N.B. pension fund managers accused of costing tech investors millions
Shareholders in failed electronics company say Vestcor-owned company inflated value of merger
The company that manages billions of dollars in pension funds for thousands of New Brunswick public sector employees and retirees is being accused of causing financial losses for hundreds of investors across Canada.
Fredericton-based Vestcor Inc. and one of its senior executives are the targets of a petition filed in British Columbia that is seeking court approval for a class-action lawsuit.
The company is accused of falsely inflating the value of a corporate merger between two technology companies.
According to the petition application, Vestcor was the majority shareholder in Exro Technologies, and “orchestrated and significantly influenced” Exro’s 2024 merger with SEA Electric Inc., in which Vestcor also owned shares.
Shareholders pursue lawsuit against N.B. pension fund manager over lossesExro paid $300 million to acquire SEA Electric after telling its shareholders that SEA would make $200 million in profits in 2024 — a figure that proved “delusional,” the court filing says.
“These facts and circumstances reflected within those representations were the basis of the grossly inflated valuation assigned to SEA Electric,” it says.
“Those purported facts and circumstances did not exist, or the manner of their representation in the material change report was false or misleading.”
It alleges Vestcor and its vice-president of equities Mark Holleran “did so in order to manage, or salvage, their significant investment in SEA Electric.”
The assertions in the petition have not been proven in court and Vestcor has yet to file a response.
“Our legal team is currently evaluating the merits of this lawsuit,” CEO Sean Hewitt said in an emailed statement.
“The claims have not been tested in court,” he added. “We have no reason to believe in their veracity.”
Sage Nematollahi, the lawyer who filed the petition on behalf of two shareholders, told CBC News that Vestcor “has lost a lot of money” as Exro’s majority shareholder, tying up “significant funds from pensioners in New Brunswick [with] this investment that has not done great.”
But in Hewitt's statement, he said the impact was “negligible” to the overall performance of Vestcor’s investment portfolios, estimating it at a fraction of one per cent of the total.
“Given the robust funded positions of our clients’ pension plans, and continued strong investment performance, there is no impact to the monthly income of pensioners,” he said.
The company managed a total of $23 billion in 2024 — an increase of $2 billion over 2023.
Vestcor, owned by the province’s two largest pension plans for civil servants and teachers, was created in 2016, replacing a government-owned agency.
It handles retirement plans for hospital workers, nurses, Crown corporation employees, provincial court judges, MLAs and others. It also manages other investment funds, including the University of New Brunswick’s endowment.
Exro was delisted by the Toronto Stock Exchange in October.
The company revealed in November 2024 that its revenue projections would fall far short of what it had claimed, recording a loss of $226 million, including a $211 million loss to the value of SEA Electric’s assets.
The losses led to “the complete collapse” of Exro, the filing says.
The petition alleges that Vestcor and Holleran “acted in bad faith and/or conflicts of interest” as “de facto directors and/or officers” of Exro.
The petition was filed by two shareholders, British Columbia resident Bryan Irwin, who held 27,500 common shares worth $22,000 at the time of the merger, and Ontario investor Mike Zienchuk, who had 900,000 shares worth an amount not disclosed in the court filing.
Nematollahi told CBC News that about 500 other shareholders have contacted his office about joining the lawsuit if it is certified as a class action case.
“There could be thousands of shareholders out there,” he said.
Zienchuk and another investor, Allan Crosier, have also filed a lawsuit in Alberta against Exro, two former company officials, the company’s financial advisors and its insurance underwriters.
Exro billed itself as a clean tech company that would design and build power electronics to improve the efficiency and cost-effectiveness of electric vehicles and energy storage systems.
Vestcor was a majority shareholder in Exro at the time of the merger and also held 14.3 per cent of preferred stock in SEA, meaning Vestcor was “acting both as a seller and a buyer,” the filing says.
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https://www.cbc.ca/news/canada/new-brunswick/auditor-general-pension-newbrunswick-vestcor-1.5925407
Auditor general recruits MLAs for help in dispute with N.B.'s pension body
MLAs to vote Wednesday morning on summoning Vestcor to the legislature to answer questions
· CBC News · Posted: Feb 24, 2021 6:43 AM AT
Auditor General Kim Adair-MacPherson asked New Brunswick MLAs Tuesday to
help her push Vestcor to release financial records so she can review
its pay and performance processes. (CBC)
New Brunswick's auditor general took a dispute over her authority to dig into the books of the body in charge of billions of dollars in New Brunswick government employee pension funds directly to MLAs Tuesday, a forum that has worked well for her in the past.
Kim Adair-MacPherson told MLAs in her report to the legislature's public accounts committee she has been refused full access to the financial records of Vestcor to review its pay and performance, and requested their intervention to avoid a court fight with the body.
"In our view, the Auditor General Act, as it stands, grants the Auditor General authority to audit Vestcor," said Adair-MacPherson in her report.
