The team aims to realize this by constructing a globally diversified portfolio of primary private equity funds, secondary purchases of (portfolios of) private equity funds, and co-investments in companies alongside private equity funds. ESG is an integral part of PGGM PE’s investment and portfolio management process, which is further described in the ESG approach section.
The team focuses its investment strategy on three pillars and aims to partner with top-tier private equity fund managers across these:
Primary Fund Investments
Commitments to funds being raised by private equity managers (“general partner” or “GP”). The PGGM PE department combines top-down macro and segment analysis with bottom-up manager selection through extensive due diligence to identify funds that are expected to provide attractive risk-adjusted returns as well as fit its portfolio construction criteria.
Minority equity stakes in companies alongside private equity managers. Regularly PGGM PE is invited by GPs in the initial stages of a potential acquisition to co-underwrite an investment in a company. Alternatively, PGGM PE could be part of the syndication process after the investment has already been signed and underwritten by the GP. The PGGM PE department does not seek to lead transactions but rather to support GPs in their role as lead investor.
Secondary Fund Investments
Acquiring interests in existing private equity funds or companies from other limited partners. This allows for more rapid deployment of capital with shorter lock up of capital and/or quicker rebalancing of the portfolio.
Our team aims to build long-term relationships with some of the best GPs globally. The following criteria, among others, are considered when selecting new fund managers:
Team: a high-performing team with sufficient depth and diversity
Track Record: a proven track record of successful investments consistent with the go-forward strategy
Investment strategy / approach: a differentiated investment strategy and approach that enables the team to have a strong competitive position in its target markets, with a fund size which is commensurate with team capacity and market potential
Terms: fund terms that demonstrate a strong alignment of interest with investors and comply with PGGM’s fee protocol
ESG: an active approach to integrate environmental, social and governance (ESG) considerations in the investment process
Diversification: the fund should provide meaningful diversification in terms of risk and return characteristics compared to the existing portfolio
Funds: We invest globally in growth capital and buyout fund managers, with a typical investment ticket of €50m – €350m and a maximum size of €500m. Funds should have a minimum size of €200m, although this also depends on the fund type and geography.
Co-investments: We co-invest globally alongside GPs, with investment tickets of €20m – €250m and a typical investment size of €40m – €100m.
AlpInvest invests on our behalf in the US lower mid-market, which we have defined as all funds that target a fund size up to $2bn.
We aim to be a reliable investing partner, with a clear 3-step decision process, including a factsheet, a preliminary investment proposal and a final investment proposal. After the preliminary Investment Committee discussion, a broader PGGM deal team will be formed including other PGGM departments. These departments include (i) Tax, legal and compliance, (ii) Operational Due Diligence, (iii) Risk Analysis and (iv) Responsible Investments. Their roles are described in more detail in the Team section.
PGGM’s PE team is committed to investing responsibly. We manage our client’s private equity investments in order to contribute towards a stable pension for their participants while also taking into consideration the impact we are having on the world around us. In collaboration with our client PFZW, we set the target to become fully Paris-aligned by 2040 and we are pushing our existing relations to shift towards Paris-aligned strategies. We recognize that environmental, social and governance (ESG) factors have a material impact on the financial performance of the private equity portfolio, and by taking ESG impact into account we look at risk, return, and impact in our search for value creation opportunities for our client and their pension participants.
Our activities are guided by PGGM’s guidelines for responsible investment in private equity.
Investing in Solutions for Sustainable Development
Based on the strong ambitions of our client PFZW, we have sought to invest more in solutions that help address the sustainable development goals since 2014, specifically in the themes climate, healthcare, water scarcity and food security. At the start of 2019, a new team within the broader PE team was created to target investments into PFZW’s focus areas. This team has the ability to invest with more specialist fund managers, which tend to operate smaller funds and potentially offer smaller co-investments than the traditional generalist buyout funds. Investments within this initiative follow the same investment process. The distinction with the broader portfolio is that these investments are more targeted towards solutions and the fund managers are expected to measure and report the impact of their investments in solutions for sustainable development goals.