Glen Mumey

Alberta Heritage Fund: Measuring Value and Achievement

In legal entity and administrative structure, the distinction between the Alberta Heritage Savings Trust Fund and the Alberta government is ambiguous. This ambiguity extends to the Funds investment portfolio, where obligations of the Provincial government and its Crown Corporations comprise much of the asset position, and where Alberta government subsidies and guarantees increase the Funds reported earnings. These interrelationships confound the reporting of the Funds size and performance. This paper examines the Funds objectives, its financial components, and the effect of its transactions with the Provincial government on its reported financial position and performance. Analysis suggests that the Funds financial assets are about 10 percent smaller than the 12.6 billion officially reported and that Fund performance has been adversely affected by low de facto returns on Alberta Crown Corporation debentures.

Risk Premia in Tractor and Combine Investments

A farmer planning to use Net Present Value (NPV) analysis on machinery requires estimates of operating benefits over time, an estimate of terminal or salvage values and a risk-adjusted discount rate. Using financial market information and related Root Mean Square Errors on machinery value forecasts, risk premia for combine and tractor investments are estimated for non-diversified investors. These risk premia can be added to the risk free rate in comparable maturity long term bonds to derive an appropriate discount rate for NPV analysis. Where machines are held as single-asset portfolios, risk premia identified for discounting terminal value vary between 5.5% and 8.3% for combines and between 2.4% and 3.6% for tractors, depending on age during the holding period. Where machines are held as parts of multi-asset portfolios, risk premia are usually lower, depending on machinerys weight in the multi-asset portfolio and its covariance with the rest of the portfolio.