APG has become one of the world’s most active and largest pension managers with over USD 630 billion, behind only Japan’s GPIF and South Korea’s NPS. At the end of October, APG and NPS entered into a formal MoU to scout for private assets globally, starting with a Portuguese toll road and an Australian student housing portfolio. We got to know more about the initiative firsthand from Gert Dijkstra and Genio van der Schaft, who run APG’s Global Peers & Networks from Amsterdam and Hong Kong, respectively.
[GSWF] How do you compare the Dutch pensions with other leading systems such as Canada’s, Japan’s or Australia’s?
[APG] APG is part of the Netherlands’ three-pillar pension system (state, participant and optional). In other regions, asset owners are closer to their asset managers so they may be faster and more entrepreneurial and are closer to their governments, which is not the case with us. Similarities include solidarity, risk, a global scope, a long-term horizon, and sustainable and low-cost goals.
[GSWF] ABP is your major shareholder but you also manage seven other plans – how do you ensure independence?
[APG] APG is a “near asset owner” and can behave as such. We introduced a new fiduciary model a few years ago with three pillars that are coherent and independent: fiduciary, investment and risk management. ABP is the largest fund but we try to be as objective as possible: we manage 11 asset classes (aka building blocks), and our clients can choose their own mix according to their liabilities.
[GSWF] What is the overall allocation to Private Equity and how is it expected to change in the next few years?
[APG] We currently hold stakes in many thousands of companies, direct or through funds, valued at over US$32 billion. PE is a solid part of our client’s allocation and we believe it will become even more influential because it is easier to be aligned it with a governance and sustainability agenda. We see a lot of potential in other regions too, including in China’s PE, which is still in a very early stage.
[GSWF] Besides HK, you have recently opened two offices in Mainland China – what is the long-term strategy there?
[APG] China will be the world’s second largest capital market and we cannot ignore it and want to be part of it. Our HK office manages regional investments, Shanghai is a Rep Office with no people yet and our Beijing-based professionals focus on onshore strategies, working very closely with our partner E Fund Management, seeking to tackle and integrate ESG more efficiently.
[GSWF] ABP saw its funding ratio decline from 98% to 85% in the first six months of 2020 – is there pressure for returns?
[APG] Ideally, we would like to target a funding ratio of 120%. It is important to acknowledge that, along with the COVID crisis, the low actuarial interest used to do the valuation of the liabilities is one of the main drivers of a lower funding ratio. We feel no pressure in the short term. ABP may decide to cut premiums in the coming months.
[GSWF] What is the % of Dutch assets in the portfolio and do you expect to establish a large domestic program?
[APG] Currently we have around 5% to 7% of our portfolio invested in the Netherlands. Our clients expect us to allocate proactively in the domestic market, given we do not compromise our risk-return profile. We are pursuing opportunities such as local infrastructure projects (PPP) and Venture Capital, but our domestic absorption is limited, and we will not likely establish a large Dutch program.
[GSWF] How has the pandemic affected your strategy, and how do you expect it to recalibrate in the next year or two?
[APG] We are fortunate because we do not need to divest or seek liquidity due to our structure and long-term horizon. We are moving towards real assets development and earlier stage and smaller size investments. We are also moving towards more Digitalization and Artificial Intelligence (AI) and towards more sustainability, with a zero-carbon emission target.
[GSWF] In terms of long-term agreements with other asset owners, what are your goals and your ideal partner?
[APG] We blend our four criteria (risk, return, cost, ESG) and seek like-minded asset owners to partner for scale and Responsible Investing impact. We leverage our position to tackle ESG, and the Sustainable Development Initiative Asset Owner Platform (SDI AOP) is a good example. In practice, if we are looking at an asset that is five times the size of our sweet spot, we reach out to LPs and to an operator, and form a consortium. In the next two decades we will be moving to a carbon free portfolio and building up a large (tens of billions of USD) renewable energy portfolio and aligning even more to SDGs. We are also looking very closely at EMs including Africa and BRICS: they are definitely on the rise and we always look beyond the next election or short-term change.