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June 24, 2002
Heritage Fund performs well despite turbulence in equity markets
Edmonton... The Alberta Heritage Savings Trust Fund increased in fair market value for the fiscal year ending March 31, 2002 to $12.4 billion, a net increase of $290 million over the previous year.
The combined Heritage Fund portfolio returned 4.2 per cent over a one-year period and generated realized income of $206 million. Income of $444 million from investments in bonds, notes, short term paper and $38 million in real estate investments was offset by losses of $276 million from investments in equity markets. The $206 million in realized investment income was transferred to the province's main operating account, the General Revenue Fund, to support program spending in priority areas such as health, education, and infrastructure, and to help keep taxes low.
"It was well documented through the quarterly reports that investment income dropped sharply due to weak equity markets, especially from the fallout of global events in September 2001," said Greg Melchin, Alberta's Revenue Minister. "Realized capital losses and write downs of stocks, especially in the technology sector, were key factors.
"However, the resilient Heritage Fund has weathered the storm. With the anticipated recovery in the Canadian, U.S. and global economies, investment income recovery should pick up steam in the next couple of years."
The transition of all Heritage Fund assets to the Endowment Fund will be almost complete by the end of June. The Endowment Fund is focused on maximizing long-term returns with an appropriate level of risk. As such, its investment policy includes an asset mix of 65 per cent equities and 35 per cent fixed income securities.
Generally, fixed income securities are less volatile and produce a steady stream of interest income. Equities are more volatile and produce capital gains or losses. Over the long term, though, equities produce higher rates of return than fixed income securities.
"Albertans expect to receive the greatest value for their savings within the context of appropriate risk. Over the long term, assets in the Heritage Fund will produce greater returns because of our greater commitment to equities. That said, we have a responsibility to protect these assets and we do that by holding a diverse portfolio, keeping a long term focus, and maintaining investment discipline," Melchin said.
Through its 26-year history, the Heritage Fund has generated approximately $25.6 billion in investment income that has enhanced quality of life in the province.
"We'll continue to ensure the Heritage Fund meets the province's long-term fiscal needs, and is used in a manner endorsed by Albertans," Melchin said.
As a part of its business plan, and through initiatives such as the Alberta Future Summit 2002 and the Financial Management Commission, Alberta Revenue continues a review of its savings policies, including the role of the Heritage Fund.
"Albertans should be assured they will have a say in the Heritage Fund's future. We've always said that no extensive changes would be made without consultation. After all, this Fund holds over $12 billion in assets that belong to the province, and most importantly, to present and future Albertans," Melchin said.
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For media inquiries, please contact:
Gordon Vincent
Alberta Revenue Communications
(780) 422-4591