Financial Markets

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Financial Markets

Trump. China. Brexit. Coronavirus. These are all developments with an impact on the financial markets - and on our pensions. But what is the extent of that impact? How do financial booms and setbacks affect us? And what do short-term developments mean for the long term? Keep reading here for more about financial markets.

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“The realization is sinking in that natural gas is not infinitely available”

Published on: 30 November 2022

524 Billion Euros. That is APG’s total invested assets worldwide (as of October 2022). The goal: a decent and sustainable return for the funds’ participants. The portfolio is obviously broad. From investments in wind farms in Zeeland to shares in international hotel chains. And from safe bonds to the somewhat more fluctuating trade in gold or soy. Who are the people behind these investments? What drives them? What choices do they make? And why?

In this episode: Martijn Olthof, Manager of DMEF (Developed Markets Equities Fundamental) Industry & Energy.

Listed investments in utilities, renewable energy, oil and natural gas. That is what Olthof focuses on, with his interest as an equity investor currently focused primarily on utilities. For a long time, those were somewhat boring, predictable stocks. Now that they will be playing an important role in the energy transition, that has changed. For the longer term, then, that transition is an important theme in Olthof’s work, and when it comes to the question of how that will play out, you cannot avoid talking about the European energy crisis.

Is the energy crisis a blessing in disguise
for the energy transition?

Olthof: “The energy crisis might have a positive effect on the energy transition, because we have been made even more acutely aware of our dependence on fossil fuels from countries like Russia. But the high energy prices could also slow down our ability to make our energy supply more sustainable, because there is less money left to invest in that sustainability.” 

How can Europe get away from this dependence on Russian natural gas?

“We wouldn’t be able to simply replace all the natural gas from Russia with renewable energy in any case. To cope with the energy crisis in Europe, it is not enough just to generate more renewable energy. We also need to ensure that the demand for energy decreases, for example by using more insulation and through more conscious use. But even then, we cannot avoid looking for alternative fossil energy sources. And then you do run into an area of tension. Some are against natural gas from Qatar from a human rights perspective, while others oppose getting shale gas from the US because of the environmental impact of fracking. Also, not everyone wants drilling for natural gas to be going on in the North Sea. But ultimately you have to get the energy from somewhere.”

No one knows when the war will end, what the balance of power will be then and how that will affect Russian natural gas supplies. As an investor, how do you deal with all this uncertainty?

“One of my main investment principles is that you only take a large investment position if you are convinced about something that has not yet been priced by the market. When it comes to geopolitics, I often have no better insights than the market. It is quite difficult to predict geopolitical developments and, as an investor, to have a conviction that something is going in a certain direction. Even geopolitical experts you talk to don’t see everything coming. So I often choose to set up the investment portfolio in such a way that our investments are not hit harder than the benchmark if a certain geopolitical development doesn’t happen, or if it does. Then it’s better to focus on the things you do think you can beat the market with.”

Can you give us an example of when you had such a conviction?

“A few years ago there was a lot of political turbulence in Guyana. The oil company Hess drills for oil there, and it was believed that this turbulence could possibly lead to the revocation of Hess’ drilling license, or to higher taxes. The share price fell dramatically at that time. Conversations with people from the U.S. Embassy in Guyana then gave us a better picture of the political relations and situation in the country, after which we drew the conclusion that Hess could probably continue its operations. So that price correction was an overreaction of the market and we bought shares accordingly. Later it turned out that politically it did indeed end with a hiss, which worked well in our investment portfolio.”

You could also have been wrong, after all, the market is usually right. Don’t you doubt your decision at a time like that?

“To do this work, you have to be humble in the sense that you should not be too quick to think you can beat the market. Capital markets can be ruthless; you never know everything. So it’s important that you have a huge curiosity, about how something works in a technical sense but also about how market sentiment comes about. In this case, we were pretty convinced that the market reaction was exaggerated. You have to have a certain level of stress resistance. It’s important to feel the pressure, but you have to know when to intervene and when not to.”

Why are you currently looking for investments primarily in the utility sector and not, for example, in oil producing companies?

“The pension funds APG works for are increasingly scaling back their investments in fossil fuels like oil and natural gas. And the utilities sector is attractive because, like the oil and natural gas sector, these companies have an important role to play in the energy transition. Not only by building wind turbines and solar farms, but also because of the huge investments needed in the power grid - so that the grid can handle the increasing supply of wind and solar energy. But also to cope with the demand, which will continue to rise in the coming years - just through increased use of electric cars and heat pumps. The shift that utilities are going to have to make for the energy transition makes the sector attractive to investors not only in Europe, but also in the U.S.”

In the Netherlands, consumers wonder why the variable price for electricity or natural gas varies so much from one supplier to another. How can that be explained?

“Some of these companies are strictly traders, buying all their energy on the exchange and then reselling it. They do this on a short-term basis, so once the term of a fixed contract is over, they have no choice but to fully pass the price increases on to the customer. But if power companies have nuclear or hydroelectric plants of their own, their costs hardly rise at all. Those companies may not simply pass on those high market prices to the end user, so their customers’ rates rise less in comparison.

But there are other factors at play. For example, an energy company that had many contracts with Russia’s Gazprom and supplies energy to consumers at a fixed price will go bankrupt the moment natural gas supplies from Russia are completely cut off - at least if the government does not come to the rescue. Other energy suppliers, while also purchasing natural gas from Gazprom, had customer contracts stating that they charge market prices. So when the gas supply from Russia stopped they had to buy gas on the market at a higher price, but were able to pass that cost on to the end user.”

Say the war in Ukraine ends tomorrow. How would that affect the energy prices?

“Energy prices were already rising as the economy was recovering from the Covid pandemic. They were high, but still within certain ranges. When the war started, they really exploded. If the war in Ukraine were over tomorrow, prices would probably move to a level not as low as during the pandemic, but much lower than now.”

And if we look further into the future?

“The realization is sinking in that natural gas is not infinitely available, as it was in the years before covid. There was actually a surplus of cheap natural gas on the world market at that time. This was due to the large amount of natural gas released as a byproduct from oil production in the U.S., as well as natural gas extracted there through fracking. Such a surplus is - I think - no longer expected in the longer term, so I don’t expect us to go back to those extremely low prices. But looking even further ahead: eventually we will have to get away from fossil fuels. At some point demand has to start decreasing towards zero, making fossil fuel prices extremely low and eventually irrelevant. But looking at current fossil energy consumption and emissions, I don’t see it going that way for the time being.”

A world in which fossil energy is completely replaced by renewable forms of energy: what does the road to that look like?

“The first step is to make the process of generating power green, and this is already underway. In some countries, of course, power from solar and wind is easier to generate than in others. But in some places, sustainably generated power is already taking over the role of fossil power. Norway, for example, has been running entirely on power obtained from hydroelectric plants for decades. Nevertheless, greening our power generation is a huge job, requiring not only a lot of manpower and materials, but also permits. If you want to build a high-voltage pylon, it will take 6-8 years before you can get started. The challenge is also that we need much more electricity for the next step: the electrification of other parts of the economy, such as transport, heavy industry and aviation. This requires research and preparation now, but the bulk of the transition itself will have to take place in the 30-40s.”

What kind of contribution can investors make to the energy transition?

“For investments to be profitable, including in renewable energy, requires the right conditions. You create those in an interaction between government and business, in which you as an investor or business are also active. But ultimately you do need a government that provides those conditions, by making fossil energy more expensive and green energy cheaper. It is still very difficult to invest on a large scale in making heavy industry and transport sustainable, because those conditions are not there yet.

What would also help is a much higher carbon price. If that were a few hundred euros per ton of emissions and applied throughout the world, it would be a lot easier for a company like Tata steel, for example, to say: we are switching to hydrogen.”

What makes the energy sector so interesting to you?

“I never planned for the energy sector to become my specialty, but in my first job as a corporate finance consultant at McKinsey, I was paired with someone who had been there a little longer and had utilities as his focus sector. He thought that was just an annoying sector and was actually happy to pass it on to a junior. From then on, I’ve been focused on these companies and found it super interesting. It’s political, it’s financial, it’s technical. Later, I also added the oil and natural gas sector to that focus. In 2004-2005, climate change didn’t play such an important role for utilities and fossil fuel companies. That was added later, which has only made these sectors more fascinating - including with respect to my work at APG. These are interesting times for the energy sector. This is when you can see how certain companies are cracking or flourishing.”

Volgende publicatie:
Is the crypto market bubble bursting?

Is the crypto market bubble bursting?

Published on: 28 November 2022

Current issues related to economy, (responsible) investing, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: Portfolio Manager Jean-Paul Koopmans on whether the collapse of cryptocurrency exchange FTX is the beginning of the end for the crypto currency. “The system behind crypto currency is very robust.”

Last week, FTX went under. The fact that this so-called crypto exchange had to file for bankruptcy rocked the crypto world. What does this debacle say about the reliability of crypto currency as an investment asset for (big) investors? And about the future of crypto in general?

Although institutional asset administrators such as Fidelity and BlackRock see opportunities in the use of blockchain, APG remains adamant in rejecting it. Reasons are that crypto currencies do not provide cash flow, unlike equities, for example, or protection against inflation, like gold. Another factor for APG is that crypto currencies are not supported by central banks, regulators are not in favor of them and the reliability of non-blockchain counterparties is a concern. Will the fall of FTX prove pension investors right or is it more complicated?

Jean-Paul: “Currently, investing in crypto currencies is still fairly ‘wild west’. This is because investor protection is not well anchored in regulations and there is little oversight from regulators. Therefore, there are too many players in this market whose only goal is to get rich quick without adhering to traditional rules. In my view, it is currently not responsible for a pension investor to invest in this market.”

Investment vehicle

Back to FTX for a moment. What exactly happened there? The crypto exchange was using its customers’ crypto currencies as FTX’s investment vehicle, Alameda Research, Koopmans explains. That was not in line with the promise crypto exchanges make that for every coin a customer deposits, they actually hold one and have it audited by accountants. “At FTX, it turned out there was fraud, because they didn’t also hold one coin for every coin deposited. Instead, they offset the losses they suffered with Alameda Research with money from customers on their crypto exchange. That went well as long as those customers didn’t demand their money.”

On top of that, another problem arose. FTX created its own currency, the FTT, and sold some of it to third-parties. Things went wrong when Binance, the world’s biggest crypto exchange and holder of much of the FTT stock, decided to sell its share. “What happened then was something you can call an exchange run. Everyone quickly tried to get their crypto coins out of FTX. But because FTX didn’t have enough crypto coins in stock - after all, they had lent them to their investment vehicle - they stopped letting customers withdraw their crypto coins. What good is your savings if a bank says, ‘you can’t withdraw it.’ Then that bank is basically bankrupt. And that is the case with FTX.”

This is absolutely not the death knell of cryptocurrencies; the system behind it will continue to work

Back to basics

According to Koopmans, the cause of FTX’s downfall was the reliance on a centralized exchange. “Such an exchange is very user-friendly, because you can buy bitcoins or Ethereum there with your credit card. But actually this is not really working with the blockchain. In fact, it is the opposite of what was once the purpose of crypto currencies. Namely, that was a completely transparent system where everyone only has access to their own crypto coins, you can see exactly how many coins are being made and there is no bank that can print extra money and spend more money than it actually owns. Because that is what happened here.”  

Aside from the fact that it is an unpleasant event for everyone who lost their money, the debacle at FTX may also lead to a cleansing. “Where the fall of Lehman Brothers resulted in a whole range of strange financial structures and products not returning after the 2007-2008 financial crisis, the fall of FTX may result in the cryptocurrency system going back to basics.” That includes trading through a decentralized exchange, such as Uniswap. That is basically nothing more than bringing supply and demand of cryptocurrencies together on the blockchain, without a crypto exchange as an intermediary.”  


Koopmans welcomes more oversight of cryptocurrency trading, especially for that part that goes through centralized exchanges. “That is the playground for beginners in crypto. The fact that people run price risk there is normal, but now we know that there is also the risk that such a playground is managed by a fraudster. Then it is better to have a government agency on hand to check whether such an exchange has all the coins in stock in case people want to withdraw their credit en masse.”

Cryptocurrencies will become less popular because of the affair at FTX, Koopmans expects. Still, he believes concerns about the future of cryptocurrencies are unwarranted. “This is absolutely not the death knell; the system behind it will continue to work. Nor can bitcoin or Ethereum go bankrupt because they are not companies. All it takes is one server in the entire world to facilitate the use of crypto currencies and everyone will be able to use it.”

He points out that cryptocurrencies have already weathered several crises. For example, cryptocurrency prices went down 80 to 90 percent in a straight line in 2018. “But I think the system is inherently very robust,” Koopmans says. “There are also good reasons that big investors like BlackRock and Fidelity want to start offering it to their clients. I do hope they do it in a decentralized way. That might be a little unusual for a bank, but that way they guarantee that their clients only run exchange rate risks and there is no chance of fraud such as happened at FTX.”


Volgende publicatie:
Are Dutch pension funds running the same risk as the British funds?

Are Dutch pension funds running the same risk as the British funds?

Published on: 17 October 2022

Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: Head of Treasury & Trading Jan Mark van Mill, talks about the recent problems at pension funds in the UK due to sharply rising interest rates - and the likelihood that the Dutch pension sector could find itself in a similar scenario.

For the root of the dire situation of British pension funds, we need to go back to Sept. 23, 2022. On that Friday, the Truss government in the United Kingdom announced its budget plans. In it, like other European countries, the British government set aside considerable money to compensate citizens for sharply increased gas prices. However, Prime Minister Liz Truss also wanted to make substantial tax cuts. Since there is no money for both, the UK would have to borrow the deficit, in this case from foreign investors. And the financial markets' response to that was very dismissive.

“Margin call”

Van Mill: “The financial markets didn’t like the idea of those unprecedented tax cuts at all, which caused interest rates to skyrocket. And that was the point at which problems arose for pension funds in the UK. This is because they hedge much of their interest rate risk through interest rate swaps. When interest rates rise rapidly, a pension fund must deposit collateral to the party with whom they have entered into the swap contract. This is a so-called margin call.  In the UK, that interest rate movement was so big and intense that pension funds did not have enough money on hand to meet those obligations in time.”

To get that money, these funds sold UK government bonds (‘gilts’) en masse, pushing interest rates up even more. As a result, they had to deposit even more collateral, sell new assets, and a vicious cycle ensued. To break it and to calm down the financial markets, the British central bank was forced to buy up government bonds on a large scale. How likely is it that such a scenario will occur with Dutch pension funds?

Rich enough

Van Mill: “Dutch pension funds also hedge their interest rate risk through swaps and they too have to deposit collateral. But on the whole, the interest rate movement in the euro zone has fortunately not been as big and intense as in the UK. So, the question is: what exactly went wrong with the British funds; how was this allowed to happen? Their solvency is not the problem; they are rich enough to afford that collateral. But they don’t have unlimited access to liquidity. You can have a very nice house with a lot of excess value, but you can’t use it to buy a car. The problem is a mismatch between solvency and liquidity. What probably played a role in the UK is that pension funds did not have the right type of collateral in time to meet those margin calls.”

The consolidated structure of the Dutch pension fund industry also makes a scenario like the one in the UK - where there are a lot of small funds - less likely, Van Mill says.

“Dutch pension funds, which are on average bigger than British funds, typically hedge a smaller portion of interest rate risk, making them less vulnerable to a sharp rise in interest rates in a short period of time. In addition, big funds invest relatively little through external managers, allowing them to sell assets more quickly to meet any collateral obligations.”

Stress test

Anyway, for the pension funds it works for, APG has not had to sell bonds to meet collateral obligations. But it does take measures to minimize the risk of such a lack of liquidity.

Van Mill: “At least once a month we conduct stress tests, in which we see whether we can generate sufficient collateral to meet our liquidity obligations under certain interest rate scenarios. What happened in the UK is a new scenario, so we adjust the stress tests accordingly.”

So, is it less likely for Dutch pension funds to end up with a scenario like that in the UK, but certainly not impossible?

Extreme circumstances

“Exactly. And to reduce the likelihood for it to happen, we have been alerting the European Central Bank for ten years to the possibility of the conditions we have now seen in England. Pension funds that need quick liquidity to deposit collateral can now turn to banks for that, in the so-called repo market. At a certain interest rate, they then borrow cash, with bonds as collateral. But pension funds have no 100% guarantee that this market will function under all circumstances - including extreme ones. They remain dependent on the willingness of banks to accept bonds as collateral. We would therefore like to see the ECB guarantee the reliability of repo markets, just like the U.S. Fed and the Bank of Canada do.”


Volgende publicatie:
Financing the transition of the highest carbon emitters with sustainability-linked bonds

Financing the transition of the highest carbon emitters with sustainability-linked bonds

Published on: 14 October 2022

Sustainability-linked bonds offer resource-intensive industries a viable solution to finance change and work towards a greener future. But there are plenty of challenges. Four of APG’s experts in this field explain how large investors can play a role in this transition. “We believe it is our role is to help push the market in the right direction.”


Sectors like steel, cement, chemicals and some forms of transportation support many of our basic needs. But these hard-to-abate industries are also collectively responsible for nearly a third of global CO2 emissions. As a major sustainable debt investor, APG is taking a proactive stance in looking at ways to support this challenging but vital transition and is committed to playing a role in the development of the sustainability-linked bond (SLB) market. Finding instruments to help finance these changes requires APG to tread carefully as a responsible investor.