"To prevent future disagreements over access, however, we propose a regulation be added to the Auditor General Act to explicitly list Vestcor as an auditable entity."
Vestcor is the Fredericton-based organization set up to manage what is now $18 billion in New Brunswick government pensions and other funds.
It's jointly owned by the province's two largest public pension funds serving civil servants and teachers, but also oversees the retirement plans of hospital workers, nurses, Crown corporation employees, provincial court judges, MLAs and other groups.
Vestcor also manages other investment accounts, including University of New Brunswick endowment funds and nuclear waste and decommissioning funds for NB Power.
It used to be a Crown agency but was given its independence in 2016, in part, so it could market its expertise and manage funds for other out-of-province public bodies.
So far none have signed on, something the auditor general suggested should also be looked into.
She said she also has an interest in reviewing other issues, like how six-figure bonus payments to Vestcor executives are earned and calculated and how its investment strategy is performing.
In 2019, Vestcor paid its top three executives a combined $2.63 million, most of that in bonus and incentive pay.
Vestcor president John Sinclair earned $1.26 million in 2019, most of that from $882,721 in bonus pay. (Vestcor/YouTube)
In a statement posted on its website Vestcor disputed the Auditor General's contention she has the authority to review the body's operations.
"Our analysis and advice have indicated that the Auditor General should be much more limited with respect to access to Vestcor related information than what had been requested, " read the statement.
"We therefore have had to respectfully decline these requests to ensure we can continue to fulfill our contractual and other commitments to our clients."
In addition to wanting the province to order Vestcor to accept the authority of her office, Adair-MacPherson encouraged MLAs to call the body before the public accounts committee to ask their own questions about its operations.
"We're now five years later and some of the things [MLAs] were told have not panned out the way that they were led to believe," Adair-MacPherson told reporters.
"Decision makers have to agree that they want this entity subject to audit."
People's Alliance Leader Kris Austin made a motion for Vestcor to appear before the public accounts committee to answer questions. (Ed Hunter/CBC)
In her report, Adair-MacPherson reproduced letters back and forth between her office and Vestcor trying to arrange a review of materials the body claimed it is not required to disclose.
She said the effort dragged on for weeks and stalled the audit of the province's books until she could trust the valuation of pension assets the province was reporting in its own financial statements.
She said New Brunswick's comptroller had to hire an outside auditor for $30,000 to deal with the matter.
"It was in my view ridiculous the hurdles we had to go through to get to the point to finalize the statements," she said.
Vestcor recently upgraded its accommodations by moving its operations into two floors of a new office tower on Carleton Street, Fredericton's so called "sexiest building."
People's Alliance Leader Kris Austin made a motion to summon the body to answer questions. The committee is scheduled to vote on the matter Wednesday.
It's not the first time Adair-MacPherson has used her appearance in front of MLAs to ask for help.
'It's a simple fix,' says AG
In 2018, she told MLAs her office was underfunded and required a $1-million budget increase to properly do its job. It was a plea political parties immediately added to their election platforms that year and which the Higgs government delivered in its first post-election budget.
On Tuesday, she said she hoped taking her dispute with Vestcor to MLAs would generate support and another swift response.
"It's a simple fix. It's an easy clarification of the Auditor General Act," she said.
"It's my attempt to resolve the issue once and for all."
Exaggerated success: Province's pension managers profit from 'joke' target, analysts say
Pension analyst says benchmark is inappropriately low, managers being over rewarded
Robert Jones · CBC News · Posted: Apr 24, 2018 6:00 AM AT
Methinks Higgy et al can't deny that this is just one of my many comments before i ran for public office two more times N'esy Pas?
David Amos
Methinks there have been at least three lawsuits since Mr Higgs fixed things that lead to the creation of Vestcor I bet a lot of pensioners are upset by CBC big revaluation today Too bad so sad nobody listened to me in 2004 N'esy Pas?
Higgs faces angry retirees over pension changes
Apologizes for lack of consultation on proposed shared-risk model
Robert Jones · CBC News · Posted: Apr 17, 2013 7:07 PM AT
Some people might think it would come under the oversight of the Office of the Superintendent of Financial Institutions of Canada, but this statements clearly shows that it does NOT come under Federal legislation:
"The Pension Benefits Standards Act, 1985 (PBSA) and the Pension Benefits Standards Regulations, 1985 (PBSR) apply to federally regulated private pension plans. The Superintendent of Financial Institutions issues directives and specifications related to certain requirements under the PBSA and the PBSR and OSFI issues policy advisories and guidelines to assist plan administrators in meeting their legislative and regulatory requirements. These policy advisories and guidelines are available on this web site under the appropriate topic."
Source: https://www.osfi-bsif.gc.ca/Eng/pp-rr/ppa-rra/Pages/ard-lrd.aspx
Ditto for the Pooled Registered Pension Plans Act:
"The federal PRPP Act applies to PRPPs that are linked to employment that falls under federal jurisdiction. Areas of employment that fall under federal jurisdiction include work in connection with navigation and shipping, banking, inter-provincial transportation and communications, and any work of a local or private nature in the Yukon, Northwest Territories or Nunavut. The federal PRPP Act also applies to PRPPs provided to self-employed persons in the Yukon, Northwest Territories or Nunavut."
