD). External managers (specialized private sector
investment managers) are also used to manage specific
investment mandates. See the Provincial
Investments section for more information on
IMD's responsibilities.
The Ministry
of Finance is responsible for the Fund and its investments.
The Minister of Finance is required to report on
the performance of the Fund quarterly within 60
days of the end of the quarter and make public the
annual report within 90 days of the end of the fiscal
year.
The Standing
Committee on the Alberta Heritage Savings Trust
Fund reviews and approves the business
plan and annual
report of the Fund. The Standing Committee has
representation from the major parties of the legislature.
The Standing Committee receives regular reports
on the performance of the Fund and conducts public
meetings on an annual basis in different locations
in the Province. The purpose of these meetings is
to update Albertans on the management of the Fund
and to solicit input from Albertans.
The business
plan of the Heritage Fund is published as part of
the provincial budget and the income of the Fund
is consolidated into the revenue of the Province.
An Investment
Operations Committee (IOC) was established to add
private sector financial and business oversight
of the Fund's investment policies and operation.
The IOC is chaired by the Deputy Minister of Finance
and consists of private sector members. The Committee
reviews and makes recommendations with respect to
the business plan, annual report and investment
policy statements for the Fund, meeting at least
quarterly to review performance and fund management.
ARE
THESE INVESTMENTS SECURE?
As mentioned
previously, the key to sustainable performance is
maintaining a diverse portfolio with a long-term
focus, prudence, and investment discipline.
The Heritage
Fund has a significant commitment to equities because
it is managed to earn higher returns over the long-term.
Equity investments can lead to variations in the
amount of income earned from year to year, but they
are proven to earn greater returns. Therefore, steps
are taken to manage any risk and protect the Heritage
Fund's assets. The Fund's managers make investment
choices based on the Prudent Person Rule, which
means they only make investment choices that would
be made by a prudent investor. Also, assets are
held across market sectors. The government doesn't,
as the expression goes, "put all its eggs in
one basket."
WHY
DID THE GOVERNMENT CONDUCT ANOTHER PUBLIC CONSULTATION
ON THE HERITAGE FUND?
The government
first asked Albertans about the future of the Heritage
Fund in 1995. From the consultation entitled, "Can
we interest you in an $11 Billion Decision?",
Albertans told government to keep the Fund, but
they also told government to take another look when
the province's financial picture was more certain.
The financial
situation of the province is in order, so it was
time to look at the Fund again.
Looking
Forward: Planning the Future with the Alberta Heritage
Savings Trust Fund was conducted in the fall
of 2002, and the
results were released in March 2003.
Over 77,000
Albertans responded to this survey on the Heritage
Fund's future. Overall, the results show that most
Albertans (61 per cent) want the Heritage Fund to
continue to operate as an endowment fund.
Albertans
value the Heritage Fund, and it is government's
responsibility to ensure it will continue to play
an important role for future generations.
HOW
DO I FIND OUT MORE?
You can
find out more about the Heritage Fund by mail, phone,
fax or email, or by contacting your MLA's office.
MAIL |
Heritage
Fund
Room 304, Terrace Building
9515 - 107 Street
Edmonton, Alberta, T5K 2C3 |
PHONE |
Our
general information line at Alberta Finance
Communications:
(780) 427-5364 (to be connected toll-free,
dial 310-000, then the number). |
FAX |
(780)
427-1147 |
EMAIL |
To
submit your questions and comments online,
please visit: www.albertaconnects.gov.ab.ca |
MLA |
Your
MLA's office. (www.assembly.ab.ca) |