“Through constant engagement with the market, we believe we can implement our clients’ investment policy and help companies make the transition,” says New York-based Simone Andrews. She works together with fellow fixed income responsible investing expert in Amsterdam, Willem Hettinga, US credit analyst Joshua Linder and EU credit portfolio manager Oscar Jansen. They draw up investment guidelines and liaise with issuers, banks and peers to critically assess new issue structures and ensure the sustainable integrity of this growing market.


Different pathways to transition

Promoting transition in these hard-to-abate sectors is challenging and expensive; each industry requires a different approach and has a different timeframe. “For the automobile industry there are credible avenues using EVs but these are expensive and mineral intensive while large-scale change in the chemicals sector is further away, although there are potential solutions to explore, for example, using hydrogen to drive net zero goals,” explains Andrews. “In determining how to invest, we first evaluate potential bond investments to ensure they meet our financial risk and return requirements, as well as identifying investments that contribute to the SDGs. We also leverage our Guidance on Sustainability-Linked   and have developed a specific but related framework for different industries according to the challenges they face and the transition stage they are in. For example, we have recently documented our guidelines for financing the transition in the aviation industry.”


Flexible SLB structure gives companies more options

There are pros and cons to all types of bond structures. In the past, issuers and investors including APG have generally preferred the use-of-proceeds structure, of which green bonds are the most common flavor, because they have a clear link to projects that create real world impact. But things are changing as the increased flexibility the SLB structure offers becomes more widely acknowledged.


“In the case of green bonds, the money is earmarked for specific projects, so it is easier to determine whether an issue is green enough to fulfil investment requirements and then to monitor how the proceeds are spent and calculate the impact of the investment. But a company has to have sufficient upfront and credibly green spending requirements to make this feasible,” explains Hettinga. “We have seen examples of green bonds issued by energy and mining companies, where the proceeds may have been credible, but the rest of the company’s strategy is not truly focused on transition. Such issues are not always well received by the market, so it is also in the company’s interests to use a structure that fits.”


Most companies in hard-to-abate industries are inherently not so green – the transition time frame is longer, and it is much harder to set aside spending purely for decarbonization. The SLB structure enables these companies to align issuance with their overall corporate sustainability strategy, by setting targets in the form of Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPTs). Hettinga: “For companies that choose this structure, the quality of the goal setting is key. There should be clear communication on the rationale and process for selecting the KPIs, which should, in turn be realistic but still ambitious and clearly linked to the company’s transition path and goals.”


Credible and comprehensive long-term transition plans

Many hard-to-abate industries have a high relative proportion of Scope 3 (or indirect) emissions[1]. These are more difficult to address than direct (Scope 1 and 2) emissions as they often occur beyond a company’s direct control and require it to focus on change throughout its entire value chain. This also strengthens the case for the SLB structure, where a long-term plan can be established with KPIs that can reflect the progress made on transition in all areas of a company’s business. “We turned down an issue that laid out ambitious reduction plans for direct emissions (Scopes 1 and 2) in its KPIs but incorporated no target for the indirect emissions that made up 98% of the total emissions”, explains Jansen. “We prefer to see KPIs that incorporate a broad transition plan with absolute emission reduction targets, clear spending programs and concrete time frames.”


Intensive engagement with issuers and underwriters

“As a major investor, APG has an important role to play by providing feedback to issuers to create a virtuous circle where a landmark deal for a sector can set a positive precedent. We do this by being transparent on what our standards are, by staying in close contact with issuers and determining parameters together with them,” explains Linder. This process may require our responsible investment experts, portfolio managers and credit analysts to go back to the drawing board and dive deeper into the issuers’ business to determine an acceptable level of ambition for KPIs and targets. Jansen: “This approach enables us to fine tune our guidelines for specific sectors and gives the banks that underwrite the bonds and the issuers a pathway to follow, also by making it clear upfront when we will and won’t invest.”


Supporting the SLB market

The annual APG roundtable on the sustainable bond market plays a key role in keeping major players aligned. Now in its fifth year, this event has gained increasing traction and attracts a diverse group of investors, underwriters and other stakeholders who exchange views on ways to promote and develop the labeled bond market. Andrews: “In the 2022 roundtable we focused on the role SLBs can play in financing the energy transition and zoomed in on the aviation sector, this discussion contributed to APG’s guidance on how to approach the challenges and opportunities in this industry”.


Some dedicated green bond investors are not in favor of what they deem to be the looser structure of SLBs and the potential for greenwashing. But other ESG investors are supportive of the market’s development as it opens up opportunities to a broader group of issuers. Linder: “Some of the criticism is valid, but we believe our role is to help push the market in the right direction. It’s more art than science – a balance of wanting to help the market grow, while maintaining its integrity, and accepting that some issuers are further along in the process than others.”

Scope 1 covers all direct emissions from the activities of an organization. Scope 2 are indirect emissions from energy used by an organization to sell its main products or provide its main services. Scope 3 emissions are all other indirect emissions


Volgende publicatie:
How effective is the European Commission’s energy plan?

How effective is the European Commission’s energy plan?

Published on: 21 September 2022

Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: equity investor Martijn Olthof, on the European Commission's crisis plan to meet the challenges of exploding natural gas and electricity prices. “The developments in the energy markets are hurting consumers, no matter what and there is nothing you can do about that. All you can do is spread out the pain.”

As the effects of sharply increased natural gas and electricity prices become painfully obvious to more and more citizens and companies, the European Commission (EC) launched a plan on Sept. 14, 2022. The three main measures in this energy emergency plan: a price cap for fixed-cost electricity producers, an additional tax on the profits of oil and gas companies and a mandate for EU member states to consume less energy. 

The proposal contains market interventions that were not thought possible in Europe until recently. The question therefore arises: how effective are the intended measures really? Olthof goes through them one by one.

Price cap on power

“For electricity from nuclear power plants, hydropower plants, solar farms, wind farms and lignite-coal power plants, the European Commission wants to apply a maximum output of 180 euros per megawatt hour. Such a price cap is in itself a logical step, since the cost of generating this electricity has hardly gone up - unlike electricity from gas-fired or coal-fired power plants. Meanwhile, the price of electricity has gone through the roof ten times over, leaving producers with fixed costs making excessive profits. It is understandable that the EC is creating a mechanism to skim them off and use that money for users who need it most.”

Member states may also set a price cap lower than 180 euros. That would give more air to customers who need a lot of electricity for their production process, such as aluminum producers.


“For a producer of electricity not generated via gas or coal, 180 euros is still an extremely good price. But for customers who use a lot of electricity for their production process, such as aluminum producers, that rate is disastrous for competitiveness. So a lower price ceiling is preferable, but also not so low that it discourages producers of renewable energy from making new investments in, for example, wind turbines and solar parks. That is also the reason why the EC did not want to set it too low.”

Extra taxes for oil and gas companies

It’s not just fixed-cost power producers that are the lucky ones in today's electricity market. So are oil and gas companies. The second measure in the EC plan is therefore to have these companies pay a third of their profits as a “solidarity contribution” and use the proceeds to relieve citizens and other companies. But again, Olthof says the dosage is important.

“Oil and gas companies are making a lot of money right now. The gas they extract elsewhere in the world and bring to Europe is suddenly worth five times as much here now. As a result, it is fairly easy to say that they can afford the extra tax. To a certain extent, it is logical to skim off their profits. But to compensate for the loss of Russian natural gas supply, we will have to look for alternative natural gas supplies in addition to expanding wind and solar energy. If Europe skims off the profits of oil and gas companies too much, it will no longer be attractive for them to invest in this search. To drill new gas fields, companies like Shell or BP will then choose the U.S. rather than the North Sea. As a result, less gas will come to Europe, and we do need that gas.”

Following the plan announced in mid-September, the EC is looking at whether it can intervene further in the natural gas market. However, it is still remains to be seen how that will play out, Olthof says. 

“On the international market, the gas price is determined by LNG. That is liquefied gas, which can be traded worldwide and sent anywhere by ship. Basically, those ships go where the price is highest. In recent years, the price for LNG moved along with the price of gas in Europe. When the price in Europe was very low because of an overcapacity of gas in the world, the LNG price was also at that low level. Now there is scarcity in the world gas market. The European gas price is sky-high and so is the price on the international market for LNG. Available LNG now goes to Europe, because even now it is the highest bidder. Proponents of a price cap for natural gas in Europe assume that an artificial price cut in Europe is bound to lead to a similar movement in the international LNG price - which Europe can then still buy that liquid gas for.”

But it is questionable whether that is the case, Olthof says. “If other buyers of LNG, such as Japan or Korea, are willing to pay more than the maximum price in Europe, then Europe will not get this gas. There will still be LNG coming to Europe on long-term contracts, but the portion not yet sold will go to Asia. Southern Europe is in favor of a European maximum price for gas but Northern Europe is not, so there is still a lot of wrangling and debate about that.”

Consume less electricity
The third measure in the EC’s energy emergency plan focuses on reducing electricity demand. Member states are asked to reduce consumption by 5 percent at times of peak electricity demand and to reduce total consumption by 10 percent in the long term.

Olthof: “How they achieve that 5 percent reduction is up to member states to decide. In any case, they are given the option of offering financial compensation to energy-intensive companies to shut down production at peak times. But for achieving the 10 percent target, not very many tools, rules or details have been disclosed yet.”

So the effectiveness of the energy contingency plan depends mainly on the dosage that member states choose to use in utilizing the tools put in their hands for this purpose? 

Olthof: “Yes. The EC in itself has proposed good measures to deal with this crisis, but from the perspective of energy-intensive companies it is not yet sufficient. These companies will have to wait and see if individual member states will do more, and how they will distribute the skimmed-off profits. Either way, developments in energy markets are hurting consumers, and there’s nothing you can do about that. All you can do is spread out the pain – as best you can.”

Volgende publicatie:
Does lower consumer spending have any economic benefits?

Does lower consumer spending have any economic benefits?

Published on: 1 September 2022

Current issues related to economics, (responsible) investment, pensions and income: every week, an APG expert gives a clear answer to the question of the week. This time: macroeconomist and senior strategist Charles Kalshoven on the positive flip side of massive consumer spending cuts. “The current situation, in which high inflation forces lower spending, has mainly shadow sides. But we cannot deny that there are also some bright spots.”


Particularly - but not only - due to the war in Ukraine, price levels have soared in the space of six months. Energy prices are at the top of the list and are prompting people in the Netherlands to drastically cut back on their spending. Total domestic consumption in June still showed an increase compared to the previous year, but the question is how long this growth will last. Inflation has risen further since then and it seems only a matter of time before consumer spending will decrease. Consumer confidence and willingness to buy fell to record lows in August.


Personnel leaving
For some, the increased price level is an inconvenience, but for others it can be the financial death blow, making a trip to the food bank unavoidable. Bad news for many businesses and consumers. But do consumer savings also offer advantages?  According to Kalshoven, they do, firstly because they prevent the economy from overheating, and secondly because the cause of those savings - mainly increased energy prices - can shift the energy transition into a higher gear. Moreover, high prices can introduce people to options they had never seriously considered before, and lead to more flexibility in dealing with future changes.

Kalshoven: “Macroeconomically, we are getting this inflation because the supply of some key products and services is not matching demand. Demand has recovered after Corona, but there is still a shortage of supply. This is due to the aftermath of lockdowns in China, for example, but also because staff in the hospitality industry or at Schiphol Airport have been leaving. But the most obvious reason is, of course, energy. Shortages - or the risk thereof - have caused prices to explode. If consumers save on energy, this will help to keep prices down. More generally, cutting spending will prevent the economy from overheating - and thus inflation - if there are bottlenecks on the supply side.”


Exorbitant loans
Less frequent visits to restaurants, for instance, may help to alleviate the shortage of hospitality staff - who left the sector in large numbers during the pandemic and did not return afterwards - becomes less acute, says Kalshoven. And there are other examples.

“The risk of a situation arising in which the demand for hospitality personnel far outstrips supply is reduced - and with it the risk of exorbitant wage increases. The same applies to the aviation sector. If people start flying less, the personnel shortage at Schiphol and other airports will also become less of a problem. But the biggest factor is, of course, energy. If people take shorter showers and lower the thermostat, the demand for energy drops. If those who can easily cope with the higher energy tariffs also reduce their consumption, they will help to replenish the gas reserves and keep the prices down. In so doing, they will be showing solidarity with the lower income groups, who simply cannot afford these high prices.”




Lower energy consumption is obviously also better for the climate. High energy prices can also be a catalyst for the transition to sustainable energy. Part of this is really about saving energy, for example by insulating the house or taking a shower for a shorter period of time. 


Kalshoven: “This extremely expensive energy accelerates many people’s ambition to become more sustainable, provided they can afford it and it is possible in their home, for example. Not everyone has the means to invest in a heat pump or solar panels, for example, and for people who rent an old, draughty house from a landlord those options are not available anyway.”

The higher price level and less spending can also contribute to greater sustainability in another respect. 

“The fact that transport has also become more expensive can have a positive effect on the sale of seasonal and regional products, such as fruit and vegetables. A Dutch consumer, for example, may now be more inclined to opt for an apple grown in the Netherlands instead of one from New Zealand. And that in turn has a reducing effect on carbon emissions.”


“Mother of invention”
According to Kalshoven, the increased price level and lower spending pattern can also have a positive effect on your mind set.

“The fact that we are forced to change now makes us more flexible in the future. And necessity is the mother of invention. People who find themselves in deep financial difficulty because of rising prices are more likely to make biased choices. But for others, a need for change can also spur creativity and lead to choices that they will be happy with in retrospect. Large price increases can give someone just the push they need to try an alternative that they had never seriously considered before. If you have never cycled to work, you might try it now. And if it works out surprisingly well, you may find that you don’t want to go back to the old situation.”


Collective impoverishment
So we should see the high prices for energy and food, among other things, as a blessing in disguise? Kalshoven does not want to go that far.

“Whichever way you look at it, we are dealing with a collective impoverishment in the Netherlands. We used to be a gas-exporting country. But now we have to buy more gas from abroad, and because gas has become more expensive, that leads to a loss of terms of trade. At an individual level, the effects of this can be very dramatic. It is clear that the current situation, in which high inflation forces lower spending, has mainly downsides, but we cannot deny that there are also some bright spots.”


Volgende publicatie:
Thijs Knaap at BNR on Fed chairman Powell’s speech

Thijs Knaap at BNR on Fed chairman Powell’s speech

Published on: 31 August 2022

The Federal Reserve Bank’s announcement that it would raise interest rates did not come as a surprise. It was primarily the way Fed Chairman Jerome Powell delivered  that announcement last Friday that led to the stock market subsequently falling by 4 percent. That was the conclusion of chief economist Thijs Knaap of APG during the BNR Investors’ Panel.


“Central bank presidents generally always leave a backdoor ajar. A loophole with conditions and exceptions as to why they might not need to raise interest rates after all,” Knaap explains. But this time, according to the chief economist, that was clearly not the case. Powell kept it short; the message in his 8-minute speech was that the Fed would raise interest rates “no matter what”.


Lessons learned from the 1970s

Of course, there are all sorts of parties for whom that is bad news, the panel participants concluded. Companies that have a lot of debt, for example, will be paying more for it. “But in and of itself it is good news that central banks are taking their responsibility and fighting inflation,” Knaap argues. “It hurts now, but fortunately, we have learned from the 1970s that you can’t just let things run their course.”


Safe haven

The announced rise in interest rates resulted in a rising dollar exchange rate. Holding cash in the United States is more lucrative when interest rates are higher. But the timescale is also to blame for the rising exchange rate. The dollar has always been a safe haven in uncertain times, like right now with the war in Ukraine. According to the panelists, the fact that the expensive dollar is unfavorable for exports had not yet led to many complaints in the US. That did happen in the 1980s. “But the United States has also become a less industrial country since that time, and has changed into more of a service economy,” Knaap explained.


Listen to the entire investor panel here:




Volgende publicatie:
How dependent on China is the Dutch economy, really?

How dependent on China is the Dutch economy, really?

Published on: 10 August 2022

Current issues related to economics, (responsible) investment, pensions and income: every week, an APG expert gives a clear answer to the question of the week. This time: chief economist Thijs Knaap on the question of how dependent on China the Dutch economy is. “An economic disconnection from China will have even greater consequences than the disconnection from Russia.”

Last week, Speaker of the U.S. House of Representatives Nancy Pelosi visited Taiwan. The controversial visit raised tensions between the US and China. A conflict of the two economic superpowers over Taiwan thus seems another step closer. “Open trade nations like the Netherlands, with the recent lessons from the Ukraine crisis, need to prepare for this new geopolitical reality faster,” Jonathan Holslag, a political scientist at the Free University of Brussels, argues in NRC. “We need to reduce our economic dependencies on China faster, or the price threatens to get even higher in the coming years.” But how dependent on China are we really, in the Netherlands?

Equity Blow

After Russia’s invasion of Ukraine, Western countries imposed hefty sanctions on Moscow. That move can serve as an example of what happens when the U.S. and the EU want to disengage economically from China, Knaap argues. “The example of Russia shows that there are different degrees of dependency. The first is ownership of - in this case - Western equity in Russia or China. Dutch investors have interests in Russian companies, and Russian companies and individuals have assets abroad. In other words, there are financial links. Is that dependence? Yes, because after the war broke out, it became clear to both Western investors and Russian oligarchs that their interests were not safe. If the West breaks off relations with Beijing tomorrow, so to speak, it is quite possible that an immense financial blow to both parties will follow. Although China’s share among Dutch investors is not huge, the amounts involved are substantial. And that loss will be instantaneous.”


