With invested capital of €268 billion, we have an impact on what may and may not grow worldwide. We believe that money is a driver with which we can give the environment and society a strong push in the right direction. Maurice Klaver, Senior Investment Manager, has now been working at PGGM for around 10 years. He is part of the Private Equity team, where he focuses specifically on investments that contribute towards one or more of the United Nations Sustainable Development Goals (SDGs). This is a field that has been developing rapidly in recent years. A growing number of companies are now active in the energy transition, healthcare and climate solutions. These parties, in turn, see increasing interest from pension funds in investment in these companies. How does Private Equity address this and which impact do Maurice and his team have?
Investment in private companies
Private Equity is about investing in private, or non-listed companies. These investments usually take place via partners. The investment partners raise capital, for example via pension funds, insurers and banks in order to invest in these companies. Investors then go to work in order to raise the value of the company with the invested capital. Increases in value often require changes in strategy, as a result of which a new management team may be appointed, for example, or disposals of certain business units, or acquisitions may be realised. In favourable scenarios, the company is then sold on to another party, at a profit, after about five years, or is floated. Maurice says: ‘The investment side of PGGM is enjoyable and interesting, but I am not just working to earn money for the shareholders. For me, this is certainly also about who we do this for. I do this for the pensions of the participants; the people who work in the healthcare sector. PGGM feels like a genuinely engaged company to me.’
‘The investment side of PGGM is enjoyable and interesting, but I am not just working to earn money for the shareholders. For me, this is certainly also about who we do this for.’
Possibility for long-term vision
The Private Equity team has some 80+ investment partners. Maurice’s team has eight of these relations, active in the areas of healthcare, climate solutions and sustainable food. The entire Private Equity portfolio comprises about 8,000 companies. Although Maurice’s SDG portfolio is currently still only a small part of this, it is growing fast. ‘Especially when you consider that our SDG work started in early 2019’, he comments. Investment in non-listed companies has major advantages. ‘To start with, there is information on a company that you receive through an investment’, Maurice says. ‘With listed companies, only limited information on the business is shared. And far more often with listed companies, there is also pressure of time. A company has to show results right away. Pressure of time is less of an issue with private companies, so that there is more scope for long-term visions. The first years after an investment can therefore be used to invest in personnel, software or processes, for instance. Some investors are so specialised in making a business efficient and profitable, that they repeat this time and again with different companies.’
An investment in drug discovery
‘One example is our investment alongside Gilde Healthcare Services in Mercachem-Syncom, later renamed to Symeres’, Maurice continues. ‘This was originally an investment in Syncom, a Dutch company active as a drug discovery Contract Research Organisation (CRO). Syncom subsequently acquired competitor Mercachem and merged the two entitities. Furthermore a pilot plant in Weert was acquired to support larger scale requirements as well as Admescope in Finland. The company's research capabilities help treat unmet medical diseases and solve complex problems in drug manufacturing process design. In 2021 the original company had grown more than five times in revenues and was sold successfully to another investor to help the company further extend and expand.’
Local investment partners search for attractive investments that can generate returns for PGGM. ‘For investments of that kind, you need to be aware of local rules, fiscal and legal rules, and often, culture also plays an important role’, Maurice explains. ‘You also need to be able to trust the management and the investment partner.’ If PGGM is contacted by an investment partner, that partner will already have conducted investigations into the business. With this information, PGGM then starts an internal process. A project team is formed and starts work on an investment proposal. That investment proposal is then submitted to the investment committee, consisting of the senior staff within the team. ‘I’m also one of the seniors, so if I am in the project team, my vote will be supporting of course’, Maurice says. ‘The investment committee questions the project team and determines whether the proposal could be an attractive proposition. If so, then the project team presents a final investment proposal, accompanied by scenario analyses. If the final investment proposal is approved, then we co-invest with the investment partner. They come back to us when they need more money or are going to make new investments.’
‘Making an impact on what will grow is embedded in my mandate, for example by investing more in climate solutions and health care, but also by devoting attention to these in the dialogue.’
