Our asset management

In this part of the report we zoom in on the developments within PGGM Investments. How did we deal with the effect of these market developments on our investments? And how did our private and public market investments perform?

Broadly speaking, our investment categories can be divided into public market and private market asset classes which make up about 75% and 25% of the asset mix respectively. Below we reflect on the developments in 2021 both private and public markets.

Private markets

PGGM Investments has built a strong and elaborate private markets platform since 2008. This platform is distinctive with respect to peers both in size and quality. Within the private markets platform, we actively invest in non-listed asset classes for our clients: private equity, private property, infrastructure, credit risk sharing (CRS), which is about sharing in credit risk that banks have on their balance sheet from core lending activities, insurance linked investments and residential mortgages. We do this either through direct investments or by mandating external managers. 

Private investments contribute to diversification and contribute to achieving our clients long term return targets while also achieving a tangible impact on the real economy. Since interest rates are currently relatively low, private investments help gaining sufficient yield on clients’ investments. Due to their long-term character, private investments are also a good fit with the longer investment horizon of pension funds. In 2021 we completed 81 transactions in Private Markets.

Private Real Estate has shown a very strong year with an absolute return of almost 21%. The main contributor was the Logistics sector, with returns between 25% and 45%. Retail was the least performing sector and suffered severely from the COVID crisis.

Infrastructure has also shown a good absolute and relative performance cq. 11.9% and 1.8%. The strong performance is mainly driven by the Communications sector (€ 1.7bln) with a FY 2021 IRR of 28.0%. The restructuring of the investment in ATC Europe resulted in a dividend of € 178 mln which is a significant contribution to the performance of the Communications sector and the fund as a whole. Another notable event in 2021 was the sale of the investment in SER windfarms. SER was valued at € 55mln by the end of 2020 while being sold for € 187mln by the end of July 2021. The Transport (€ 3.2 bln) sector achieved a similar result to the E&U sector with a FY 2021 IRR of 5.0% impacted by additional COVID-19 measures and a value adjustment on the OneRail exit. One of the notable events in the Transport sector was the recent announcement of Alpha Trains which will be replacing part of their diesel powered trains with more sustainable electric trains.

Private Equity has seen a significant increase in deals in 2021 compared to 2020 and a very impressive absolute return of more than 50%. For 2022, we expect a relatively high number of Private Equity funds to be fundraising, driven by the recent elevated investment pace.

CRS has shown an absolute return of 15.7% for 2021. Strong coupon income has driven this return. CRS has also done transactions with a new counterparty, by entering into a risk sharing transaction with the Spanish bank BBVA based on their project finance loan portfolio, which for a large part relates to in renewable energy projects.

There were also setbacks in some areas. For the private market asset class Insurance Linked Investments, we have seen a couple of natural catastrophes happening throughout the year. This led to a minor negative return of 15 basis points in local currency, or 7.3% in euro’s due to the US dollar appreciation. Main contributors to this negative return are winter storm Uri, flooding in Europe and hurricane Ida. In December, a special and major milestone was achieved, namely the first bespoke investment of $ 100 million in a California earthquake risk-based product. To enable bespoke investments, a dedicated platform named Nightingale Re was set up.

Below we highlight a few private market investments that contribute to the long term goals of PGGM Investments and our clients.



Alpha Trains: Investing in sustainable ways of transport

Another striking investment in 2021 is our investment in Alpha Trains. Alpha Trains is one of the leading rolling stock companies in Europe, providing flexible leasing solutions to train and locomotive operators across 17 European countries. Read more about this investment here.

At the start of 2022 Alpha Trains concluded a contract for the delivery of 31 battery electric trains. Utilisation of the battery electric trains is expected to save 4.4 million litres of diesel annually. This results in a CO2 reduction of 11,000 tonnes per year, equivalent to the annual consumption of more than 16,000 Dutch households. Read more here.


Investment in sustainable logistics facility in Japan by Private Real Estate

For the Private Real Estate Fund we invest in institutional property worldwide, where we look for investment opportunities for the long term. One of these investments is an interest in the Japanese Amagasaki. With a floor area of 390,000 m2 - 54 times the Wembley stadium and a property value of € 860 million, Amagasaki is one of the biggest distribution centres in the world. This state-of-the-art project is a seismic resistance building with six stories, is human-centric, has a large seawall for flood defence and a unique sustainable design. Among other things it has solar panels on the roofs and electric charging stations for trucks. With the investment in Amagasaki, PGGM Investments is responding sustainably to structural trends such as the increase in (online) consumption and the shortage of large modern logistics buildings. The annual return on this investment is 17% since the land purchase in Februari 2017 until December 31st 2021.


Public markets

PGGM Investments has a long and successful track record with benchmark-aware implementation. Our core contribution is building portfolios that have a return (at least) comparable to the benchmark yet with reduced risks. We build better portfolios that might remain close to the index, but which mitigates the risk of undesirable exposure and which integrate ESG factors.

Environmental, Social and Governance

Overall, it has been another positive year for equity investors. This is mainly due to an increasing number of people that have been vaccinated, economies that have slowly reopened, and better-than-expected corporate earnings figures. 