The second form of dependence is trade relations, both of goods and of technology. Of everything we import into the Netherlands, 12.4 percent comes from China. A hefty portion, but it also masks the bigger picture, Knaap said. “The example of Russia really demonstrates very well the importance of the so-called second-order effects. For example, we are not that dependent on Russian gas, but the Germans are. And if they have a gas shortage, we will also have one. We can also see it in imports of, for example, fertilizer from Germany, because the chemical companies there need gas for their production. It is therefore very misleading to look only at the direct economic consequences for the Netherlands, because these days almost all production chains run through several countries. The indirect effects are therefore even greater.”

Corona crisis

“Whereas the severing of economic relations with Russia mainly shows how dependent Europe is on Russian fossil fuels, an economic disconnection from China will have even greater consequences," Knaap said. “You can already see that when you look at that Chinese share of 12.4 percent of Dutch imports. If imports were to shrink by such a percentage, that would be a huge economic blow. And that doesn't even include the fact that the other countries the Netherlands trades with also import a lot from China. At the time of the corona crisis, we noticed in Europe how dependent we were on Chinese products. Chinese ports were closed, and you couldn’t even get a bicycle in the Netherlands because we were out of parts. So, it’s very difficult to cut a country out of the supply chain, especially China.”

The downside of everyone earning well here is that it costs a lot to manufacture products here

According to Holslag, in NRC, the Netherlands and other European countries need to become more self-sufficient so that we are prepared if things go wrong with China down the road. “That’s one way of looking at it,” Knaap responds. “For a very long time the prevailing thought was: as long as we have very strong economic ties, we can’t afford war. You can see that it works too, because despite the rhetorical arm-twisting between Beijing and Washington, the two countries are still doing plenty of trade. So that economic dependence is there, and that also applies to China. If the West stops buying Chinese products, they will have just as much of a problem there. So, it is costly for both sides to stop globalization.”

Yet companies seem more reluctant than before to invest in China. Causes are the strict lockdowns, particularly in Shanghai, and the somewhat disappointing growth figures. The tensions around Taiwan are also not going to increase enthusiasm about China among foreign investors. Knaap points to the “China+1” approach that some companies are taking. This means that they build one factory in China and one factory in another low-wage country such as Vietnam or India, which can then serve as a backup, should something go wrong in the (trade) relations with China.


However, it is not an easy task to turn Europe into a manufacturing center again, like China is now, Knaap argues. “If we have to start manufacturing everything ourselves, the inflation we are seeing now is nothing compared to what we will be facing then. The downside of everyone earning well here is that it costs a lot to manufacture products here. Much of our prosperity is due to globalization. We got a little spoiled by getting lots of stuff for little money from low-wage countries. In recent decades they have become very good at manufacturing all kinds of products, while we have somewhat lost that art. It will therefore probably take years to set up a manufacturing industry here again.”

So, for the time being, the Dutch economy is largely dependent on China. There is the financial dependence, but especially the dependence on Chinese products, both directly and through trade with other countries that are also dependent on China. “The fact is that China has developed into an almost untouchably competitive manufacturing economy. They are more expensive than before but still not very expensive, super productive and they can deliver tomorrow if they have to. China's trade figures are only going up, right through all the economic crises. They know exactly what we want, and they sell it to us in large quantities.”

Volgende publicatie:
Will the ECB interest rate hike lead to lower house prices?

Will the ECB interest rate hike lead to lower house prices?

Published on: 28 July 2022

Current issues related to economics, (responsible) investment, pensions and income: every week, an APG expert gives a clear answer to the question of the week. This time: Vincent Fokke, Head of Listed Real Estate Europe, on whether the European Central Bank’s (ECB) recent interest rate move will lead to a cooling of the Dutch housing market. “The housing market is not purely driven by rational investment decisions. Often, emotional considerations play a bigger role.”


In an attempt to suppress high inflation, on July 21, 2022, the European Central Bank raised the deposit rate - the interest rate banks receive when they deposit excess money with the ECB - from -0.5 percent to 0 percent. A significant step - in a historical sense, since the ECB had not raised interest rates for over a decade, but also because such an adjustment of 0.5 percentage point does not normally happen in one go. And, the ECB’s expectations for the coming months showed that the end of the rise does not seem to be in sight.  


Will those rising ECB interest rates also lead to higher mortgage rates, so that the Dutch housing market can finally cool down a bit after years of big price increases? According to Fokke, the people who are looking forward to this should not rejoice too soon. If only because the ECB interest rate is not the most decisive factor for the level of mortgage rates.

“With negative deposit rates, banks have a strong incentive to put out ‘excess’ money. That may contribute somewhat to a higher supply of mortgage loans, resulting in a depressing effect on mortgage rates. However, ultimately, mortgage rates are not so much related to the ECB rate, but to a greater extent to long-term capital market rates. The interest rate on government bonds - for example on Dutch government bonds with a maturity of ten or thirty years - is therefore a much more important reference point for the mortgage market than the ECB interest rate. That also explains why we have seen a strong upward movement in mortgage rates over the past seven months. Because from January to mid-June, capital market rates rose sharply, while the ECB rate hike had yet to take place at that time.”      


Quite dynamic
After mid-June, however, capital market rates dropped significantly again. So, can we now expect lower mortgage rates again? That seems a bit premature.

“Due to the current geopolitical situation and the reversal of monetary policy - the ECB has raised interest rates, but since July has also stopped net bond purchases to stimulate the economy - those capital market rates are currently quite dynamic. For example, the interest rate on a ten-year Dutch government bond had risen to 2.1 percent in mid-June, while now - at the end of July - it is only 1.3 percent. Because of this high volatility of capital market interest rates, banks are still somewhat reluctant to adjust their mortgage rates. After all, things can quickly go the other way again.”

Despite the recent volatility, however, we can see that capital market rates have started an upward trend, driven in part by the sharp rise in inflation, Fokke emphasizes.

“Of course, it’s not out of the question that in the shorter term mortgage rates will also come back down. But if you compare the capital market rates of today with those of five or seven years ago, you can see that the trajectory of those rates is up, even though they have fallen sharply in recent weeks. In the recent six months, mortgage rates have risen along with this market movement.”


Emotional considerations
And this brings us to the key question: can a possible continuation of this rise in capital market interest rates that has been going on for years cause the air to be let out of the Dutch housing market bubble? After all, based on economic theory, you would expect that when financing becomes more expensive, the demand for houses falls - and so does the price. But with the housing market, it’s all just a bit more nuanced, says Fokke.

“The housing market is not driven purely by rational investment decisions. People who are looking for a house do not see it only as an investment object. In fact, emotional considerations often play a bigger role. This makes it relatively difficult to predict how such a market will develop. For example, I think many an analyst would have expected house prices to fall during Covid times because of the increased economic uncertainty - after all, they had already risen considerably. But the opposite turned out to be the case, and that illustrates the different character of this market. On top of that, although mortgage rates have risen, they are still not at a shockingly high level.”


Detached houses

Moreover, you can’t really speak of “the housing market”, and that too complicates the relationship between mortgage rates and the housing market.

“The housing market is not only fragmented regionally, but also in terms of housing type. All those different markets have their own dynamics of supply and demand. And of all the factors that determine the direction of the market, that dynamic is the most important factor. Many sub-markets show tightness, but the extent varies. For example, in the case of detached houses in the higher segment, supply and demand are reasonably in line. In contrast, the tension between supply and demand is much greater in cities, due to urbanization.”

Another reason why higher mortgage rates do not necessarily lead to falling house prices, according to Fokke, is several developments on the supply side of the housing market.


Rent increases curbed
“I am seeing at least two developments that are having a major impact on housing supply. The first development is that many investors are withdrawing from the housing market as a result of the increasingly strict regulation of the free sector. For example, initiatives have been taken to limit rent increases or to require that a buyer of a house first occupy it himself for a number of years before it can be rented out. The second development is the enormous increase in construction costs. Many materials - wood, steel and cement, for example - have become considerably more expensive, resulting in fewer building projects.”

The ECB can exert limited influence on mortgage rates through adjusting deposit rates. But the effect of that is dwarfed by the effect that changes in capital market rates have on mortgage rates. Capital market rates have risen since seven years ago and, more recently, so have mortgage rates. But even rising mortgage rates do not necessarily lead to lower house prices. So now that the ECB is raising interest rates, this will not automatically lead to a cooling of the Dutch housing market.

Volgende publicatie:
“Europe is going to have to live according to its means”

“Europe is going to have to live according to its means”

Published on: 25 July 2022

On July 11, 2022, Russian state-owned gas company Gazprom shut down the Nord Stream 1 pipeline for its annual ten-day maintenance. At the time, serious consideration was given to the possibility that gas supplies to Europe would not resume after the maintenance period - with all the potential consequences that would entail. What are those potential consequences? How big is the potential economic impact, if Nord Stream 1 were to be completely shut down? Five questions for APG’s Peter Verbaken, Head of Commodities Team, and Gillis Björk Danielsen, Senior Portfolio Manager Commodities. “The impact on the European economy will be the least if Europe responds in a coordinated manner.”


When Gazprom announced to its European customers in mid-July that it could no longer guarantee the supply of natural gas, serious consideration was given to the possibility that Nord Stream 1 would not be restarted. Those fears turned out to be unjustified, to the extent that natural gas began flowing through the pipeline again on July 21. But the supply was still at the same low level as before the maintenance: 30 to 40 percent of the natural gas quantity that Gazprom supplied to Europe through Nord Stream 1 until early June (a few days later, Gazprom announced that it would cut flows through Nord Stream 1 on July 27th, to 20 percent of its capacity). Before that date, the full capacity of Nord Stream 1 was used. Then the gas flow began to decline, and hovered around 40 percent of full capacity around June 17. And with that, it remains a means of pressure with which Russia’s president, Vladimir Putin, is trying to get Europe to stop supplying weapons to Ukraine and/or to reduce the economic sanctions imposed on Russia after the invasion of Ukraine. After all, Europe depends on Nord Stream 1 for a third of its natural gas consumption, and to get through the winter, it needs to replenish its gas supplies in the summer.


What could be the reason that Nord Stream 1 has been restarted after this maintenance period after all?

Björk Danielsen: “If Gazprom completely stops the supply of gas to Europe, it would mean a significant loss of revenue for the Russian state, because it cannot sell that kind of quantity elsewhere. Revenues they need to finance the war against Ukraine. You could speculate that restarting Nord Stream 1 may be a way for Putin to test Europe's resolve and internal solidarity. By maximizing the unpredictability of Russian natural gas supplies to Europe, Russia makes it difficult for Europe to remain united and plan ahead to meet its energy needs. The fact that Russia has resumed gas supply may be a way to dissuade Europe from taking emergency measures now to function without Russian gas in the winter. This is most likely to create divisions within Europe in due course. And that is in Putin’s interest.”


What would a divided Europe look like, if the natural gas supply from Russia were to stop completely?

“Some countries may make separate agreements to keep receiving gas from Russia. In other cases, it can be competition over who gets access to the limited non-Russian gas. Theoretically, a number of countries, including the Netherlands, can secure the necessary natural gas for themselves by stopping supplies to other countries. For example, some of the natural gas pumped into Groningen is currently supplied to Germany. But the chances that those countries will actually cut off supplies to neighboring countries are slim. Politically, it’s a pretty impossible scenario. When the possibility of a Russian supply freeze became more and more real, European member states made agreements to share their gas supplies and help countries disproportionately affected when necessary.”


What would be the economic impact on Europe, if Nord Stream 1 were to be shut down completely?

Verbaken: “The impact on the European economy will be the least if Europe reacts in a coordinated manner. Such a response is indeed expected. But it is far from certain, given the unequal interests of Germany in particular on one side and countries like Hungary, Spain, and Italy on the other. The IMF recently calculated that Europe can significantly limit the economic impact of a full Russian supply freeze with a coordinated approach. Should Europe still respond in a ‘fragmented’ manner, the extent of the economic damage will vary from country to country. For the Netherlands individually, it makes relatively little difference whether Europe responds in a coordinated or fragmented manner. If you look at the IMF figures, the percentages that the Netherlands gives up on gross national product are relatively close - around two percent at most in both cases. But countries that are much more dependent on Russian gas, such as Hungary, will be hit hard in a scenario in which Europe does not respond as one. The GNP of the Hungarians would take a hit of 2.5 to 6.5 percent in that case, compared to 1 to 3.4 percent in a coordinated European response.” 


For how long would the Netherlands be able to get by on its current gas reserves, if it no longer gets gas from Russia and no measures are taken?

Verbaken: “That is an irrelevant question, really, because you cannot consider the Netherlands an isolated country in that respect. Given that the European member states have agreed to share the natural gas reserves, it is better to ask: how long can Europe endure without Russian gas? And that is a very difficult question to answer because it depends on so many different factors. For example, how much the industrial demand for gas will decrease as a result of higher gas prices, and of course how cold - and how long - the winter will be in Europe. It also depends on how much LNG - natural gas that has been liquefied and can thus be shipped around the world - Europe can buy on the world market to make up for a shortage of natural gas.”


So, we just have to wait and see when central heating systems and gas stoves stop working?

Björk Danielsen: “Modeling does produce estimates of the time it will take for European gas supplies to be depleted if Russia stops supplying gas completely. But the bottom line is that Europe will have to live according to its means if the gas supply from Russia is cut off completely. Demand will simply have to be lower to get through the winter. That’s why the European Commission has also asked all member states to reduce their natural gas consumption by 15 percent between August 1, 2022 and March 31, 2023. How they do this is up to all member states. Part of the reduction will have to be achieved by governments and companies, but households may also be asked to make adjustments. The European Commission's proposal in its current form is unlikely to be passed – or even get to a vote – so most likely it will be amended. But we probably won’t be sitting at home with frostbite during the winter. Europe will not let it get that far.”


Volgende publicatie:
“Eventually, inflation in the Eurozone will move towards 2 percent again”

“Eventually, inflation in the Eurozone will move towards 2 percent again”

Published on: 22 July 2022

The war in Ukraine has made inflation a global issue in 2022. Including in the Eurozone, with Estonia taking the crown with inflation of more than 20 percent in June. But apart from African countries, there is no country where money has lost value as rapidly as in Turkey. Why is this, what does it mean for the Turkish population and how big is the chance that inflation in the Netherlands and Europe will get out of hand just as badly? We asked Charles Kalshoven, Senior Strategist at APG.


In June 2022, inflation in Turkey reached a staggering 78.6 percent, a figure that has not been this high for more than two decades. By comparison, in the same month, European inflation stood at 8.6 percent. The main reason for the extremely high figure in Turkey lies in the way the country is economically managed, says Kalshoven. This is because Turkey's president, Recep Tayyip Erdogan, holds unconventional macroeconomic theories.


“Turkish inflation has been able to get so out of hand because Erdogan somehow hates interest rates. It is hard to know why, but in fact he reasons as follows: when interest rates are high, companies have to incur a lot of costs - financing is expensive - and because these have to be passed on to their products, prices rise. So, he argues, if you want to keep inflation low, you have to keep interest rates low.”


Not good for their careers
In doing so, he goes directly against the consensus among economists and central bankers, which is that you need to raise interest rates precisely to keep inflation down. 

“And the central bankers in Turkey know that too, but raising interest rates has not proven to be good for their careers. Erdogan has already kicked out a number of bank presidents in the past for that reason.”

With the Turkish people’s money depreciating so rapidly, many are taking their money and investing it in assets that are more stable in value, Kalshoven says.


Gold and jewelry
“Many goods are currently being purchased in the hope that they will retain their value, such as gold and jewelry, as well as, for example, used cars. The economy may get a boost from this for a while - but it will be relatively short-lived. If everyone is primarily concerned with protecting their assets from inflation, it will ultimately not be that productive. Besides, it can also cause a negative, self-reinforcing effect. Turks are buying more foreign currency, which has caused the Turkish Lira to go down. Last year, the Lira was still worth a dime in euro cents. Now it is fast approaching a penny. This also makes imports more expensive for Turkey, which in turn creates imported inflation.”


The sharp rise in energy and food prices also plays a role in Turkey's inflation rate, but a relatively limited one. Kalshoven: “We also have these higher prices for energy and food in Europe, but here we still have single-digit inflation figures, while the Turkish economy has been showing double-digit inflation for some time now.”


Traumatic experiences
Before inflation in the Netherlands and Europe rises as high as in Turkey, a lot has to happen. After all, the interest rate policy of the European Central Bank (ECB) is diametrically opposed to Turkey’s policy and cannot just be swept off the table.


“The ECB does not have inflation on a string either, but there are solid agreements between the member states on the mandate,” he says. Christine Lagarde (the president of the ECB, ed.) can’t just be fired, that’s institutionally better guaranteed than in Turkey. Theoretically, you could exert influence through the appointment of an ECB president who pursues a distinctly specific interest rate policy. But in practice, countries like Italy, Germany and the Netherlands would have to agree on such an appointment. The Germans have had traumatic experiences with hyperinflation. So, the chances of them allowing it are very low.”


Far-reaching effects
The fact that the central bank in Turkey has still not raised its interest rates has - in addition to high inflation - even more far-reaching consequences economically. Confidence in the Turkish economy is declining, in more ways than one.

