APG sees local presence as crucial for growth in Asia
“An important part of the asset management business is getting a perspective from the ground, because more often than not it’s very different from the outside view,” Thijs Aaten CEO of APG Asset Management Asia told AsianInvestor.
Aaten joined APG in 2001 and served in numerous managerial roles in the Netherlands and Hong Kong, before taking over as chief executive of the €547 billion ($577 billion) AUM Dutch pension investor’s Asia Pacific operations in September 2022.
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APG has fast been increasing its regional capabilities across the board and its Asian investment headcount has more than doubled since Aaten relocated to the Hong Kong office just over 4.5 years ago.
“We had around 40 people when I arrived and now, we are close to 100 and we’ve greatly increased the number of asset categories we manage as well,” he said.
What often happens in an asset management firm, and what Aaten saw happening in Hong Kong, were silos being formed around the different asset teams—particularly amid the unique working environment of Covid—and he has made it a priority to break these down and increase collaboration.
“For instance, we have a China fixed income team who are looking into the country’s real estate sector from a board perspective, but we also have our real estate team who are looking at property in China from the developer and the equity side — so exchanging ideas very much makes sense,” he said.
APG’s Hong Kong office manages investments throughout Asia and Oceania and has over $30 billion in assets, up from $23 billion in 2018, and about half of these assets are allocated to private investments.
In executing its investment philosophy in Asia, APG Asset Management employs a direct and platform-style, partnership-based, investment strategy for its private real estate and infrastructure investments in Asia-Pacific, with club deals, joint ventures, managed platforms and (listed) company interests being the preferred route to implement clients' investment targets.
“Based on our investment approach we truly believe that having local presence is an advantage,” said Aaten.
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“This is a business that requires a network, being in contact with people, hearing about projects that might or might not turn into reality. That's not something you can do remotely from Amsterdam. For private assets and capital markets, it's important to have local presence or you’ll miss out on opportunities.”
CHINA FIXED INCOME
In October 2019, APG’s regional headquarters in Hong Kong established a wholly foreign-owned enterprise in Shanghai, which in turn set up a Beijing branch weeks later—creating the Dutch pension fund’s second and third Asian offices.
As the geopolitical situation and policy around China grow more complex, Aaten believes it is now more crucial than ever for foreign investors to have a team on the ground to get an accurate representation of the market dynamics.
“Pricing in China fixed income markets, is often not a true reflection of the risk that you're actually running and without local expertise you might make expensive mistakes,” he said.
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“In China, many issuers are trading on the implicit assumption of government support—so if you’re not familiar with what’s important to the central government and how these relationships work, you are probably unaware of the size of the risks you are taking,” said Aaten.
APG’s branch in Beijing only performs non-regulated activities like credit analysis, with all investment decisions being made in Hong Kong.
APG has also developed a very diverse and interesting real estate portfolio from its Asia office, and Aaten is particularly proud of the fund’s collaboration with ESR, a Hong-Kong-listed logistics firm.
Last July, APG and ESR teamed up with the Canada Pension Plan Investment Board to double the total equity investment capacity of their second joint venture—the ESR-KS II JV—in Korea, bringing its value up to $2 billion. APG took a 35% stake in the venture.
APG expects to see the Korean logistics sectors to continue to grow due to its underlying strength and its evolving retail sector and customer base.
“We also have some great real asset investments in Australia, we recently bought a 16.8% stake in electricity grid, Ausgrid, and are very active in the residential build-to-rent sector, and real estate space.” he said.
Also read: APG doubles allocation to Australian real estate debt
Beyond China, Aaten says his team see a lot of opportunities for private deals in emerging markets like Indonesia, Vietnam and Malaysia.
“We are now a bit underweight in Southeast Asia, bit that’s definitely something we intend to focus on in future.”
APG’s clients and stakeholders want the fund to continue increasing its efforts in responsible investing, said Aaten.
“We have been rigorously incorporating responsible frameworks into our investment processes to the extent that we have even been discussing narrowing down the number of companies that we invest in and instead taking larger stakes in more sustainable businesses,” he said.
Environmental, social and governance (ESG) considerations have been a larger part of the investment landscape in Europe for more than a decade, but Aaten believes that Asia is catching up and there have been a lot of major changes in the last couple of years.
“Being a responsible investor and paying attention to ESG is a trend that has emerged in Asia and we believe we will see it continuing in the years to come,” he said.
“These ESG investment beliefs are being incorporated into our daily business to ensure that we deliver on the sustainable goals of our members,” said Aaten
Aaten also takes comfort in the regulating bodies around Asia who are now pushing harder than ever to achieve sustainability.
“Only a few years ago, ESG and responsible investing was really not much of a thing in Asia, even though we have been actively advocating for it. But I think recently we have gained a lot of ground very quickly in the region.”
Editor's note: The story's headline has been changed.