The long term view
SuperReview talks to Ruulke Bagijn, CIO, Private Markets of PGGM lnvestments, on the process involved in implementing a sustainable investment framework.
Please explain briefly what the origins of PGGM's investment framework are
PGGM is a Dutch pension fund manager with approximately EUR 170 bln in AuM. PGGM, is working under a new investment framework which is the result of an
18-month soul-searching review by our biggest dient, PFZW. The central question to be answered was stated as follows: "How can we invest in a way:
1. suited to the financial ambitions of our plan participants
2. in which sustainability is fully integrated, and
3. that is intelligible and controllable?"
Can you please elaborate on sustainability and the long-term view. What does that mean tor PGGM?
The core of the strategy is sustainability. The benefits we pay are worth more in a world worth living in. We also can't produce returns in a system that doesn't work, so the sustainability of the financial system is a core part of what we look at as a long term investor. PGGM's focus will be to put much more emphasis on the viability and sustainability of the world. lt's no small ambition, but it's one that many large institutional asset owners are addressing as the debate over short-termism continues. Long term investing for us is providing a valuable future, providing a pension in a sustainable world. lt's working for the current generation but not at the expense of future generations. A sustainable and viable world includes saving a good pension and contributing to the economie and financial environment in which we operate and live. lt focuses on a stable financial sector. Human rights and good corporate governance with emerging investment themes as part of this including climate change, water, food security and health. PGGM will intensify its efforts in focusing on long term horizons, which leads its policy choices, including asset allocation. In implementation terms this means developing more suitable benchmarks, alternative strategies in public markets and more focused portfolios.
As a long term investor we look at asset allocation and now want to design a dynamic element to that. In terms of sustainability we will look at benchmarks, investing more in the Netherlands, paying a lot of attention to agency issues, cost and remuneration. We'll look at our own behavior and the behavior of others, and want to continue to have a pioneering role in promoting a sustainable financial system. We think there needs to be courage from pension funds to create their own benchmarks and worry less about peer risk.
Can you explain how PGGM Private Markets fits within the sustainable investment framework that is being developed?
For our clients we invest between 20 - 25% in illiquid aset classes like Private Equity, Private Real Estate and lnfrastructure. These investments are long term and controllable. Characteristics that match our investment beliefs really well. Furthermore it gives us the opportunity to acid significant value to the real economy. For example, we recently provided capita! to the spin-out transaction that made the Rabobank Private Equity team independent and established themselves as a new investment firm called Nordian. The transaction involved purchasing the existing portfolio of companies from Rabobank as well as providing new unfunded capital to the Team to make control investments in the Dutch SMEs. In 2013 and 2014 our lnfrastructure team did several deals that contribute to the development of a more sustainable Dutch energy infrastructure. We are taking part in NOGAT, a gas pipeline network in the Northsea and Ennatuurlijk, a large local heating company which is developing technology to lower energy consumption and diminish greenhouse gasses. These are all long term investments with good and stable financial returns as wel as societal benefits.
Long term investing for us is providing a valuable future, providing a pension in a sustainable world
What can we expect tor the future?
The Strategie lnvestment Plan provides a clear framework to incorporate transformational changes in a controlled way, while at the same time providing opportunities for learning by doing in order to prevent analysis paralysis The plan defines three stages. In 2014/15, all the groundwork for change will be laid, and implemented where possible, to keep the momentum of change as strong as possible. This includes for example measuring and reporting the carbon footprint of the equity portfolio. which will give us more insight to determine how we can make our portfolio greener. In 2016/17, big steps will be taken toward full-scale implementation which in 2020 should lead to a quadrupling of our sustainable investments. As plan implementation proceeds, there will be windows to take a critica! Look at how the Plan is unfolding, and to make adjustments if necessary.
To conclude, realizing a valuable future is not a walk in the park, lt requires incremental and transformational change from us and others
Bron: SuperReview 2014