“In an attempt to keep prices in check, the Turkish government is resorting to short-term solutions. For example, it has reduced the VAT on food from 8 percent to 1 percent. It helps for a while but in the end, it is nothing more than a stopgap measure. It is not good for government finances and, as a result, financial markets' confidence in Turkish government bonds is falling. And the banking sector also benefits if the government's housekeeping is in order, because then it has easier access to foreign capital.”


No band-air solutions
Turkish consumer confidence has taken a hit and investment prospects are poor, says Kalshoven.


“Partly because the confidence level, which has fallen due to the counterproductive interest rate policy, encourages capital flight. Normally, a central bank would raise interest rates to combat that capital flight, but instead Erdogan blames the foreign interest lobby.


According to Kalshoven, the Turkish economy does not need band-aid solutions, but structural reform.


“The labor force in Turkey is growing, you want to keep those people employed. To achieve that, the country needs more exporting industry. The economy now relies too much on the construction sector and on tourism. And the latter sector is being hit hard, now that a significant proportion of tourists - Russians and Ukrainians - are staying away as a result of the war.”


The seventies

The (constitutional) situation is therefore fundamentally different in Europe and the Netherlands, and makes an interest rate policy like Turkey’s impossible. However, this does not mean that double-digit inflation is impossible in the Netherlands and Europe, says Kalshoven.


“In the 1070s, we saw that it can be done, but even then it wasn’t about percentages like Turkey’s now. And while interest rates in Europe may also be too low for current inflation, the ratio is not as skewed as in Turkey. Look, even with us there are conceivable circumstances in which inflation gets out of hand. Suppose we have a recession in which unemployment rises but inflation declines only slightly because there are mechanisms by which wages are automatically adjusted to prices - as was the case in the 1970s. The price you pay for fighting inflation - even higher unemployment - then gets really high. The call for less social damage will then certainly increase, although that is no guarantee that central banks will then cave in.” 


In any case, this scenario is not on the agenda at the moment, says Kalshoven, because the labor market is currently tight.


Not following Turkey
“And if interest rates are raised and there is a recession, that tightness will probably disappear again. The fact that we are not going to follow Turkey’s lead can also be seen from the ECB inflation forecast. In June, inflation was 8.6 percent, for the whole of this year the ECB expects 6.8 percent, for 2023 3.5 percent and 2.1 percent in 2024. Barring any surprises, such as escalation in Ukraine or new Covid lockdowns, we think that inflation in the Eurozone will eventually return to the 2 percent target. Incidentally, such a rate has not occurred in Turkey in the past 50 years.”

Volgende publicatie:
Will the power wielded by large investors have a negative effect on sustainability?

Will the power wielded by large investors have a negative effect on sustainability?

Published on: 30 June 2022

Current issues in the field of economics, (responsible) investing, pension and income: every week an expert from APG gives a clear answer to the question of the week. This time: Head of Responsible Investment Capital Markets & RI Communications Anna Pot on whether the increasing size and power of large asset managers is having a negative effect on sustainability.

"The shareholder landscape is changing slowly, but the changes are revolutionary," wrote Volkskrant columnist Peter de Waard a month ago. "Shares are ending up in the hands of a smaller and smaller group of investors who are further away from the companies in which they put their money." In the past, shares were mainly owned by wealthy families, who voted annually at the shareholders' meeting, writes De Waard. From the 1970s onwards, new types of major shareholder emerged, such as banks, insurers and later also pension funds. Nowadays these parties partly outsource their investments to large asset managers such as BlackRock, State Street and Vanguard, companies that focus on index investing, he says. As a result, they do not select shares themselves but instead follow a stock market index, and are therefore less involved as a shareholder. Doesn't this form of passive investing come at the expense of sustainability?


Responsible investing
According to Pot, this doesn't necessarily have to be the case. "These large parties are increasingly starting to invest sustainably. They are also investing more and more in establishing their own teams to focus specifically on the responsible investing criteria of their investments. When making investments for their clients, such as pension funds, they increasingly take sustainability considerations into account. There is a positive trend with large asset managers helping to ensure that an increasingly large pool of assets worldwide is being invested sustainably."


APG recently launched the iSTOXX APG World Responsible Investment Index, which is managed by BlackRock. “This index product is not actively managed in terms of risk and return, which keeps costs low. However, it is actively managed in terms of sustainability by adding different filters, depending on the client's wishes. These filters can be the exclusion of certain products, investing only in ESG leaders, reducing the carbon footprint, and including Sustainable Development Investments. The market should therefore not classify this type of investment as a traditional index product. Products like these actually form a whole new category. You could call them 'responsible index products'."

We must remain vigilant to ensure that index investing does not result in a watered-down version of sustainable investing

According to Pot, there are several reasons why the largest asset managers are also focusing more on sustainability. "First of all, customers are requesting it. More and more institutional investors such as pension funds want to invest sustainably. And there is also more demand for sustainable investment products among the younger generation of private investors. Second, is the role of legislation. In Europe, for example, the Sustainable Finance Disclosure Regulation has been introduced, which obliges large investors to report on the extent to which they invest sustainably. Third, the market has developed, offering more opportunities for sustainable investing. For example, more and more data are available on companies’ ESG performance. This is making it easier for large asset managers to make the transition to sustainable investing."

What Pot does see as a worrying development is that index investing involves little or no dialogue with the companies in which investments are made. “And that is what is needed. If asset managers want to contribute to the sustainable transition, in addition to buying a company’s shares, they also need to invest in dialogue to encourage companies to become more sustainable.”

The fact that the largest asset managers wield the most financial power does not have to have a negative effect on sustainability, Pot concludes. "The increase in sustainable investments is a positive trend. And the fact that the index investors offer cheap sustainable index-based solutions supports this trend. That said, we must still remain vigilant to ensure that index investing does not result in a watered-down version of sustainable investing. In our opinion, being an active shareholder means that you delve into the sustainability performance of companies, enter into a dialogue where necessary and vote at shareholder meetings in an informed way. The active dialogue we have with companies to work together to help them become more sustainable is and always will be necessary. In order for this dialogue to continue, we need to remain critical of companies’ sustainability performance. In addition, it is important that we promote our approach on active long-term corporate engagement to other institutional investors. In this way, we can ensure together that sustainability remains high on the agenda."

Volgende publicatie:
Should pension funds invest in cryptocurrencies?

Should pension funds invest in cryptocurrencies?

Published on: 29 June 2022

Trading in cryptos remains popular among retail investors, and more and more institutional investors are getting in on the action too. Can pension funds afford to neglect this new asset class? We asked Thijs Knaap, APG's Chief Economist, and senior strategist Charles Kalshoven to lay out their case. "The people who got rich in the Gold Rush were not the ones that did the actual digging."


In the Netherlands more than a million people already invest in crypto, claims a radio commercial for a crypto trading platform. The main draw - together with the fact that everyone else seems to be investing in cryptos too - is the opportunity to get rich quickly. Because despite the recent heavy losses crypto investors have suffered and the crash of a stablecoin whose primary claim was that it could never crash, the returns are still impressive. Take bitcoin for example, the oldest of around 18,000 cryptocurrencies that exist today. Trading at a little over €2,000 five years ago, today a bitcoin is worth around €20,000 (down from a high of almost €60,000 at the end of 2021). Among those million-plus crypto investors, there are undoubtedly some whose pension is being managed by APG. And if they are willing to invest their own money, shouldn’t their pension fund jump in too?


In July 2021, Germany's financial regulator BaFin allowed just that when it enacted new regulations that say institutional investors can allocate up to 20 percent of their assets to cryptocurrencies. As the FT wrote at the time, this was an attempt by BaFin 'to balance its concerns about what is has described as the 'highly risky and speculative' nature of cryptocurrencies with its desire to encourage the development of new technologies that could have a significant effect on financial services.'


More recently, BlackRock, the world's biggest asset manager, launched its iShares Blockchain and Tech ETF that 'seeks to track the investment results of an index composed of U.S. and non-U.S. companies that are involved in the development, innovation, and utilization of blockchain and crypto technologies.' In an accompanying report, BlackRock is bullish: 'While most of the market attention has focused on the price and volatility of cryptocurrencies themselves, we believe the broader opportunity – leveraging blockchain technology for payments, contracts and consumption broadly – has not yet been priced in.'


With retail and institutional investors alike flocking to cryptocurrencies, and regulators holding open the doors, should APG not follow suit? "That's a legitimate question", says Thijs Knaap, APG's Chief Economist. "We're regularly being asked why we're not investing in cryptos, by media and by people on Twitter who point out that our coverage ratio would look a lot better if only we had been smart enough to invest in cryptos early. I haven't heard from those people lately, but we should look past the recent losses and crashes. Surely cryptos will increase in value again some day and new and improved currencies will be launched."


So when will APG begin to invest in cryptos?

Thijs: "Not anytime soon. Pension funds, even more so than other long-term investors, need to invest in assets that generate cash flows: stocks that pay dividends, bonds that pay interest, real estate for which rent payments are received. The basic idea is that every month about as much cash needs to flow in as APG pays out to pensioners. A fundamental objection against pension funds investing in cryptocurrencies is that they do not generate any cash. The only way to make a return on cryptos is to sell them to the next investor who is willing to pay more than you did. In the meantime nothing happens, to us that makes investing in cryptos unattractive as well as unpractical."


But pension funds invest in other assets without cash flows, like commodities and gold.

Thijs: "True, but apart from their inherent value these assets have other appealing characteristics. We know, based on data that sometimes goes back hundreds of years, how they correlate with other asset classes or economic parameters. Gold for example moves along with the general price level and thus provides a good hedge against inflation. Bitcoin doesn't have a 200-year history, and neither does it have a strong correlation with other assets. Well, lately maybe with stocks, but that provides no diversification to our portfolio and no hedge against anything. So in short: crypto currencies provide no cash flows and no hedges. From a technical investment perspective we therefore don't see a reason to invest in them."

Charles: "Let me add an argument from portfolio theory. You can take a well-diversified portfolio with a certain risk and return ratio and study what happens when you add bitcoins to such a portfolio. In my calculations I necessarily had to make some assumptions about correlations and volatility, but in any case the outcome was very clear: only with an expected return of 25 percent per year would it be worthwhile to add bitcoins to the portfolio. With a horizon of 15 years, you have to ask if there is anything that justifies a growth of 25 percent year on year for such a period. The answer is no, there is simply no way I can justify that. So along that line of thought you come to the same conclusion: the investment case for cryptocurrencies just isn't there."


Do pension fund participants, the ones who may now be investing their own money in cryptos, have a say in all this?

Charles: "Only in very indirect ways they have. They are being sampled about their investments preferences and risk appetites, and union members among them could petition their representatives in the pension fund board. But it will be up to that board to decide if they want to invest in crypto. Then APG would be asked to develop a formal investment case, for which we would have to extensively document aspects such as expected returns, risk, liquidity, correlations and so on. We would also have to take into account ESG criteria. The bona fides of counterparties would be concern, as well as the fact that the mining of cryptocurrencies requires an inordinate amount of energy. A pension fund that has banned investments in fossil energy would have a hard time letting that pass. Then there are regulators that don't have a favorable view of cryptocurrencies, and finally it would operationally be very challenging for us and different from how we manage our other assets. So apart from the lack of an investment rationale, there is also a host of practical reasons why APG won't be investing directly in cryptocurrencies in the foreseeable future."


In the early days of the internet, there probably wasn't an investment case to be made for search engines. But if you had been one of the first investors in Google, you would have done pretty well.

Charles: "That's a nice analogy, but the essential difference between Google and bitcoins is that for search engines you could, even early on, imagine a viable business model that monetized advertising and all kinds of services. For bitcoins really the only thing that allows you to make money is the greater fool approach to investing: find someone who is willing to pay more for them than you did. There's just nothing else that would make them worth more."


In the aforementioned report BlackRock addresses this criticism as well. It points out how three features of blockchains, the technology that underpins cryptocurrencies, can fundamentally alter the digital market place: peer-to-peer transactions, digital scarcity and immutable records. As BlackRock writes: 'These features have wide-ranging implications for the protection, monetization, and verification of anything digital - which is incalculably valuable to the two billion people worldwide who are expected to buy goods and services online.' In other words, since the potential demand for cryptocurrencies is enormous and will keep growing, and given that the supply of cryptocurrencies is by design limited, the value of cryptocurrencies over time can only go one way: up.


So there is something underneath cryptocurrencies that will continue to make them worth more.

Thijs: "It's a valid point that even if we don't see the investment case for cryptos now, we still have to look very carefully if there are no reasons that will drive their future value up. The basic story in this regard is that cryptos cut you loose from the traditional financial sector that is slow, expensive and over-regulated. That is what makes them attractive. Cryptocurrencies enable you to make transactions completely autonomously and with anyone anywhere, as long as they have a computer or a smart phone."

Charles: "Among the first to appreciate that were drug dealers and arms traders. The main application for bitcoin so far seems to be the payment of ransom money to some Russian who has encrypted your hard disc."

Thijs: "That shows you the basic idea works fine. You don't have to bother with Know Your Customer or money laundering controls. Pension funds however simply can't be buying bitcoins from someone who may have earned them in some illegal manner, so they bring their whole regulatory apparatus with them. That will cause a strange dynamic to come into play once cryptos become so big and successful that traditional financial institutions have no choice but to get involved. When that happens, it will be the kiss of death. Cryptos will become wrapped in the traditional world of finance, which means the very aspect that made them attractive will disappear. It's like this night club that's so great because only cool people go there. The moment we enter that club is the moment it stops being great and cool. So there is trade-off: cryptos can either remain entirely separate from traditional finance and find little adoption, or they can embrace elements of traditional finance and lose some of their appeal."


Are you not afraid this will cast you as a pair of conservative men who just don't get The Next Big Thing and who are not open to anything new?

Thijs: "That is a concern indeed, we certainly wouldn't want that. But we look at cryptos first as pension fund investors: are they an attractive investment for our purposes? Obviously we think they are not. That doesn't mean we don't welcome innovations and that we don't recognize the potential of cryptos and blockchain technology to improve financial services."

Charles: "But there is a difference between direct investments in cryptos and investing in businesses that offer products and services based crypto assets or blockchains. But we haven't seen the new Google yet, to come back to the analogy about the early internet. Brokers and platforms that facilitate trading in cryptos could very well be a good investment. In fact, some are listed on the Nasdaq and therefore APG already has a little exposure to them. But it's always good to remember that the people who got rich in the California Gold Rush of the nineteenth century were not the ones who did the actual digging, but those that sold them shovels, pickaxes and pairs of jeans."

Volgende publicatie:
Bear market: reason for pessimism or time for bargain hunting?

Bear market: reason for pessimism or time for bargain hunting?

Published on: 22 June 2022

From futile takeover attempts to plummeting prices on the bear market. Enough to talk about in BNR Zakendoen on Tuesday, where Thijs Knaap, chief economist at APG, joined the investment panel.


It has been a long time since banks gained market share by acquiring each other. “You hardly see that anymore since the credit crisis of 2008,” says Thijs Knaap during the BNR investment panel. However, BNP Paribas seems to be trying to take over ABN AMRO. Although it soon became clear to everyone in the financial world that the deal had no chance of success, the ABN AMRO share price rose by 11%. A handy side effect according to the participants of the investment panel, who unanimously concluded that it is time for the Dutch government to part with ABN AMRO, despite having to take a financial loss.


The bear is loose! It’s a bear market; in other words falling prices and persistent pessimism in the financial markets. Crypto is very eye-catching because so many private people are invest in it. Knaap calculated that over the last few weeks 2 trillion evaporated in that market. “That is 2000 billion!” According to Knaap, the decline in crypto is dwarfed by the decline in shares and bonds of 14 and 10 trillion respectively. Although prices fell much less, these markets are much larger. Nevertheless, he is positive about it: 'You can also turn it around: this is bargain time on the market. Suddenly the expected return on equities is much greater than, say, a year ago.' And because APG invests for its pension fund clients for the long term, Knaap knows that things will always get better over time.


You can listen the show here.

Volgende publicatie:
Five questions about the announced interest rate hike by the ECB

Five questions about the announced interest rate hike by the ECB

Published on: 10 June 2022

The European Central Bank (ECB) announced Thursday that it will raise interest rates next month. It is the first time in eleven years that this has happened. The aim is to curb high inflation. Five questions for APG's Chief Economist Thijs Knaap and Senior Strategist Charles Kalshoven.


Isn't the ECB a little late with this?

“In hindsight, certainly. Inflation has been way too high since last summer. Of course, it was not unreasonable for the ECB to initially estimate that inflation would fall again soon. A lot of inflation was related to startup problems after all the lockdowns. But yes, Ukraine has now been added, with a major impact on energy and food prices. There were also new lockdowns in a number of large production centers in China. It is clear that inflation will therefore remain high for longer. Other central banks have intervened before (such as the US and the UK) but you can argue that inflation in the Eurozone has so far been the result of external shocks, which the ECB cannot do much about.”


Why is the ECB taking the plunge now and not before?

“President Christine Lagarde herself previously indicated that the ECB would stop buying bonds in the third quarter. And that interest rate hikes would only come after that. To avoid unrest, the ECB wanted to be predictable and not to surprise the market. The disadvantage of this late intervention is that the interest rate will rise somewhat faster after this. Lagarde hinted that after a quarter of a percentage point hike in July, interest rates could rise by half a percentage point in September.”


Is there anything to say about how long it will take a rate hike to bring inflation back to the desired 2 percent?