The FTSE world index returned over 20% (in local currencies). However, emerging markets clearly lagged. China, a heavyweight in the index, suffered from new corona cases, disappointing investment in infrastructure, stricter regulation of property developers, internet companies and private education industry, and electricity shortages due to climate policy and high coal prices. Examples of companies that are suffering substantially from these developments are Alibaba and Tencent. These companies weigh heavily in the benchmark for emerging market equities.

Due to the expected rise in inflation, long-term interest rates rose, but once investors started to believe that the inflation increase would only be transitory, interest rates receded again. However, the prospect of the phasing out of support measures by central banks eventually gave new impetus to long-term interest rates. The US, where the recovery has progressed further than elsewhere and the central bank acted immediately, saw the greatest increase in interest rates over the whole year.

The two internally managed credit teams active in Euro Investment Grade and Emerging Markets Credit have been merged into the new Credit cluster in 2021. Both teams outperformed their respective benchmarks over the year. The size of the Emerging Markets Credit mandate has increased by over € 1 billion during the year as part of the increase in exposure to credit. The team also needed to divest some 10% of the portfolio during the year as required by the Coal & Tarsand initiative and the requirements due to the OECD guidelines. New investments include the likes of EGE Haina, a Dominican Republic utility which issued an SLB requiring the doubling of renewable energy capacity in 4 years and Hero, an Indian utility which is dedicated to renewable generation assets. It currently has 1.5GW in solar and wind assets. The proceeds of the bond will be used for further expansion to 1.8GW in the near future.

The Euro Investment Grade team has invested, among other companies, in multiple SLBs from Enel. The Italian integrated utility company regularly finds the market to finance their ambitious growth in renewable generating assets, adding 75GW in solar and wind assets by 2030 (3x higher than 2020 levels). Moreover, additions include green bonds (e.g. Aeroporti Di Roma), social bonds (e.g. CaixaBank) and sustainable bonds (e.g. Telefonica).

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Improving risk-return profiles through research

The PGGM Investments Systematic Equity Strategies (SES) team operates at the intersection of academic research and investment practice. The team manages the internal Developed Markets Alternative Equities (DMAE) fund, which aims to harvest alternative equity risk premia, such as value, quality, momentum, size and low volatility. Alternative risk premia emerged from financial academic research and have been shown to deliver long-term returns in addition to the equity risk premium. 

In the November 2021 issue of the Journal of Portfolio Management (JPM), an article was published that was co-authored by Michael van Baren from the PGGM Investments SES team. In their article, the authors examine to what extent alternative equity strategies may benefit or suffer from (un-)intended sector exposures. For example, a simplistic value strategy which invests in stocks with high price-to-book ratios, tends to have little exposure to the more richly priced information technology sector. The authors show that, as a result of their sector biases, value and size strategies incur additional, unrewarded volatility. On the other hand, momentum and low volatility strategies earn additional returns from their sector allocations. Based on the research findings, the SES team has neutralized the value and size strategies’ sector exposures in the Developed Market Alternative Equity fund, resulting in lower exposure to unrewarded risks and hence a better overall risk-return profile of the portfolio.

Angelique Pieterse

Angélique Pieterse is Senior Director Credit Risk Sharing and has been working at PGGM Investments since 2007. She works in the Credit & Insurance Linked Investments (CILI) team. Angélique: ‘CILI is responsible for two mandates: one is Credit Risk Sharing (CRS) which is about sharing in credit risk that banks have on their balance sheet from core lending activities; the other one is Insurance Linked Investments where exposure to natural catastrophe risk is shared with the reinsurers underwriting such risks.’ 

Read: A day as an investor by Angélique Pieterse
Stan Bertram

Stan Bertram (26) has been with PGGM Investments for little over two years now. Prior to joining PGGM Investments, he obtained a bachelor’s degree in International Business and a master’s degree in Sustainable Finance from Maastricht University. He is part our Private Real Estate team. This team invests in real estate on a global scale, including investments in office, residential, logistics and retail properties.

Read: A day as an investor by Stan Bertram
Wilfried Bolt

After studying Economics at Maastricht University, Wilfried Bolt (39) started his career at DSM in 2006. Following a period of managing equity and bond portfolios, he switched to the Rates & Inflation (R&I) team of PGGM Investments in 2010. Wilfried: ‘Our R&I team is responsible for managing the interest rate and inflation investment portfolios of our pension clients on a day-to- day basis. We invest in derivatives, government bonds and bonds. Finally, our team is responsible for the mortgage investments we offer to our clients.’

Read: A day as an investor by Wilfried Bolt
Micheal Van Baren (1)

Michael van Baren has been with PGGM Investments since 2017. His educational background is a BSc in Mathematics and MSc in Econometrics. Michael started at PGGM Investments as a Quant Trainee and has been working as a researcher at our Systematic Equities Strategies (SES) team since September 2017.

Read: A day as an investor by Michael van Baren
Angelique Pieterse

Angélique Pieterse is Senior Director Credit Risk Sharing and has been working at PGGM Investments since 2007. She works in the Credit & Insurance Linked Investments (CILI) team. Angélique: ‘CILI is responsible for two mandates: one is Credit Risk Sharing (CRS) which is about sharing in credit risk that banks have on their balance sheet from core lending activities; the other one is Insurance Linked Investments where exposure to natural catastrophe risk is shared with the reinsurers underwriting such risks.’ 

Read: A day as an investor by Angélique Pieterse