APG mulls more Asia offices, builds illiquids exposure

The €440 billion Dutch pension fund manager is still keen on private markets despite falling illiquidity premiums, and its CIO sees Asia as a fertile market for such investments.
APG mulls more Asia offices, builds illiquids exposure

While some investors may be considering reducing their exposure to illiquid alternatives in anticipation of a reflationary rebound in bond yields, Dutch pension fund manager APG is looking to do the opposite.

The institution is also considering opening offices in the region beyond Hong Kong, a branch it set up to source private-market investments, said Ronald Wuijster, chief investment officer at APG Asset Management. Beijing or Shanghai is the most likely next stop, he noted.

Amsterdam-based Wuijster was speaking to AsianInvestor from the Hong Kong office, which is celebrating its first decade of existence. 

“The reason we set up the Hong Kong office 10 years ago was to access illiquid investment opportunities in Asia,” he said, with APG's focus markets being India, China, Japan, South Korea and Australia.

APG manages €440 billion ($469 billion) assets across four pension plans, including ABP, the scheme for government employees. It has some €30 billion in illiquid alternatives – such as infrastructure, private equity and real estate – and is still building that exposure.

Doubtful on income opportunities

Moreover, he is not optimistic about the prospects for reflation in conventional income-generating assets. He does not expect inflation to rise to a level that would lead to interest rate rises in either China or the US.

Ronald Wuijster, APG

“I don’t see any strong reasons [for that],” noted Wuijster. “We are returning to a more normal situation, but it will be a low-growth, low-return environment.”

And while institutional investors have entered the illiquid space in numbers in recent years, they still represent a small portion of the assets in private markets, he said.

So for bigger investors like APG there remain plenty of opportunities, especially in Asia, where the fund continues to be drawn to the higher yields available, Wuijster said.

“Some of the deals are just too big [for the newer entrants],” he added. “Others are either not accessible or [the newer entrants] lack the sophistication to take them on.”

APG’s Asian network includes sovereign funds that it knows well, said Wuijster. “It helps a lot to have local partners [operational management partners and co-investors] in countries such as China, South Korea and Australia that you have known for a long time.”

Moving up the risk curve

Many institutional investors are moving further up the risk curve, becoming more involved in financing, developing and advising businesses they invest in and closer to the real economy, said Wuijster. Examples of such moves include APG’s investment in projects developed and run by international hotel operator CitizenM.

He said this approach allows APG to get more involved in the specific strategies of the underlying businesses, opening up different investment opportunities with different yield profiles. “In many cases when it comes to more illiquid assets, the access to yields is available only if you structure yourselves.”

Moving up the value chain for APG has included taking over infrastructure funds near the end of their lifetime, restructuring them and appointing a new manager.

In December, APG partnered with €107 billion Danish pension fund ATP, to take over assets owned by the Eiser Global Infrastructure Fund, a portfolio established in 2006 and nearing the end of its life.

Buying out the other investors and appointing an operational manager for the investments means APG does not have to assemble the underlying investments but can buy them pre-assembled, keeping costs low.

“There are efficiency benefits to managing the whole portfolio rather than managing several assets separately,” said Wuijster.

Meanwhile, the willingness for institutional investors to move up the value chain has led to concerns by fund managers that their own investors may displace them.

Eric Marchand, who runs Asian primary and co-investments at asset manager Unigestion told AsianInvestor in January that there were cases where GPs have asked him to sign non-solicit agreements when entering their funds.

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