“The ECB itself always talks about a pass-through of interest rate steps that is 'long and variable', one and a half to two years. But these are just the first steps now. Inflation is expected to remain high this year and next. The ECB itself thinks that inflation will be back at 2.1% in 2024. Market expectations based on traded inflation are somewhat above that. Where we arrive with the interest rate when inflation is stable is known among economists as the neutral rate. In a recent message on the ECB's website, Lagarde indicates that she expects the ECB to move slowly towards this neutral rate. But at the same time she indicates that no one knows exactly how high this interest is. So there is not much to say about it.”


Is this hold enough to bring inflation back?

“It will take a little more than just the announced interest rate steps of July and September. The ECB itself is also talking about the start of a process. It is true that the ECB can get help from a number of quarters. A recession would depress wages and energy prices. More pleasant – and less likely – would be: relaxation in the oil market due to rapid peace in Ukraine. Another possibility is that governments will interfere with prices. Think of subsidies or maximum prices. That is quite disruptive economically, so let's hope these weapons are not used too much. Ultimately, you also need some time to work inflation out of your system.”


It is the ECB's first rate hike in 11 years. How unique is this?

“Especially what you see in the rear-view mirror is unique. We have had ten years in which the ECB interest rate was zero or negative. The latter was not possible at all according to the economic textbooks. Mario Draghi was president of the ECB for eight years but never raised interest rates. His successor probably does. We're finally going back to normal. Borrowing money will cost money again, storing money will pay off again.”

Volgende publicatie:
APG is Real Assets & Infrastructure Investor of the Year

APG is Real Assets & Infrastructure Investor of the Year

Published on: 20 May 2022

APG was elected Real Assets & Infrastructure Investor of the Year during the IPE Real Estate 2022 in Amsterdam. The pension provider also took home awards for Investment in the Netherlands, Portfolio Construction, Environmental Sustainability and Technology & Innovation.

Katherine Kucherenko, investment specialist at APG Asset Management, accepted the award. “2022 is an important year for APG as this year, together with ABP, we are celebrating 100 years of serving society. APG was one of the first institutional investors to begin investing in Real Estate and Infrastructure and the investment strategy has evolved to withstand the turbulence of financial downturns, global pandemics, geo-political tensions and changing structures of our societies in order to continue to navigate the pension assets of our clients' participants into a safe and predictable financial future.”

Patrick Kanters, managing director of Global Private Investments at APG Asset Magagement, is also pleased with the recognition. “We’d like to extend our congratulations to all award winners and feel honored by the various awards we have received. It is a testimony to our industry contribution in various regards and the hard work of our global team. Furthermore, it underscores certain strategic focus areas of our firm, being responsible investing, innovation and digitalization.  We look forward to continue building on this success and servicing our clients and their participants in the years ahead.”

This year’s IPE Real Estate Global Awards attracted over 200 entries across all categories. From 16 countries around the world, the total market value of the institutional investors that took part was more than €3trn, while collectively their real estate and real assets under management exceeded €459bn. They competed in 36 categories split by theme, region and size.


Volgende publicatie:
Are We Right to Be Scared of a Recession?

Are We Right to Be Scared of a Recession?

Published on: 12 May 2022

Current topics with regard to the economy, investment (responsible investment in particular), pensions, and income: Every week, an expert at APG provides a clear answer to the “Question of the week”. This time, macroeconomist and senior strategist Charles Kalshoven explains whether we’re right to be scared of a recession.


Although the economy rapidly recovered immediately after the pandemic, the current outlook for the global economy is worsening once again. The war in Ukraine and a new wave of COVID-19 in China, which has caused another partial lockdown of the country’s economy, are weighing on growth. Disrupted supply chains for energy and machine parts—or fears of disruption—are further pushing up prices. And inflation was sky-high even before all this. Central banks are now fast-tracking measures and, one after the other, raising interest rates. But won’t that put us into recession? Is the fear of a period of economic downturn—with the risk of more bankruptcies, higher unemployment, and falling tax revenues—the reason for the current stock market plunge?


“Almost every recession is preceded by a bad stock market performance. But this doesn’t work in reverse. Not every bear market, meaning a 20% decline in stock prices, is followed by a recession. It’s often a false alarm,” argues Kalshoven. “If you look at companies’ recent profit figures, they’re reasonably as expected. It’s also not the case that analysts have become more negative about next year’s profits. So, these factors don’t necessarily point towards a recession. Interest rates are the more likely cause of falling stock market prices. When interest rates rise, the present value of future profits falls. This in turn translates into lower stock market prices. A degree of uncertainty plays a role in this value, such as how exactly the tightening of monetary policy will affect the economy. Will we manage to contain inflation without causing excessive collateral damage to growth? The Bank of England, for example, has already warned that the British economy will enter recession later this year.”

A normal recession is needed to ‘cleanse’ the economy of excesses, but that’s not the case now

Economic Shock
“There are enough other sources of uncertainty, whether about the developments themselves—the war in Ukraine or fresh lockdowns in fall—or their impact. The past years have been so eventful that we can’t really know for sure whether historic relations are still relevant. We’re coming out of the pandemic, which delivered an unparalleled economic shock. The response from central banks and governments, pulling out all the stops to bear the brunt of the impact, was unprecedented. The end of the pandemic led to a sudden recovery in demand. The pandemic had also caused gaps in the labor market, with people quitting their jobs en masse, leading to the current staff shortages. That’s another economic shock we’re having to deal with. And here, in the West, we’ve identified new Omicron variants from South Africa. Although these variants appear to be milder than previous ones, there are still many uncertainties. Predicting the future has always been a tricky business; that applies now more than ever. So, it’s hard to say whether there will be a recession.”


Until recently, all economic indicators were positive. Does this mean that the consequences of a possible recession might not be so bad? “It won’t be a textbook recession, which is a result of economic overheating. A period of optimism eventually leads to excessive credit growth, which destabilizes house prices and stock market prices. If wages and prices grow too rapidly, central banks intervene by raising interest rates. But this isn’t a classic case of excesses. The pandemic meant consumers were unable to spend their money and instead accumulated a large stock of savings. There was also a huge degree of government support that kept companies afloat. And while the current mass staff shortages are driving up wages, the cause lies elsewhere. The pandemic shut down entire sectors of the economy, causing staff to get up and leave. A sudden swing in demand, from zero to full throttle, will doubtless create problems. The situation will resolve itself, possibly through higher wages, but that doesn’t mean it’s a classic wage-price spiral. A normal recession is needed to ‘cleanse’ the economy of excesses, but that’s not the case now. With that in mind, I don’t expect a drawn-out, exasperating recession—if there even is one.”

Volgende publicatie:
Thijs Knaap at BNR about a changing economic regime

Thijs Knaap at BNR about a changing economic regime

Published on: 11 May 2022

“Right now there is an economic regime change going on.” That is what APG's Thijs Knaap says in the business program Zakendoen on BNR Nieuwsradio, in response to the falling share prices of so-called 'corona winners' such as streaming services, meal deliverers and now also postal and parcel deliverer PostNL. “A company that does well in one economic regime, does poorly in another. That's not so strange. The question that you then have as an investor is whether all companies are doing badly. How is the average? And to my great relief I can see that the average is actually going quite well.”

Knaap, chief economist at APG, regularly joins the investor panel of Zakendoen. In Tuesday's broadcast, he also discusses the continuing turmoil in the financial markets as a result of the Federal Reserve's rate hike. “The Fed and the other central banks now have only one goal and that is to stop inflation as quickly as possible. So the rescue for the stock market is not going to come from them.” Meanwhile, gloomy clouds are looming on the economic horizon, in the form of the ongoing war in Ukraine and lockdowns in China. “That could just lead to things slowing down quite quickly, and then there is the risk that the central banks that are slowing down the economy will do so in a situation where the economy itself is actually slowing down.” With the danger that the economy will be slowed down too much. “And when that happens you have a recession and investors don't like that at all,” said Knaap in conversation with presenter Thomas van Zijl and Martijn Rozemuller, Head of Europe at VanEck.

Listen to the entire broadcast (Dutch) here.

Volgende publicatie:
Why is the interest rate on our savings account barely rising?

Why is the interest rate on our savings account barely rising?

Published on: 6 May 2022

Current issues related to economics, (responsible) investment, pensions and income: every week an APG expert gives a clear answer to the question of the week. This time: Thijs Knaap, chief economist at APG, talks about why many interest rates are rising - except those on your savings account.


The life of the saver has been no fun for years. Already since 2015, the interest rate on withdrawable savings, such as an Internet savings account, has been below 1 percent. The current rate is even a paltry 0.01 percent. And those who put too much money in the bank have to pay: most banks charge a rate of -0.5 percent on balances above a ton. At the same time, mortgage rates and interest rates on the capital market are rising. The logical question, therefore, is: when will the savings-minded citizen benefit from this? That could take some time, Knaap expects. There are various types of interest rates that rise or fall for a variety of reasons.

Savings Account

There is no point in getting frustrated with the banks, Knaap argues. “The rate on the savings account, a short loan, is regal compared to the market rate on short loans. This has been the case since 2009, in the midst of the financial crisis. You can see this clearly in a chart showing the savings rate and the rates banks charge each other for 3 and 12-month loans. The money that banks can borrow from each other is a lot cheaper than that of savers. In fact, banks pay each other around -0.5 percent to borrow from each other.”

Data on DNB and Bloomberg


And then there is another place where banks can get money cheaply: the European Central Bank (ECB). “Since 2014, the central bank has been lending to commercial banks at a special rate, on condition that they re-lend that money to citizens. This TLTRO currently has a rate of -1 percent. So banks don’t actually need the savers to get money for their business. The only reason they offer the savings accounts is to bring in customers they can interest in their profitable activities, such as providing mortgages and managing large assets. Perhaps there will come a time in the future when savers can again be an attractive source of wealth for banks. This may also be a reason why banks are now continuing to offer savings accounts.”



But how come the newspapers are full of news about rising interest rates when market rates between banks are still so low? For that, it is important to note that not all loans are the same, and therefore, all rates are not either, Knaap says. “Interest rates are generally higher if the loan is longer, and also if the risk of default is higher. What we are currently seeing is that the fee is going up for both of those factors. So where the interest rate for safe, short loans is still very low, the interest rate for long and/or risky loans, such as mortgages, is rising again.” Unfortunately for savers, their savings account is a short loan (you can take the money out quickly) and it is to a safe party (often a Dutch bank), so the risk of default is small and the interest rate is low.


“The interest rate for safe, short loans is controlled almost entirely by the ECB with its monetary policy. It does that with the rates at which banks can deposit or borrow money from the ECB. The rule is that those interest rates go up if inflation rises too far above the target of 2 percent. In recent years, inflation was actually low, about 1 percent on average, and that is why we ended up with these low interest rates. But that picture has completely changed: now inflation in the eurozone is 7.5 percent. The expectation is therefore that the ECB will raise interest rates above the current level of -0.5 percent. The big question is how soon that will happen. The last interest rate increase was about 11 years ago and the ECB is still working on first closing its buy-back program (buying up debt to stimulate the economy, ed.) and the TLTRO. The ECB has announced that the buy-back program will be ready “in the third quarter”; only then can interest rates be raised.  Therefore, it will not be sooner than July. Financial traders are taking into account that the policy rate, a short-term interest rate, will rise to 0.3 percent by the end of this year.”


Term Deposit

For savers with ordinary accounts, not much will happen before Christmas, Knaap expects. “As history shows, the savings rate rises only slowly along with the market rate. Small savers have been receiving a “subsidy” of 0.5 percent for a while now - their interest rate of 0.01 is half a percent higher than the market rate. That subsidy will first have to run out of current rates. If the policy rate does rise to 0.3 percent, interest rates on savings accounts could also rise, but I suspect that will take some time. However, it is possible that the term deposit, in which savers fix their money for a longer period at a higher interest rate than on a savings account, will make a comeback. Many banks currently no longer offer such a term deposit, because the interest rates for longer periods were also below zero. Now that the Dutch state is already paying almost 1 percent on a 5-year bond, it is possible that Dutch banks will again start paying a rate that can be seen without a magnifying glass. Longer-term interest rates could go up even further, especially if inflation continues for a while. Then it could again become attractive for savers to deposit their money on such a term deposit.”

Volgende publicatie:
Thijs Knaap at BNR about Musk's offer on Twitter

Thijs Knaap at BNR about Musk's offer on Twitter

Published on: 20 April 2022

Twitter's stock price closed last week after Elon Musk made a $43 billion offer to buy the company. This means that the financial world does not take the takeover offer of the Tesla boss very seriously. During the BNR Zaken Doen investor panel, APG's chief economist Thijs Knaap wondered whether this skepticism was justified.


In addition, the investor panel discussed the AFM's willingness to 'peep in' and pay whistleblowers for information to prevent criminal activities in the financial world. Knaap does not know whether this is the right way, but that the financial market would benefit from a credible supervisor such as the AFM as far as he is concerned.


And: it took a while, but now it seems that the ECB is finally ready for a policy rate hike. Knaap explains why it took so long.


Listen to the entire broadcast here

Volgende publicatie:
“Green government bonds show countries’ true climate ambitions”

“Green government bonds show countries’ true climate ambitions”

Published on: 7 April 2022

Canada recently issued its first green government bond. It was one of the last major developed countries to use this instrument to finance the greening of the economy. APG invested over 150 million euros. “To us, the issuance of green government bonds is a clear signal that countries have the ambition to address climate risks,” says Chris Lam, senior portfolio manager of developed markets government bonds at APG.


Green government bonds are issued by governments to finance “green” projects. They usually offer the same interest rate as their non-green counterparts and also provide an opportunity to contribute to a country’s climate efforts.


Preventing greenwashing

The Canadian bond is accompanied by a clearly defined list of green initiatives for which the proceeds may be used. In addition to projects that invest in renewable energy or provide protection from the effects of climate change, there is also an important role for conserving biodiversity in water and on land. This use of proceeds is important for preventing greenwashing.


Chris Lam: “APG has been strongly committed to the growth of green, social and sustainable (a combination of green and social, ed.) bonds from the beginning. But we do set requirements for their sustainable content. To make potential issuers aware of our expectations and to encourage healthy market growth, we are in constant dialogue with them. In 2019, we also published our Guidelines for Green, Social, and Sustainable Bonds.”


Big take-off

Investing in bonds with a sustainability focus has really taken off. More and more governments are now also issuing green government bonds. At the end of 2021, APG invested 7.3 billion euros in green government bonds on behalf of ABP, bpfBOUW, SPW and PPF APG. The vast majority of these, 7.25 billion euros, are bonds from developed countries, such as France, Belgium and the Netherlands. Just under EUR 50 million is invested in government bonds of emerging countries, namely Guatemala and Egypt. Add to this the investments in corporate bonds and, at EUR 17.6 billion, APG is one of the world’s biggest investors in bonds with a sustainability focus.


European Union

Lam does expect the trend in developed economies to level off after years of tremendous growth. “On the other hand, the European Union will become a major issuer of green bonds.”

Green bond investments are part of a broader approach to assessing climate risks in the fixed income portfolio. “Green bond issuance is a signal to us that countries have the ambition to mitigate climate change or take measures to guard against its effects. It gives us insight into the concrete steps governments are taking to combat climate change and to prepare the country for its physical impact.”


Green, social and sustainable government bond issuance (in billion dollars):



Climate risk in investments

APG is identifying which part of the government bond portfolio is invested in countries with a high climate risk. Lam: “These risks can be the result of physical effects of climate change, such as changing weather patterns, severe weather conditions or rising sea levels. We call this physical climate risk. In addition, countries also face transition risks: in a world where policy measures are being taken, regulations are being tightened, and the economy is shifting to a low-carbon economy, not all countries can keep up to the same degree. And some countries are better equipped than others to cope with climate-related events and changes.”


APG Climate Dashboard:

To determine a country’s physical climate risk, APG uses indicators from ND-GAIN. These show a country’s vulnerability to the effects of climate change, and the extent to which it is prepared for them. For the transition risk, APG looks at how dependent a country is on fossil fuels, how much carbon it emits (carbon intensity) and to what extent it is capable of switching to a low-carbon economy.


High credit worthiness

Lam: “Currently, APG invests mainly in government bonds of countries with a high credit rating for its pension fund clients. Our research shows that such countries are generally less vulnerable to the consequences of climate change. Thus, they have more means to arm themselves against the consequences of climate change. The market for green government bonds from emerging countries is still in its infancy. If it grows, we can also invest more in this, and we can contribute to sustainable developments in these countries and help reduce climate risks.”


As one of the first major investors, APG is also calculating the carbon footprint of the developed and emerging market government bonds in its portfolio as of this year. “With over 160 billion euros’ worth of investments, government bonds are an important category in our pension funds’ portfolios. For us, measuring the carbon footprint is an important next step in our climate approach to contribute to the increasingly ambitious sustainability goals of our pension funds.”

Volgende publicatie:
Annual report 2021: focus on clear choices

Annual report 2021: focus on clear choices

Published on: 31 March 2022

Today, APG publishes the 2021 annual report. Naturally as a PDF, but also as a website, where you can read in detail how we as APG look back on 2021. And how we, as the country’s largest pension administrator, are preparing for an unprecedented, rigorous pension reform.


