APG Asset Management makes nearly half of its €69 billion ($76 billion) of investments in Asia via its in-house team and the other €36 billion through external fund houses. In both cases, choosing the right partners is crucial, the regional chief of the €532 billion Dutch retirement fund manager told AsianInvestor

In an interview, Wim Hazeleger – who oversees the fast-expanding Asian investment arm of ABP, Europe’s biggest pension fund – explained APG's approach.

Having a team on the ground is particularly important for allocating to real assets and other private market investments. Hence the ongoing buildout of APG’s private equity, private real estate, infrastructure and natural resources teams this year.

“Partner selection for any particular strategy in any particular market, whether in real estate or infrastructure, is the single most critical factor of success, as we believe that future outperformance will come from operations and not just ownership,” Hazeleger said.

“As such, there is no particular deal that has been difficult or impossible for us to do in the past year.”

Wim Hazeleger

This follows APG’s decision nearly a decade ago to change its investment strategy for private real estate and infrastructure from passive, indirect, commingled fund allocations to active, direct investments through the formation of platforms alongside local operators.

Recently established examples include APG’s pan-Asia multi-family property platform with Greystar and its real estate debt platform with MaxCap in Australia.

“There are not many commingled fund investments in our private real estate and infrastructure portfolios any more, as they have phased out over time,” Hazeleger said. “However, it is fair to say that, apart from the rare commingled fund, our direct investments have performed better and the difference in return is quite significant.”

EXTERNAL MANAGERS

Consequently, in Asia Pacific, APG now effectively only employs external asset managers for private equity investment and some of its capital markets strategies.

“Our private equity investments are done only through commitments to commingled funds and secondary investments alongside the commingled funds we are invested in,” Hazeleger said.

“For private equity investments, we expect to expand the number of regional and country-focused managers in the next few years,” he added.

In the case of APG's capital markets strategies, those overseen by its Hong Kong office – that is, emerging market equity strategies and Asia-Pacific listed real estate portfolios – are managed internally. 

For external mandates for developed and emerging market equities, including those covering Asia Pacific, manager selection is done entirely out of APG’s Amsterdam headquarters.

DIRECT APPROACH ADVANTAGES

Hazeleger argues that the firm’s direct investment approach to real assets provides it with several advantages over indirect commingled fund allocations.

Among them are more control over investments (through strong governance rights such as board seats and control decisions over new investments or divestment), lower fees, and the ability to scale up our investments over time (through platform investing).

APG selects its local partners, after a very long due diligence process, for the long term based both on the belief that they are the best ones to execute particular strategies and on the tenure of these investments, Hazeleger said.

The same is true across the board – hence APG's move last month to expand its investment partnership with China’s E Fund Management to cover onshore renminbi bonds as well as A-shares.

The success of the direct, local approach is being reflected in its growing popularity among large international retirement funds.

Canada’s CPPIB, Ontario Teachers' Pension Plan, Ontario Municipal Employees' Retirement System and PSP Investments, for example, have all been building up their presences in Asia.

Even some US pension schemes are starting to do the same, most notably the Teacher Retirement System of Texas. Still others are putting more focus on the region, such as the California State Teachers' Retirement System and the Municipal Employees' Retirement System of Michigan.

The latest (Winter 2019) issue of AsianInvestor features an extended interview with Wim Hazeleger, on APG's expansion and investment strategy in Asia.