Source: https://www.osfi-bsif.gc.ca/Eng/pp-rr/faq/Pages/prpp-rpac.aspx
David Amos
Earnings by N.B. civil servant pension funds among lowest in Canada in 2020
Investment managers with Vestcor hit with pay cuts following 2nd straight year of below average results
Executives with New Brunswick's pension investment firm Vestcor had their performance incentives slashed by more than 20 per cent last year after the funds they invest for public employees, retirees and others earned some of the lowest returns in Canada.
It's the second year in a row Vestcor results have been near the bottom of Canadian pension plans but Vestcor's president insists that is to be expected from a conservative investment strategy in periods when stock markets are rising like they have for the last two years.
"The returns of our clients tend to lag (other) plans in periods of stronger equity market returns and do better in weaker equity market periods." wrote John Sinclair in an email to CBC News about the 2020 results.
Vestcor is the Fredericton-based organization set up to manage what is now $19.4 billion in New Brunswick government employee pension and other funds.
According to its latest annual report, Vestcor earned a return of 6.96 per cent on its holdings in 2020, for a gain of $1.27 billion.
In a news release, Vestcor called those "strong results". However the earnings ranked in the bottom quarter of more than 100 pension funds in Canada tracked by the Royal Bank's Investor & Treasury Services division .
According to that survey, the median return of defined benefit pension funds in Canada last year was 9.2 per cent, with plans in the top quarter of pension plans earning 11.58 per cent and above.
That places earnings by Vestcor in 2020 about $400 million below what an average pension fund return in Canada would have generated and nearly $1 billion short of what some top performing funds for the year were earning
It's the fourth year in the last five that investment earnings posted by Vestcor have ranked in the bottom half of the RBC survey and the second year in a row it has generated investment returns among the bottom quarter.
According to Sinclair, Vestcor is governed by stricter rules than most pension plans and is unable to take on the level of risk required to generate high returns in a rising stock market.
He said the strength of its approach emerges during economic downturns and points to 2018 when Vestcor beat most funds with a 2.07 per cent return in declining markets.
"The majority of Vestcor's clients are Shared Risk / Target Benefit Pension Plans." wrote Sinclair. "These pension plans are not able to take on as much investment risk in their investment strategy as a typical Defined Benefit Pension Plan."
Vestcor's 2020 results also fell below its own internal set of investment targets, or benchmarks and that led to an across the board reduction in "performance incentives" paid to the organization's employees.
Vestcor's top five executives saw their bonus pay fall by a combined $498,070 (21.1 per cent) to $1.86 million. Sinclair lost the most from the incentive pay reductions -$201,309 - and saw his total compensation package for the year drop just below $1.2 million.
The release of Vestcor's 2020 results comes four months after the former New Brunswick auditor general, Kim Adair-MacPherson, called for more public oversight of the organization and its operation.
Vestcor used to be a New Brunswick crown agency but is now jointly owned by the province's two largest public pension funds serving civil servants and teachers.
It oversees those retirement plans as well as plans for hospital workers, nurses, crown corporation employees, provincial court judges, MLAs and other groups like Fredericton municipal employees
Vestcor also manages other investment accounts, including a University of New Brunswick endowment fund and nuclear waste and decommissioning funds for NB Power.
In February Adair-MacPherson listed a number of areas of Vestcor's operations her office would be interested to audit, including its investment performance and compensation packages, but said she was refused access to the organization's internal records.
She said although it was no longer owned by the Crown, Vestcor was created by a special act of legislature and given unique non-profit status by lawmakers. In addition, she said it was handed billions of dollars in government employee pension dollars to manage without having to compete for the business.
"In my view, the Auditor General Act currently grants me the authority to conduct performance audits of Vestcor, as well as unrestricted access to perform financial audit procedures," she said
Vestcor asserts it is now independent of government and beyond the reach of the auditor general, a position Premier Blaine Higgs has also taken.
In May, Adair-MacPherson left her position to become the auditor general for Nova Scotia.
Her replacement is acting Auditor General Janice Leahy, but she had no comment on Vestcor's latest results or whether she shares Adair-MacPherson's view that her office should oversee the organization.
Jolyne Roy is the communications officer for the auditor general and said with the year end audit of the province's financial statements underway it was not possible for Leahy to speak about Vestcor.
"It is premature for the Acting Auditor General to comment at this time," wrote Roy in an email to CBC News.
| Year | Cdn median | Vestcor |
|---|---|---|
| 2020 | 9.2 | 6.96 |
| 2019 | 14.0 | 11.76 |
| 2018 | -0.7 | 2.07 |
| 2017 | 9.7 | 8.03 |
| 2016 | 6.8 | 6.53 |
Source: RBC, Vestcor
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