APG plays a crucial role in that transition to a new system. All funds must have switched to the new system by January 1, 2027. And some pension funds want it sooner. That's fast. Clear choices are therefore essential. APG’s CEO Annette Mosman says about this in the annual report: “The changes are so great that we have to make clear choices. The new system is the top priority. This means, among other things, thatwe will put certain projects on the back burner for a while, retrain or reskill employees, and recruit digitally trained people.” Read more about it in her foreword.


What else can you find in the report?


Who we are and what we do

As the country's largest pension administrator – we serve 8 pension funds and some 4.8 million participants – we make use of our combined strength and knowledge to build a transparent and future-proof new pension system. We are becoming an increasingly modern communications and IT company, and we strive to provide high-quality services along the way.


About APG


The best possible pension – in a livable world

On the road toward the ‘Pension of the Future’, we’ll do everything we can to achieve maximum pension value and a healthy return. Sustainability plays a central role in all our investment choices.


Our 2021 results


The importance of our culture

Our internal culture is a microcosm of the influence we have within society. To this extent, our employees’ knowledge, skills, and ways of working are critical to our success. The transition to the ‘Pension of the Future’ also requires new expertise and skills – which we are working hard to develop.


How we work together



Read the full Annual Report as a pdf here.

Volgende publicatie:
What happens when a country goes bankrupt?

What happens when a country goes bankrupt?

Published on: 25 March 2022

Topical issues in the field of economy, (responsible) investment, pension and income: every week, one of APG's experts provides a clear answer to this week's question.


In this edition: Sjacco Schouten, Head of Emerging Market Debt, about the consequences when a country such as Russia is no longer able to fulfil its payment obligations. “Also in an economic sense, it is a scenario with only losers.”


In the beginning of March, a number of credit rating agencies expressed the expectation that Russia would possibly no longer be able in the short term to fulfil its payment obligations (interest and redemption of the national debt) due to the Western sanctions. Russian government bonds were given a so-called ‘junk’ status, which more or less means that creditors deem it very likely that a large part of their money will not be repaid. This raises the question what happens to a country in case of such ‘bankruptcy’. In what case is this applicable? And what are the consequences?


The first question appears to be relatively easy to answer. Schouten: “The interest payment and redemption of government bonds usually takes place on pre-established dates. If a country misses such date, a grace period takes effect first during which the country is given the opportunity to still make the payment. When that doesn't happen, the country officially goes in default.


Virtually zero

The answer to the second question – about the consequences of such default – is much more complicated as it entails quite some ifs and buts.


“When a country is officially in default, all kinds of processes are activated. A government will usually propose a restructuring to the bondholders and make agreements on ‘how to continue’. These agreements depend on the conditions of the bond and the legislation of the country where the bonds are issued. In the most extreme case, when a country is truly unwilling or unable to pay, the bondholders are possibly forced to fully write off their bonds, to virtually zero. The price will not be entirely zero, because you can never rule out for a hundred percent that some money will still be repaid at a certain time.”


Russia has not yet achieved that point. The country has not missed any payments until now. Should that be the case in the future, it will rather be due to the sanctions making payment transactions impossible or Russia's willingness to pay than its ability to fulfil the financial obligations. “Given Russia's oil revenues, the country should be more than capable to fulfil its obligations. Whether the country is also willing to do so in the long term, is a different issue. In that respect, a distinction in conditions could arise between investors who are willing to participate in restructuring and bondholders who are unwilling or unable to do as a result of the sanctions. This provides Russia with the opportunity to give ‘friendly’ countries more favorable conditions than ‘unfriendly’ countries.”


Preferential treatment

However, the pari passu principle applies to bondholders, meaning they should be treated equally. Schouten: “In principle, bondholders from a certain country cannot be given a preferential treatment. But the conditions of bonds issued under local legislation may differ from the conditions of government bonds issued under international legislation. In addition to the legislative aspect, many other factors play a role in a possible restructuring of the Russian national debt. For example, the currency in which a bond is issued - dollars or rubles. Moreover, for certain investors it is simply forbidden to still receive payments from Russia or to make payments to Russian entities. All of those factors combined make restructuring very complicated when it comes to Russia.”



What are the consequences should Russia decide to no longer pay its bondholders?


“In that case, the country would become even more isolated and restricted in gaining access to the capital markets. In the short-term Russia is able to absorb a lot through its oil reserves and proceeds from oil and gas supplies. In broad lines, the country is still able to keep its economy running reasonably well. But in the months to come, the Russian economy is expected to shrink and the financial situation of the country will become more problematic. To what extent the country will then be able to hold back the economic contraction depends on the willingness of other countries to help Russia. That willingness cannot be excluded. Even if all Western countries - such as the US - ban Russian oil, Russia can still sell oil to other countries.”


‘Adding insult to injury’

Nevertheless, it looks like Russia will be facing a doomsday scenario in an economic sense. “In terms of food, Russia should for a large part be able to continue to be self-sufficient. But once the supply of everything the country imports stops - technology, computers, chips, and so on – large parts of the economy will come to a standstill. The average Russian will go back in time. He or she may possibly overcome the fact that a visit to McDonald’s is no longer possible, but access to technological knowledge and certain parts for instance, is of great importance to keep an economy running and developing.”


Adding insult to injury, that's what it comes down to should Russia become a defaulter. Schouten: “The sanctions are already causing damage to the economy. The population already prefers having dollars instead of rubles. In the event of a default, a major cycle is triggered after which the Russian economy is expected to end up in a deep recession with high inflation. Also in an economic sense, it is a scenario with only losers.”

Volgende publicatie:
“The situation in Ukraine makes the inflation hedge of commodity investments extra relevant”

“The situation in Ukraine makes the inflation hedge of commodity investments extra relevant”

Published on: 22 March 2022

For the past year and a half to two years, our economy has been showing rising inflation rates. But the war in Ukraine has kicked that monetary devaluation into high gear. There are, however, investment types that offer a counterbalance, and investments in commodities are a good example. Peter Verbaken, Head of APG’s Commodities Team, explains the characteristics of commodity markets, and how an investor can use them as protection against inflation. “Prices can fluctuate a lot, but experience has shown that commodities do well during periods when inflation is rising.”   

Oil, gasoline, gold, silver, aluminum, copper, nickel. That’s what you should think of when it comes to the commodities that APG invests in for clients. But also agricultural commodities like wheat, corn, sugar, coffee, cocoa and soybeans. Important to emphasize: APG does not invest in the commodities themselves, but in derivatives. Futures in this case; contracts to buy or sell a certain commodity at a predetermined price, on a predetermined date, in the form of a futures contract.

In the extreme

A key reason why commodities are so suitable as an investment for pension funds and their participants is that they provide some protection (hedge, or risk coverage) against inflation.

Verbaken: “Our economy has shown low inflation rates for years, throughout the decade. A year and a half to two years ago, that came to an end and a whole new dynamic emerged. So, there was already accelerated monetary depreciation, but the conflict in Ukraine pulled it to the extreme. Mainly because the prices for fuel and energy have shot through the roof, but grain prices have also exploded. With some delay, this in turn leads to higher animal feed prices and thus higher prices for meat and eggs. And that has a negative impact, including on pension fund participants. It helps if your fund has investments whose return grows along with that inflation. The war in Ukraine has made this protection effect even more relevant.”   

Huge investments

Commodity investments offer such a return, Verbaken says. “Experience has shown that commodities do well in periods when inflation is rising. Within those periods, prices may fluctuate significantly, but the trend is upward. The demand for commodities moves with the economic cycles, while supply often cannot move because production capacity cannot be increased overnight. The lead time required to create new production capacity is very long for most commodities - sometimes five to ten years. And during that time, huge investments are made. This makes the supply relatively inflexible. So, the increased demand that accompanies a boom soon results in price increases.”

One example where we have seen such price increases is in the production of oil. “In the early 2010s, the market for U.S. shale oil was booming. But when the price of oil went down, a number of producers went bankrupt and these companies became much more cautious about investing in production. The focus shifted to profitability rather than production capacity expansion. That capacity is not going to come back immediately. And then the production capacity for shale oil can be expanded relatively quickly. Conventional oil producers take much longer. And they have become more cautious about new investments related to the energy transition.” 

Dōjima Rice Exchange

In 1710, the very first futures contracts were traded at the Dōjima Rice Exchange in Osaka, Japan. It is easy to guess why the first futures had agricultural commodities as their underlying assets. Producers of rice or other commodities could thus hedge their price risk. By establishing in advance when and at what price he would sell his rice later, a producer was no longer exposed to the vagaries of the market - for example, rock-bottom prices as a result of overproduction in the sector. The buyer of such a future also gets a certain degree of security. By fixing the price and delivery date now, the buyer will not have to pay the highest price in the event of a disappointing harvest. The buyer of a future contract goes “long” and when someone sells such a contract, this is called “going short”.

Further into the future
In addition to the protection that commodity investments offer against inflation, there is another important feature that makes this asset class especially interesting for a large investor of pension money. This is because commodity investments behave differently from other classes, such as stocks and bonds. In this way, they bring diversification to the overall investment portfolio. Verbaken: “Compared to shares and bonds, commodities offer returns at slightly different points in the economic cycle. At the top of an economic cycle, equities start to perform less well. After all, share prices are based on investors’ expectations of companies’ future cash flows. The value of a company and therefore the price of a share are determined by looking further into the future than is the case with commodities. The market for commodities is a spot market, in which the price is determined based on supply and demand at the time.”

Those who want to get a concrete idea of that “different behavior” of commodities need only take a look at recent return figures. “Our commodity investments yielded 40 percent last year. And the return for this year is already at 30 percent. APG has a widely diversified portfolio. With equities and bonds actually doing worse, you can put the return on commodity investments to good use. It is very good to have it in your portfolio, because it offers risk diversification and a certain degree of security.”

Right to buy

Given the impact of fossil fuels on the climate, is it still responsible to invest in a commodity like oil? Verbaken: “That is certainly a valid question, but you have to realize that APG does not invest in the commodities themselves. We don’t buy oil, we buy the right to buy oil at a certain price, on a certain date. By being active in the oil futures market, we are not providing financing to producers, nor are we causing additional carbon footprint. If no one were active in that derivatives market anymore, producers could hedge their price risk a little less easily, but it has no effect whatsoever on the amount of oil produced. That’s one point. The second point is: today’s inflation is largely caused by increased oil and gas prices. If you want to generate a return for pension fund members that compensates for this inflation as much as possible, then you must ensure that a portion of your investments moves along with oil and gas prices. If you do that through derivatives, such an investment is not only financially defensible for the participants, but you can also justify it in social terms.”

Metals dominant

But, Verbaken says, there will be a time in the future when a raw material like oil will play an increasingly smaller role in the economy. And that has everything to do with the energy transition. “The energy transition is a process that will take decades. But as soon as oil and gas become less attractive as a result of this transition to more sustainable forms of energy, you will also see this reflected in the mix of a commodities portfolio. The share of oil and gas will decline, while the share of metals will become more dominant.”

Why metals in particular? Verbaken: “To make that transition, we need a lot more copper, aluminum and smaller metals including nickel - for example, for the infrastructure needed for electrification and for batteries. These are absolutely crucial elements for the energy transition.”

Volgende publicatie:
“Sustainability should not be used as an excuse for mediocre returns”

“Sustainability should not be used as an excuse for mediocre returns”

Published on: 23 February 2022

634 billion euros. That is APG’s total invested assets worldwide (position as of the end of December 2021). The goal: a good pension in a livable world for the funds' participants. The portfolio is diversified, of course. From investments in wind farms in Zeeland to Australian listed shares in stores. And from safe bonds to the somewhat more fluctuating trade in gold or soy. Who are the people behind these investments? What drives them? What choices do they make? And why?

In this episode of the series The Investors: Ton van Ooijen, whose responsibility at APG is to invest in consumer goods in the developed markets.

It was big news recently: Unilever’s takeover bid for GSK’s consumer division. This came as a surprise to many, including APG. In a response, the pension administrator wrote that it did see many strategic advantages to entering the field of consumer health on a large scale. So why was APG not overly happy about Unilever’s bid?

Van Ooijen: “In and of itself, there was not much to criticize about the acquisition. But Unilever is currently in transition and is working to increase its turnover to a higher level. They would therefore be better off focusing on putting their own house in order and showing that there are enough consumers for their own products. So the offer was a bit unfortunate in its timing and also probably a bit on the high side. But the fact that they want to expand into vitamins and toothpaste doesn’t strike me as odd. They already sell toothpaste, so they can use their own distribution network in emerging markets for that. In addition, about two years ago, Unilever bought GSK’s Horlicks brand of nutritional drinks, and it is doing very well. These are interesting things that are part of the bigger picture. So, in the longer term, I am not too worried about Unilever.”

First, about your work: you focus on developed markets. Isn’t a portfolio that focuses on emerging markets much more exciting?
“The emerging markets are very exciting. But many companies that fall into my portfolio get most of their growth from those emerging markets. So, there have been discussions at times about whether a company belonged in my portfolio or in the emerging markets portfolio. So, we agreed that the main listing of a company would determine which portfolio it fell into. For Heineken, for example, more than half of their sales now come from emerging markets. Nigeria used to be important to them, now it’s Vietnam, Brazil and Mexico. For Heineken, those countries are more important than America. But because the company is listed on the AEX, it is included in my portfolio. For beauty companies like L’Oréal and Estée Lauder, China is now the biggest growth market, but they are included in my portfolio as well. And in the name of the world's largest brewing chain, AB InBev, ‘AB’ stands for American Anheuser Busch, ‘In’ for Belgian Interbrew and ‘Bev’ for Brazilian AmBev. Most of the companies in my portfolio are really global companies. So, it's not as boring as you might think; in fact, it’s quite fascinating.” 

Back to Unilever. In addition to criticism of the takeover bid, the company is under fire from activist investors for a more fundamental point. The company is said to be too concerned with sustainability at the expense of profitability. APG is convinced that performance does not have to come at the expense of sustainability. Do you understand the concern of the activist investors?
“Yes and no. Sustainability by itself is not a good reason to invest in something. But we do think that sustainability can lead to innovation and the creation of additional demand. And that, in turn, can lead to higher returns over a longer period of time. At Danone, for example, the emphasis on sustainability seemed to come at the expense of a focus on revenue and profit growth. But a company like Nestlé is also at the forefront of sustainability and they do manage to come up with innovative products that they can charge a higher price for and therefore also achieve greater profits. So, we don’t agree with investors who think that sustainability only costs money and is bad for investors. But sustainability should also not be used as an excuse for mediocre returns for a portfolio that could do better, as with Danone.”

It is important to APG that the companies it invests in have sustainability as a top priority. What does APG do to prevent activist investors who have little to do with sustainability from hijacking a company’s share price?
“We make it clear to them that we think sustainability is very important and that you can also show superior profit growth with it. But you do have to combine it with innovation and marketing, so that you come up with a product that is not only good for the planet but also for the consumer. Unilever was criticized by British fund manager Terry Smith for putting too much focus on sustainability. But I think he is fine with Unilever developing innovative products and linking that to sustainability. A company has to make products that the consumer wants, and sustainability is a trend in society too.”

Everything is accelerating more and more. But as a long-term investor, we don’t have to go along with the frenzy of the day.

You have been working at APG for quite a few years. What do you see as the added value of working for this institutional investor?
“As APG, you are somebody and companies are therefore often interested in how we look at things. We are currently looking at investment opportunities in sustainable food. If we then want to ask a company about their ESG policy (Environmental, Social and Governance; the three central factors for measuring the sustainability of an investment, ed.), we get to speak to their specialists instead of just a spokesperson. Through these conversations you notice that they consider APG to be an important discussion partner. That really is an added value of working at APG. Another big advantage is that we have so-called 'sticky money'. That means that if a company performs a bit less during a quarter, we don’t immediately pull our money out. We therefore have a longer time horizon than many other investors and that is also an advantage. Because it means that you can also invest in companies that initially seem expensive, but in the longer term can show growth that is greater than the average economic growth.”

As Portfolio Manager for Developed Markets Equities, you are on top of developed markets. In which sectors do you expect the most growth in the coming years?
“Most of the growth is still in the more expensive products. When it comes to consumer goods, you have to think of the high-end cognacs, malt whiskies and premium beers, for example. These are different in every market, incidentally. For example, Budweiser is a premium beer in China but not in its homeland, America. People are getting wealthier and are not so much buying more food as they are eating better. As investors, we are mainly interested in price increases because a product has improved, not because of inflation. The sectors in which companies are able to develop products that people are willing to pay more for, through innovation or marketing, are the most interesting to us. We expect greater growth in the longer term from investments in these sectors. This also applies to the more expensive skin care and dermatological products. For example, the MAC and Clinique brands of Estée Lauder and La Roche-Posay and Vichy of L’Oréal. Those products fit into the health and wellness trend.”

There is currently a shift taking place in terms of consumption, from ownership to access and e-commerce. What consequences does this have for the way we invest?
“Digitalization is important because there is now a lot more data known about consumers and their behavior. You can therefore serve consumers much better. A lot of information about you and me is known, and the brands that are furthest along in this, such as L’Oréal, really benefit from this and also show higher sales growth than other companies. That’s an important development. You also see the generation that wants everything now, like the Gorillas and other flash delivery companies of this world. These are the digital and innovative competitors for the supermarkets. That’s why they need to invest in e-commerce even more quickly. Due to the pandemic, the supermarkets showed a nice growth in profits, but now their competitive position is deteriorating. As investors, we do take this into account.”

