Measuring up to the best

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t is our ambition to deliver best-in-class (BiC) asset management to our clients, both in terms of price and quality. We want to measure up against the best teams in the world. Through an integrated approach and management of the overall portfolio, we guarantee that asset management is more than the sum of its parts. The various factors that have an impact on our client's investments are viewed across the entire portfolio rather than separately per asset class. The integrated approach enables us to respond on a portfolio level to the developments in relation to the economy, sustainability and climate and technology. We use this broad knowledge to carry out the execution of mandates and individual transactions at the right level. 

Our best-in-class status

One of the goals of PGGM Investments is to be ‘best in class’. This means that PGGM Investments operates in the same league as the best external asset managers worldwide. Our investment teams drew up a strategic multiyear plan in 2019. This plan describes what is necessary until 2022 in order to be and remain best in class.

The idea behind this goal is quite simple: A large asset owner like PFZW has access to all asset managers around the globe. As such, PFZW has the obligation to its stakeholders to hire the best (mix of) managers to manage their portfolio with the aim of achieving the highest risk-adjusted return. For PGGM Investments to be a credible manager of (parts of) the assets, they need to maintain their BiC position. 

To make this goal more measurable, all our investment teams are reviewed by an external consultant. The external consultants are asked to review the PGGM Investments product and assess whether they would consider it a short list candidate in a manager selection process. Three to four products are screened each year in this quality assessment using desk research on PGGM Investments process documents, interviews with the teams involved and peer group comparisons. The final review report gives an independent judgement on the PGGM Investments products and states which PGGM Investments products are considered best in class by the consultant review, and which need improvement. This report, together with a management response written by PGGM Investments, is discussed in the Investment Commission (in Dutch commissie Beleggen) of PFZW. PGGM Investments will then use the review report for their BiC plans and work on the necessary improvements. After three years, the external consultants are asked to reassess the given PGGM Investments products, including the improvements made, and evaluate whether the PGGM Investments product is now BiC or not.

Over the past couple of years, these so-called quality assurance BiC reviews were conducted for all internally managed portfolios at PGGM Investments. Some teams were found to be best in class, whereas for others the evaluation committee found opportunities to improve. 

In 2021, the efforts to achieve the best-in-class ambition have progressed according to plan. It is our expectation that in 2022 all investment teams will have achieved best-in-class status. 

Excellent execution in practice
Within public markets, ‘Responsibly passive’ is the core product. We have a long and successful track record with benchmark-aware implementation. Our strength does not lie in blindly implementing the purchased indices. We build better portfolios that remain close to the index, but mitigates the risk of undesirable exposure and integrates ESG factors. For instance, Public Markets is strongly positioned to mitigate climate risks for clients in the portfolios with a low active risk budget.  

This proposition has been expanded to include systematic investing. PGGM Investments’ distinctiveness lies in providing clients with comprehensible and manageable access to those factor exposures elaborated in their expectations towards PGGM. In addition, over several years, long-term and impact investing has developed into a core product of Public Markets. PGGM Investments has a head start on its peers in the area of impact investing in shares and thereby also makes PFZW a recognized front runner among the large asset owners.

Over the past several years, we have set the standard in responsible investment, internationally as well. We provide our clients with a platform to achieve the desired scope in SDG investments and to realise further development of impact investment and measurement.

We also put emphasis on internal investing within public allocations. This safeguards in-house knowledge building about financial markets, so that PGGM Investments is always a fully-fledged knowledge partner for its clients.

Credit markets already have a market capitalisation that is roughly double that of listed shares. The credit market is expected to grow further in the coming years and become an even larger part of the global capital markets. We are well-positioned to control this expected further growth of credit markets for our clients. We feel it is important to do this partly via an internal proposition. After all, internal credit knowledge is necessary in order to responsibly manage clients’ large exposure in the financial sector. PGGM Investments also has a long and successful track record in Investment Grade Credit and Emerging Market Credit, which we want to reinforce in the coming period.

Another area in which we made a difference over the past several years is our investments in private markets. This involves, areas like risk-sharing transactions with banks and insurers and direct investments in businesses, property and infrastructure outside of the public markets. Where possible, we have cut out intermediaries to lower costs, being able to make better decisions on the portfolio level and enable our clients to contribute to the decision making for very large investments.

Being BiC also means understanding our boundaries and limitations. There were we are not BiC we search the world for the best parties in order to procure their services. Passive investing, for instance, involves simply following a particular market index. Other parties can replicate the market index more cost efficient than we can. We work worldwide with external managers who offer that added value, for private real estate, private equity and the insurance linked-market, for instance. The choice between internal or external management depends on the mandates from our client and on how PGGM Investments can realise the optimal implementation efficiently.

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After a dedicated ESG lead joined our LTES teams at the end of 2020, the team has further expanded in 2021. In Q1 of 2021, a new analyst joined with a special focus on climate investing. This increased the capacity and strength of the team in preparation for the significant increase of the investable universe within their mandate.

The team has also highlighted the integration of the Factset Research Management System as a tool to transparently keep track of research, company due diligence and engagement notes. This is an important tool to further increase collaboration with teams such as External Management and Responsible Investment and to have the IT-infrastructure required to be best in class.

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The Responsible Asset Allocator Initiative analysed $ 26 trillion in assets to identify 30 world-leading responsible, sustainable long-term investors. The study, developed in partnership with the Fletcher School at Tufts University, rated and ranked 251 asset allocators from 61 countries with assets of $ 26 trillion, to identify the 30 Leaders and 22 Finalists (The Top Quintile) that together set a global standard for leadership in responsible, sustainable investing. Competition for the Leaders List was fierce in the 2021 RAAI rankings. To be in the Leaders Group, a minimum score of 92% was required. To be a Finalist (in the top quintile), a minimum score of 96% was required. PGGM Investments achieved a score of 100%, placing us tied for 1st out of 251 firms rated globally.

“The RAAI Leaders List provides a window into the future of investing, a world where the planet’s top investors are addressing the world’s greatest challenges. These institutions increasingly recognize that investing responsibly and sustainably is a better way to optimize returns, reduce risks, and identify opportunities for future growth, while aligning portfolios with broader social and environmental concerns of stakeholders.”

 

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Over the past decades markets have transitioned into many different forms of execution methods and execution venues. In addition, intensified regulation has resulted in more checks and balances than ever before. Regulation, specialization, fragmentation, and technological developments warrant the existence of a centralized Trading Desk at PGGM.

The core philosophy of the Trading Desk is to facilitate the overall trading process in such a way that portfolio managers can focus on portfolio construction and portfolio management. The Trading Desk diminishes the operational burden from portfolio management supporting them in the areas of trading preparation, execution, reporting and operations.

The objective of the Trading Desk is to facilitate the trading of our clients in the most efficient and cost-effective manner in line with best execution objectives.

PFZW had requested a review of the Trading Desk. Due to the specific characteristics of a Trading Desk, the review was conducted by an external specialized bureau.

The recommendations stemming from the review were largely in line with the original BiC document of the Trading Desk. As such it provided a good stepping stone in sharpening the thought process and provided assurance that the direction of development was the right one

Gettyimages 1171083888

After a dedicated ESG lead joined our LTES teams at the end of 2020, the team has further expanded in 2021. In Q1 of 2021, a new analyst joined with a special focus on climate investing. This increased the capacity and strength of the team in preparation for the significant increase of the investable universe within their mandate.

The team has also highlighted the integration of the Factset Research Management System as a tool to transparently keep track of research, company due diligence and engagement notes. This is an important tool to further increase collaboration with teams such as External Management and Responsible Investment and to have the IT-infrastructure required to be best in class.