Monitoring and starting a dialogue
How does Maurice make an impact on what may grow? That is not a difficult question for him. ‘Making an impact on what will grow is embedded in my mandate, for example by investing more in climate solutions and health care, but also by devoting attention to these in the dialogue’, he explains. ‘Parties are keen to work with us and take us seriously. They also actually listen to what we require, which means that we really can get things moving. The control that we have over a company that we invest in is limited. Because our share is part of a greater whole, we cannot simply decide that the company will be sold if things are not going well. We do not have control of the reins. It is ultimately the investment partner who decides which strategic actions will be taken. We have a share in that, but we take a back seat, so to speak. But because we continually enter into a dialogue with the investment partner, we certainly have an influence. We monitor the investment company in order to keep an eye on the progress and to see how far that differs from the proposal and whether they comply with what has been agreed. Are they performing better than expected, or are they diverging from the proposal and have they failed to foresee certain risks? In this way, we identify whether the investment partner is reliable, for example.’
Within the PFZW framework
Private Equity accounts for around 6% of the investment mix of PGGM. That is a limited share, because this form of investment is associated with more risk. That risk is limited by primarily investing in proven companies with a leading market position. ‘With companies of that kind, it’s easier to make an analysis of how they have performed in recent years’, Maurice says. ‘Take start-ups, for instance. Often, they are too high-risk for us to invest in. Companies need to have a certain size and stability that we feel comfortable with.’
Awareness relating to ESG criteria
Maurice contends that private equity still sometimes has a negative connotation. But he also emphasises: ‘The media focus on the exceptions. Think of job losses at major Dutch companies, but also of healthcare in America, where things have not always gone well through investments. But I do want to emphasise that an extremely large number of good things happen too. Take the growing awareness relating to environmental, social and governance (ESG) criteria. We require partners to take those into account in their conditions for the companies in which they invest. How do they deal with energy and water, CO2 emissions, as well as with diversity and inclusion in business operations, and analyses? These are conditions that we set for an investment and they do feel that pressure. In the meantime, we continue monitoring after an investment has been made. If a negative incident or report is exposed in the media, we expect our partner to reach out pro-actively and we immediately connect.’
‘The media focus on the exceptions. Think of job losses at major Dutch companies, but also of healthcare in America, where things have not always gone well through investments. But I do want to emphasise that an extremely large number of good things happen too.’
Investing in healthcare
PGGM invests capital for the pensions of participants in PFZW, who work in the healthcare sector. ‘We certainly have an eye for investments in this sector’, Maurice says. ‘For instance, in a project in America, urgent care clinics are being set up to relieve pressure on care provided by GPs and hospitals. Of course, the organisation of healthcare there differs from that in the Netherlands. Less care is available there. People may have to wait for two months for an appointment with their GP or travel for hours to a hospital that has a place. In this project, simple surgeries take place more often in clinics, so that extra funds and beds become available in hospitals. A total of 15 clinics have now been realised in different states in America, and the plan is to open eight to 10 new clinics every year.’ In addition to foreign investments, PGGM also has an impact on Dutch healthcare. ‘We also invest in new medicines and medical equipment when these reach the final stages of research. The medicines and equipment have then already completed two rounds of research, but the third round is often the most costly, for example because the medicines have to be tested on many people. A group of experts then takes over the final phase of the research, on condition that following approval, part of the revenue from the distribution of the medicines goes to the investors.’
At PGGM, we do the pension administration for 4.4 million people who largely work or have worked in the healthcare sector. So if you work at PGGM, you contribute towards the financial security of people who have spent their working lives caring for others. We therefore know a great deal about pensions. With that knowledge, we help to design the new pensions system. And with invested assets of around €268 billion, we have an influence on the course followed by countless businesses all over the world.
Work is not just a way of getting through the day. Work contributes towards something. Action is reaction. The question is, how much impact do you want to have? Check out the vacancies on our website.