It sounds like digitalization is definitely going to affect your portfolio. What other developments do you see happening in the coming years?
“Everything is accelerating more and more. But as a long-term investor, we don’t have to go along with the frenzy of the day. That’s our big advantage. We have to ask ourselves what the structural trend is. Plant-based meat was a hype for a while and some producers got astronomical valuations on the stock market. Fortunately, we did not go along with that hype, because now you can see that that strong growth has faded, especially in America. But now large companies such as Nestlé and Unilever are entering the market for plant-based meat. However, they have much more capital at their disposal than the small companies and, as far as I am concerned, are therefore more interesting to invest in than the small companies that started the hype.”

Who is Ton van Ooijen?

Studied macro and business economics at the Free University. He also obtained a propaedeutic diploma in history. And he took courses to become a Certified Financial Analyst.

Interest in investments
“My interest in investments goes back a long way. It has to do with the fact that I like history. I think the past is important and provides a foundation for the future. And I like numbers. If you combine that, you soon end up with economics. At the Fundamental Stock Selection department, we mainly invest bottom-up. This means that we look at the fundamental developments in companies. But macro-economic aspects also play a role: what will countries do, and what will happen to interest rates? The core remains: what does a company do and is it an attractive investment?”

Working at APG
“I first worked for various brokers, advising individual clients. At one point I got the opportunity to work for APG. The great thing is that here I get to invest myself instead of just giving advice. It really is a profession where you learn every day, and you are responsible, which I think is a great advantage of working here. I also see what the result of my work is, at least in the longer term. Another positive point is that many of my family members are participants in the pension funds that APG serves. For example, my father was a teacher and my sister still is. So, I work for my family, as it were. I see that as an added value. You’re doing something good, you’re learning and what you do has an impact. Those are things that everyone would like to have in their job.”

The fast-moving consumer goods in the developed markets, namely: Europe, the US, Australia, Japan, Hong Kong and Singapore. “The portfolio I am directly responsible for is worth 1.8 billion euros. But what I do is copied by an umbrella portfolio, which has about 2 billion euros in the same funds as I have, but sometimes with a slightly different weighting. That is related to risk management. If I were to overweight growth stocks, we would get a style drift and we don’t want that. The portfolio manager of the coordinating portfolio then rectifies this. He not only looks at my portfolio, but also at other portfolios.”

Volgende publicatie:
"We are now in a situation where we have to deal with scarcity"

"We are now in a situation where we have to deal with scarcity"

Published on: 15 February 2022

"The landscape for investors is really changing." That is what APG's Thijs Knaap says in the program Zakendoen on BNR Nieuwsradio in a conversation about the policy options of central banks. "We are now in a situation where you have to deal with scarcity: raw materials such as oil are scarce, labour and also capital. And that's where the central banks come in. There was always plenty of money, but if the central banks start tightening, money becomes scarcer and governments have to pay for bonds. These can then become a serious alternative to other investments."

Knaap, chief economist at APG, regularly joins the Zakendoen investor panel. In today's broadcast, he also discusses the consequences of rising interest rates for pension funds. "It's bittersweet. The rising interest rate is good for the funding ratio of the funds, but at the same time, as a pension administrator, we also have a lot in the portfolio that becomes worth less. But if you look ahead, higher interest rates just mean you can earn more in the financial markets, so I'll look at that. It is also a better time to be an investor than it was a few years ago," says Knaap in conversation with presenter Thomas van Zijl and panel member Simon van Veen.


Listen to the entire broadcast (Dutch) here.

Volgende publicatie:
What are the economic consequences of an armed conflict in Ukraine?

What are the economic consequences of an armed conflict in Ukraine?

Published on: 27 January 2022

Current issues related to economics, (responsible) investment, pensions and income: every week an APG expert gives a clear answer to the question of the week. This time: macroeconomist and senior strategist Charles Kalshoven on the possible economic consequences of an armed conflict in Ukraine. “An investor should not be scared off too quickly by geopolitical risks.”


With the amassing of more than a hundred thousand Russian military troops at the Ukraine border, and the response of the U.S. and NATO, tensions have now risen high. It looks like a Russian invasion, followed by an armed conflict may be imminent. The threat is not without repercussions on financial markets. The gains that the AEX recorded in the past six months (about 12 percent) have now completely evaporated - although concerns about the omicron variant of Covid, high inflation and expected interest rate hikes by the U.S. central bank also played an important role. Russian shares lost as much as a third of their value during this period.


Supply Shock
When it comes to the possible economic consequences of a conflict in Ukraine, you cannot ignore Europe’s dependence on Russian gas. Kalshoven: “Our dependence on Russia is very high in that respect (35% of European consumption concerns Russian gas, ed.). If an actual military conflict in Ukraine leads to Putin turning off the gas tap, this will probably mean a sharp rise in the price of gas and electricity. It would be a supply shock, which could lead to a decline in purchasing power and economic stagnation. Because, if there is a shortage of gas, our government would rather shut down factories than literally leave households out in the cold.”

Such a combination of stagnant growth and high inflation doesn’t usually work out well for equities, Kalshoven says. “And the uncertainty that accompanies an actual conflict doesn’t help either. But perhaps there would be one stroke of luck: oil prices don’t have to follow gas prices. When economies slow down a notch, that pushes the price of oil down. As a result, inflation may not be as bad in the end. It is true that Russia is also a major oil producer and can therefore also influence the price by turning off the oil tap just like the gas tap. But waging war is expensive. The question is therefore whether the country can manage without the income from oil in addition to a loss of income from gas.”

The threat of a Russian gas shutdown may also bring an advantage

Don’t run away
From an investment perspective, Kalshoven sees the situation in Ukraine as a realistic threat. But he adds that an investor should not be too easily put off by such geopolitical risks. “We are seeing movements in financial markets that can be attributed to the threat in Ukraine. And of course, as an investor, you can think about all kinds of consequences if tensions are rising somewhere. But it certainly doesn’t necessarily mean that you should just run away from the risks by selling everything. Antti Ilmanen, an investment expert, compares it to participating in a lottery: it could pay off, but usually it doesn’t. Research shows that it usually pays for investors to stay put, because there are plenty of returns against the risks, and geopolitical tensions usually get resolved.”

Moreover, it is always good for an investor to diversify, including with regard to the risks of geopolitical tensions, the economist says. “If there is unrest in Ukraine, it does not necessarily mean that somewhere else in the world things will immediately get out of hand. Of course, all the attention of the international community is focused on this conflict. That could provide an opportunity for countries elsewhere to take controversial steps that suit them.”


Profitable sooner
That threat of a gas supply cutoff by Russia could also bring a benefit. “It makes Europe face up to its dependence on Russia for its energy supply. This makes the importance of the energy transition even clearer. In any case, if you don’t want to be dependent on Russia, you will have to think seriously about accelerating the alternatives. The energy shortage that will arise if Russia’s gas supplies are cut off cannot entirely be solved immediately by means of solar and wind energy.”

For investments in renewable energy, Kalshoven says, a cutoff of Russian gas supplies is likely to mean they would benefit.  “When energy prices rise, sustainable energy projects become profitable sooner. On the other hand, of course, investments in companies or projects that consume a lot of energy suffer.”


Volgende publicatie:
How is the Netherlands affected by China’s faltering economy?

How is the Netherlands affected by China’s faltering economy?

Published on: 20 January 2022

Current issues related to the economy, (responsible) investment, pensions and income: every week an APG expert gives a clear answer to the question of the week. This time: Chief Economist Thijs Knaap on the faltering Chinese economy. “The decline in growth had to happen sometime.”


Economic growth of 4 percent in the fourth quarter of 2021. Many a country would sign up for it. For China, which announced the figure on Monday, it is nothing short of a setback. In fact, it is one of the lowest growth rates since 1990. Now that China’s impressive economic growth seems to have come to a temporary halt, the question looms: how will we be affected? 


An event in the Chinese economy can affect other countries in three ways, Knaap says. Through the trade in goods and services, through financial channels and through the price of raw materials. Trade in goods and services, the trade channel, revolves mainly around Chinese exports, and to a (much) lesser extent imports. From the pen you write with to the phone you make calls with: chances are it comes from China. “It’s a bit of a Dutch instinct to immediately think of trade. But the interesting thing is that in the case of China this instinct is correct,” Knaap says. “Because of these three ways, the trade channel with China does have the greatest impact on the Netherlands.” This was noticeable when the Netherlands needed masks at the beginning of the Covid pandemic and China could not immediately supply them. Knaap does not expect the reduced Chinese growth rate to have an immediate major impact on trade with the Netherlands. At most, the delivery time of, for example, phones will be a bit longer.


It might be thought that the trade channel is also the most important in the Netherlands’ economic relations with many other countries, but Knaap says that is not the case. “The best example of this is the United States, with which the Netherlands also does a lot of trade. When the financial markets collapsed there in 2008, things went seriously wrong here too, and banks like Fortis and ABN AMRO ran into major problems. Suddenly the financial channel appeared to have the greatest influence. The recession in the Netherlands was not caused by a drop in demand for Dutch products from the United States, but by exposure to the American financial system. This applies to virtually every major economy with which the Netherlands trades, but not to China. This is because for a long time Beijing wanted as few financial ties with foreign countries as possible. As a result, foreign influence is limited and China has little exposure to the international financial system. As a result, a slowdown in Chinese growth is much less serious for an open economy like the Netherlands than if things go wrong on Wall Street.”

The country cannot continue to grow at a rate of 10 percent every year for the rest of the century

Financial ties
Thus, financial ties between China and the rest of the world are relatively small, although foreign money is increasingly entering China. In 2018, for example, only 8.5 percent of China’s stock markets were foreign-owned. By the third quarter of 2021, that had grown to 10.5 percent. “For APG and other investors, the influence of the Chinese market has increased somewhat in recent years, but it is still not a lot,” Knaap said. This is also reflected in the 2021 figures. “That was a really good year, with equity returns of up to 30 percent in the developed markets. If you look at the emerging markets, including China, the returns were very modest, around 5 percent. That is not great for us as investors, but it is not a disaster because China only occupies a modest place in our portfolio. Then you can see on a small scale what is true for the world at large. If the market in China performs a little less well, the entire world economy will not immediately come to a standstill.”


Then there is the price of raw materials. “When China is growing very fast, there is a big demand for oil, iron and cement and you notice that they are getting more expensive. That was very significant at times; in the late 1990s and early this century. At the time, the price of oil was running very high because the world was not used to this sharply increased demand from China. This is currently the case and Beijing’s influence on the price of raw materials is a lot less now.”


Knaap doesn’t think it’s surprising that China’s growth rates are declining a bit now. “That had to happen sometime. The country cannot continue to grow at a rate of 10 percent every year for the rest of the century.” Due to the limited exposure to the global financial system, the slight hiccup in the Chinese economy does not have to have an immediate impact on the Dutch economy either. In the event of hiccups in production and transport, there is a chance that China will no longer be able to deliver all products on time, which consumers and businesses here would notice. “More interesting is the question whether economic growth will slow down further,” says Knaap. “A really stagnant economy is difficult to adjust at a certain point. Then it remains to be seen how the Chinese population reacts and what impact that would have on the position of Xi Jinping and the Communist Party. The story is that those in power in China rule by the grace of high economic growth. What will happen in a serious recession is difficult to predict. But we are far from there, with 4 percent economic growth. Moreover, the Chinese are very good at managing this kind of economic risk.”


Volgende publicatie:
"The winner takes all also applies to this year"

"The winner takes all also applies to this year"

Published on: 18 January 2022

What developments will we see this year in terms of investments? And what characterized stock markets last year? Peter Branner, Chief Investment Officer at APG, expects in this time of rising inflation stocks to continue to do very well, especially those of large companies.


“After the good investment year of 2020, we thought 2021 would be more modest because of the problems in the supply chain caused by the pandemic. Despite concerns about this, increasing concerns about inflation later in the year, 2021 turned out to be a terrific investment year,” Branner said. “This is evidenced by the fact that our pension fund clients achieved between 8 and 12 percent returns with a diversified portfolio and a healthy contribution from our active management. Whereas 2021 was a year where companies had to deal with the effects of Covid and supply issues, 2022 will be more about how the economy will adjust to high inflation and how we avoid overheating.”


In the second half of 2021, we saw a gradual increase in the focus on rising inflation. Initially, central banks asserted that this would be temporary. In the fourth quarter, however, the U.S. Fed concluded that inflation could last longer and announced that it would raise interest rates sooner. The European Central Bank - hesitant at first - is now also signaling that support measures will be phased out sooner. “In retrospect, I think the central banks reacted a bit late to rising inflation, but let’s not forget that the situation was fragile,” Branner argues. “Interest rate hikes could have derailed the economy if they had been introduced too soon. Maintaining balance required close attention. Overall, I still think central banks have acted appropriately since the 2008 financial crisis, to keep the economy running and protect us from major upsurges in unemployment.”


Central banks
“The question is what are they going to do this year, especially in terms of preventing the economy from overheating,” says Branner. “Because that’s a risk this year, with the very low unemployment rates and the tight real estate market. Although the economy is cooling down again a bit with the outbreak of the omicron variety and new lockdowns. I am counting on the central banks to implement their new policies gradually this year. Instead of raising interest rates all at once, they will choose to do so in small increments to allow the markets to adjust. That will be the central banks’ balancing act: rolling out new policies in a way that doesn’t cause shock waves in the markets.”

Stock markets
At least the stock markets are showing a positive start to this new year, Branner notes. “When people are worried about the economy, for example because of inflation, they often choose to sell their stocks. That’s not wise. In the case of inflation, equities are often a good medium- to long-term investment. And I expect high inflation to continue for some time and equities therefore continue to do well. In times of inflation, there are arguments against traditional growth stocks, but some of the larger companies like Tesla and Microsoft may be doing relatively well because they seem to have been able to address supply chain issues. So, the adage ‘the winner takes all’ will also apply to this year.”


Branner also expects a lot from venture capital for 2022. “I have often described this period with more focus on sustainability and green investments as our generation’s Industrial Revolution. That means you can make a lot of money as an investor in these transformational times, but also easily miss a technological disruption. Given this phenomenon, it could be a good year for large companies, but certainly for selective startups. In the last quarter, as an investor, we looked at how we could raise money for venture capital to support startups, and I foresee us continuing to do so this year and into the future. In 2022, we will also be focusing our international attention on Southeast Asia and monitor more investments in Australia, Southeast Asia and India. India will certainly be one of the places where economic growth can be expected because of demographic developments there.”


“At APG, we also want to be at the forefront of biodiversity investments. This is broadly linked to our continuing strong belief in sustainability. And green energy is a theme that is constantly in the spotlight, of course. This reflects the views of our pension fund clients, who continue to develop their sustainable investment policies.”


Volgende publicatie:
“The path is not always straight, but it’s often well lit”

“The path is not always straight, but it’s often well lit”

Published on: 12 January 2022

Is the Chinese housing market overheated? Evergrande, a major Chinese real estate company, is still struggling with heavy financial problems. APG also invests in Chinese homes, among other things. Why? And in which other Asian real estate does APG invest? Graeme Torre, Head of APG Asia-Pacific Real Estate, talks about the Chinese government’s housing policy, investment opportunities thanks to the booming e-commerce, and the crux of doing business with Asians: show respect, be patient and remember your table manners.  


This fall, investors in financial markets became very concerned about Evergrande, one of China’s largest real estate companies. It was about to collapse, with a debt burden of about EUR 260 billion. That concern was logical; collapse of Evergrande can cause a domino effect, first in the Chinese real estate world and then beyond. Because roughly a quarter of the Chinese economy consists of real estate-related activities. For now, it seems that Evergrande, with the support of the Chinese government and the sale of business units, is barely fulfilling its obligations.


APG has been investing in Asian real estate for many years, including in China. Briton Graeme Torre is Head of Asia-Pacific Real Estate and works from Hong Kong with his team of sixteen APG employees. What does he think about the bubble in the Chinese real estate market?

Graeme Torre: “People have been talking about this for about fifteen years now. I for one don’t think that this bubble is that big, let alone that it will burst. True, there are plenty of indicators that point to overheating. But the catastrophic collapse of the housing market, predicted by many, isn’t happening. The Chinese government wants to ensure that as many people as possible can own their own home. Many Chinese are still moving from the countryside, i.e. from western China, to the big cities on the east coast, in search of work. And they need to be housed. What we see now is that the Chinese government is not afraid to have a strong hand in the housing market.”


So how do they do that?

“They impose restrictions in various ways. They apply a policy of so-called three “red lines”. The gist of this is that real estate developers, like Evergrande, must deleverage and report to the Chinese central bank each month. As long as they don’t improve their debt position, they’re not allowed to take out new loans at the banks. With this strict policy, the government seems to be able to keep the Chinese real estate market on track. Incidentally, there are so many real estate companies in China that there are always a few in danger of collapse and which then becomes global news. But in my view, that doesn’t paint an accurate picture of the Chinese real estate market.”


What do these developments mean to APG’s investments in Chinese homes?

“It’s clear that the Chinese government wants to protect the affordability of houses as much as possible. Part of that policy is that in recent years they have focused on the development of rented housing. That’s why we have added rental apartments to our portfolio of investments in Chinese real estate. We mainly do this with the American real estate developer and manager Greystar. We focus on high-quality homes in city centers in the mid-price range. The main target group is the younger professionals, both singles and families, who have just moved to the city or who are still saving for the purchase of their first home.”

“Our investments are relatively safe, because we always aim to invest in line with the real estate policy of the Chinese government”

But still, all those images of ghost towns full of empty residential towers… is it still safe for APG to invest in Chinese homes?

“I certainly don’t want to downplay that, but there were different theories about those ghost towns. Most of these houses are bought by speculators. Sometimes with the aim of renting them out, sometimes to keep them as an investment. Yet many of those homes were built before there was any demand for them. Investing in housing usually pays off more than investing in stocks. And until recently, the investor paid no tax at all on both the ownership of real estate and the proceeds of speculation. The Chinese government is envisioning a very long-term master plan, based on the rationale that hundreds of millions of people will continue to move from the countryside to the cities in the coming decades. So the idea is to anticipate that and have your housing stock in order. This includes the logistics infrastructure, such as roads, railways, bridges schools, hospitals etcetera. Hence a lot of money is invested in that. The Chinese government has therefore encouraged private real estate developers, some of which used to be government-owned, to buy up land and build houses. Including the associated infrastructure. This was also encouraged from a tax point of view.

But yes, in the past we have seen too many houses being built in some medium-sized cities. Our investments are relatively safe, because we always aim to invest in line with the real estate policy of the Chinese government. Not that there are no risks at all, sometimes regulations about investing can change overnight. The Chinese have a fitting expression for this: “The path is not always straight, but it’s often well lit.”     


How much do you invest in Chinese real estate and what return does that yield?

“Of all our real estate investments in the Asia-Pacific region, we invest about 30 percent in China; both on the private market for rented housing and in listed real estate. In the coming years, in line with Chinese government policy, we will focus strongly on investing in rented housing, as well as in logistics, data centers and life sciences. In terms of return, over the last five years we’ve significantly outperformed the benchmarks. Although that’s not our main goal.” 


What does your total investment portfolio look like?

“We invest in many countries in the Asia-Pacific region, especially in developed markets such as Japan, China, Hong Kong and Australia. We invest relatively heavily in logistics. This includes, for example, distribution centers and industrial and logistics warehouses. These investments are doing very well. This has been reinforced by corona, which has forced consumers worldwide to shop online much more. Not only do all those web shops need a lot of storage space, they also need data centers. In any case, global data use has been increasing rapidly for years, so having invested in it is a good thing. We do this in China, Hong Kong, Japan and South Korea, among other countries. In addition, we recently started investing in real estate in the medical sector. In addition to housing and logistics, we also invest in offices and shops, but to a lesser extent.”


APG is increasingly committed to sustainability. How do you translate that to your portfolio?

“Sustainability is very important in our region. China has required data center owners to take measures to significantly reduce their massive energy consumption and to use renewable energy sources where possible. We and our logistics partners are working hard on initiatives such as installing solar panels on the roofs of our distribution centers, using more renewable energy and using more sustainable materials in the construction of real estate.”


Another trend is the increasing demand for health care real estate. Given the aging population in countries such as China and Japan, does that offer you any opportunities?

“Absolutely. Not only because people get older, they also have more money to spend; and so they’re also expected to spend more on health care. We're taking a serious look at all developments in health care. For example, we invest in Australian senior real estate, so that’s villas for retirees in separate villages, fully equipped to their needs. And together with CBC Group, Asia’s largest health care investor, we’ve launched a platform for health care real estate in China. With this we want to invest in, for example, hospitals, care homes and medical research and production facilities. China wants to be as self-sufficient as possible, and that also applies to health care. The Chinese government is making it increasingly attractive for private investors to invest in Chinese research into medical applications. We've invested $450 million in this platform, an amount that we can still increase later. We're now investigating with CBC whether we can also launch such a platform in countries outside China.”


You have been working in Asia for over two decades. Have you become accustomed to the cultural differences in doing business?

“Well, that took me some years, ha ha. Their table manners alone, for example… how do you eat with chopsticks, when do you start eating, is it polite to eat a lot or a little, and so on. But when you do business with Asians, the most important thing is that you show respect.

The enormous diversity of local languages is an altogether trickier matter. To communicate well and to understand all cultures and customs, you really need a local partner and a diverse team of colleagues.”


Do you mainly work with local people at your office in Hong Kong?

“My team consists of employees from China, South Korea, Japan, Singapore and Hong Kong, among others. We even have an employee from the UK. All we need now is an Australian. But I can pass for that myself, I’ve been told. The fact that you have to constantly adjust yourself here is what makes this work so exciting.” 

No domino effect

APG’s chief economist Thijs Knaap previously wrote that he does not expect a domino effect if Evergrande collapses, as was the case when Lehman Brothers collapsed. “The risk of a crisis in a certain sector spreading to the entire economy is much smaller than it is outside China, due to the dominant role of government in China.”


Torre’s view on the impact of Evergrande’s liquidity problems on the Chinese real estate market hasn’t changed, since the story broke in 2021: “In the current environment we expect to see the larger and better capitalized property companies fare better than the ones with weaker balance sheets. There is a slow down in activity in the residential sector but because of the sector’s significant share in China’s GDP, we expect government support. Consolidations of some of the weaker companies into the stronger  property groups and the consequent reduction in competition for land should create opportunity for higher growth and increased profitability. And from a demand perspective, the emergence of a cohort of bigger and stronger property developers should restore any lagging confidence in the buyers market.”

Volgende publicatie:
“Policymakers appear capable of steering away from disaster”

“Policymakers appear capable of steering away from disaster”

Published on: 21 October 2021

On October 21st, the largest pension funds of the Netherlands look back on the financial results of the third quarter. An appropriate moment to address some key questions. Is the value growth of APG’s clients’ portfolios during the pandemic likely to continue? Are bonds still attractive to an institutional investor? And if so, why? What are the implications of Covid for office space and the urban real estate market? And why is APG, as a believer in active investing, moving into index investing? APG’s Chief Investment Officer Peter Branner looks ahead and shares his vision on the basis of four statements.


It’s All Over Now? Last year we have had a bad economy and really great realized returns. Are those returns ‘borrowed from the future’? (Or is the story that Covid has been a support for the economy in the longer term?)

"The value of our clients’ portfolios fell after Covid hit, and instantly began recovery when governments and central banks started to support the market and the economy with fiscal as well as monetary stimulus. Before the end of 2020 the value of the portfolios was higher than before the pandemic. There are four reasons for this: the interest rates were lower, government support kept the economy going, the vaccine race provided strong hopes of a way out of the crisis, and APG happened to own, on balance, more of the securities that benefited from the pandemic and the economic support (and other events that took place during the year), than the market.

If there will be a time to “pay back” we don’t know. What we do know is that central banks and governments will dial back support, which will put pressure on asset prices. On the other hand, investors may be willing to continue to pay higher prices for risky assets, because they have learnt that policymakers are capable to steer away from disaster. Besides, the economy may start a new growth trajectory, driven by investments in clean energy and supported by new ways of working and collaborating. Markets will find a balance between these opposite vectors."


Bond Theme. ‘The future of bonds ain’t what it used to be’. The trend of declining interest rates is unlikely to continue and may even reverse. That makes bonds a lot less attractive from a return viewpoint.


"The interest we get on a bond is negative, so we pay money to own them. One main reason we would continue to hold them is the possibility that the interest goes even more negative, increasing the value of the bonds we have. And this has indeed been the case on average over the last 20 years. Shorter term, this would happen in a financial crisis, or when central banks go on lowering interest rates to achieve their inflation goals. Yet we already saw that in the 2020 covid crisis and the interest rate did not fall by that much, so owning bonds did not help our clients as much as they used to.

The silver lining here is that the current value of our clients’ liabilities, the pensions to be paid out in the future, behave like a bond.  So if bonds are a less attractive asset to own, this also means that liabilities are not as risky to have taken on. This has been and still is the main argument for owning bonds for pension funds."


I’m A Loser. The Dutch architect Rem Koolhaas is on record saying ‘Nowadays, city dwellers are losers’. Does Covid imply bad news for office space and urban real estate?

"The affordability of urban housing is under huge pressure. This is partly demand driven: people flock to cities for the economic, social, educational and cultural opportunities cities offer (including the presence of exciting architecture from Koolhaas and his peers). Covid has helped change the way people meet, socialize, work and collaborate. It is not yet clear, how this impacts the amount of floor space an office worker need, hence it is not a given that this will decline. What is clear is that the requirements for offices become harder to meet. Offices still need to be easy to reach by public and private means of transportation, become more resource-efficient and have excellent and robust technological infrastructure. Inner city development, concentrated around public transport hubs, remains one of the most sustainable ways of providing society with ways to interact."    


Play With Fire. Meme stocks, bitcoin, etc. - markets seem like a game these days. Flows seem more important than fundamentals. Does not sound like efficient markets. So why is APG moving into index investing?  

"Active investing means choosing what securities and assets to buy in a certain market, instead of just buying the market index exactly. To do that, our investment managers need to figure out what the value of the assets in a market could be, and pick the most attractive. This costs money, so active management needs to deliver more return than the costs. It costs time, because it may take a while before those attractive investments indeed bring in more money than the index. And it takes a bit of luck, because the assessment may be wrong. It is a bit similar to a sports game: even the best trained team, with the most skillful coaches and players, will not start scoring in the first minute and will not win every game. But it has a good chance of ending up in the top of the table at the end of a long season.

APG knows how to do active management, and is convinced it can add value, but we have to acknowledge that, based on cost and risk considerations, not all clients want to take an active approach in all markets they invest in. And given our size, APG is able to help those clients as well with our innovative responsible index solutions."

Volgende publicatie:
"Is the fear of the inflation specter justified?"

"Is the fear of the inflation specter justified?"

Published on: 21 October 2021

Current issues in the fields of the economy, (responsible) investment, pension and income: every week, an APG expert provides a clear answer to the question of the week. This time: Senior Strategist Frank van Weegberg on whether the increased inflation is short-term or not. "Globalization has pushed prices down for decades."

Now that the inflation rate in Europe has risen to 3% and in the United States to 5%, the key question is: is it a one to two-year 'peak' or 'shock', or will inflation last longer and thus erode purchasing power? There is a good chance that it is the former, says Van Weegberg. "Current inflation consists mainly of two effects. One is caused by production, logistics and supply issues. The other effect is due to the sharp rise in gas prices. We believe that both effects are temporary. And so the current inflation is probably also transient."

The first effect (the production, logistics and supply issues) occurred worldwide as a result of the corona pandemic. Van Weegberg: "For example, the scarcity of computer chips, the consequences of which have affected many industries. But a lot was also stuck in the Suez Canal, as a result of the blockade by container ship Ever Given in March. All this has led to increased prices for many products. But at some point, when the last aftermath of those problems has subsided and supplies have recovered, those prices will fall again."   

Shale gas

The second effect - increased oil and gas prices - is not expected to last long, according to the Senior Strategist. "The main causes are also temporary in nature: problems with gas production in Norway, a low supply of wind energy due to an unusually quiet period and the lack of approval for the Nord Stream 2 gas pipeline. Such price increases are sudden effects that also disappear, partly because, for example, the supply of shale gas increases. That is relatively laborious to produce, but with a high oil and gas price, it becomes profitable again."

And increasing Covid-19 infections in the winter period? Can they still throw a spanner in the works? "New lockdowns could put pressure on the supply of products again, which could lead to a new inflation peak. Even then, the effect on inflation is not structural. This can also be deduced from the expectations of official parties, such as central banks. For example, the European Central Bank expects inflation in the Eurozone to fall to 1.5% in 2023."  

So when will that structural, long-term inflation be lurking? Van Weegberg: "That kind of inflation is more likely to arise when we're faced with a wage price spiral. If wages rise too much, it pushes up the general price level because labor becomes more expensive. But a spiral like that only arises when high economic growth and low unemployment occur simultaneously. Unemployment in the Netherlands is low but in the Eurozone, it's still relatively high at 7.5%. That's why a wage price spiral now is unlikely."

Labor unions
In addition to the high European unemployment, there are two other reasons why we probably will not see the effect of rising wages on inflation, according to Van Weegberg. "The power of labor unions has diminished. Even in traditional industries such as the metal industry, far fewer workers are unionized these days. In newer sectors, the degree of organization is even lower. Add to that the increased number of self-employed workers and it's not surprising that the bargaining position of labor unions has deteriorated.  
In addition, the effect of rising wages on the general price level has also diminished. Globalization has meant that we've started to import more from countries with lower wages. That has pushed prices down for decades. So if our own wages rise, it will no longer lead to inflation as quickly as before." 

The 'specter' as it loomed in Germany in the 1920s is far off yet. And the inflation that is now occurring is actually quite healthy, says Van Weegberg. "We've had very low inflation for a long time, even less than 1%. Normally in Europe, we're around 1.5%. That 3% is well above that. I don't expect the ECB to raise interest rates in the next two or three years. But if persistently high inflation ultimately forces the ECB to raise interest rates, it will be better for everyone in the long run. The housing market may start to normalize again. And it's going to pay to save again. Presently, you have a loss of purchasing power on your savings. No government wants that."

Volgende publicatie:
“Is the Chinese real estate crisis a risk for the world economy?”

“Is the Chinese real estate crisis a risk for the world economy?”

Published on: 7 October 2021

Current issues in the field of economics, (responsible) investment, pensions and income: every week an APG expert gives a clear answer to the question of the week. This time: chief economist Thijs Knaap on whether the global economy will be hit by the sky-high debt of Chinese property developers. “The chance that all hell will really break loose and Chinese citizens will lose faith in the government’s ability to solve this crisis is small.”


Will the embattled Chinese real estate market cause a global crisis in financial markets, like what   happened with the collapse of Lehman Brothers in 2008? That is the question that has been occupying the minds of many investors since it became known that Chinese real estate giant Evergrande (total debt €260 billion) could no longer meet its interest payment obligations. According to Knaap, this is unlikely. “The first question is whether this real estate crisis is a threat to the Chinese economy itself. You can never know that 100 percent for sure, but there is only a small chance of that. This is because the Chinese government is in a much stronger position to intervene than Western governments, partly because it owns portions of the financial sector. If the government wants a company to get a loan from the state bank, then the company will get the loan. This way it can bail out companies when it wants to.”


Money back

Moreover, the Chinese have a lot of debt but mostly to themselves, says Knaap. That too contributes to the government’s ability to manage the economic risk. “There is no need to be afraid that foreign creditors will be on the doorstep, wanting their money back immediately.” 


A financial domino effect like the one caused by the fall of Lehman Brothers is therefore not likely, according to Knaap. “The risk of a crisis in a particular sector spreading to the entire economy is much smaller in China than it is for us, due to that dominant government role. People are not afraid to let things blow over. There are some examples of where this has gone well, such as Baoshang bank and Huarong asset management. Also, don’t forget that the Chinese government itself actually triggered this crisis. For that reason alone, it is a very different situation than with Lehman. At that time, it was not the government that provided the trigger, but the housing market.”


Taking on pain

In what sense did the Chinese government evoke this crisis? Knaap: “Chinese real estate developers are borrowing heavily and robustly. Those in power are now having some reservations about this. Because if debts continue to rise, the financial risk will simply become too great. To put a stop to this, the regulator introduced a number of rules last year. Because of these new, stricter rules, real estate companies with a lot of debt were no longer able to borrow money in the way they were used to. As a result, they had to rely on selling their own properties. In the end, that didn’t happen fast enough, so the debt-based growth model came to a halt. That’s painful. China has chosen to take on the pain while the problem is probably still local and manageable. And we should actually be happy about that. Because if things go well, this intervention will prevent companies’ debt position from really becoming a systemic risk.”


And that also keeps the risk to the global economy manageable, Knaap explains. “As long as the Chinese don’t panic, it won’t damage their economy and the problems in the real estate sector will probably be manageable. There is no crisis of confidence as with Lehman, in which there was a fundamental uncertainty in the financial markets. Globally, the economic impact is therefore limited to foreign creditors of Evergrande who are unlikely to get their money back. The likelihood for all hell to break loose and Chinese citizens losing confidence in the government to solve this crisis is small. But if that does happen, we will also notice it here, in the form of fewer exports and problems with product supply.”


Limit reached

However, according to the economist, we should take into account the effect of the stricter credit requirements on the debt accumulation of the Chinese. “The more borrowing is going on in China, the more we will notice this globally in an economically positive sense. Until now, China has always dealt with economic headwinds by taking on more debt and thereby investing in the growth of the economy. But the limit of that method has now been reached. Chinese people are less likely to get mortgages and some companies are no longer granted credit. This is at the expense of economic growth, and so people abroad are going to notice. That is the main effect and it will likely be felt globally." 


Volgende publicatie:
“Would a monkey invest as well as an investor?”

“Would a monkey invest as well as an investor?”

Published on: 23 September 2021

Current issues related to economics, (responsible) investing, pension, and income: Every week, an APG expert gives a clear answer to the question of the week. This time: chief economist Thijs Knaap about the question of whether you can beat the market with active investing. “Not as a private investor. But as a pension fund you are in a fundamentally entirely different position.”


Give a blindfolded monkey some darts, get him to throw a bunch at the newspaper’s stock page and you’ll get an equity portfolio that will yield the same as a professionally assembled one.  What Princeton professor Burkon Malkiel meant when he made this claim in 1973 was that stock prices show a random and unpredictable course. In other words, deviating from the stock index by investing in specific stocks from that index - i.e., an active investment strategy - does not provide additional returns without additional risk, and therefore makes no sense.


Does this claim hold water? Knaap says it probably does for  the private investor. Does this mean that a pension fund is also better off investing its entire capital in the index? No, the economist asserts, because a pension fund is in a fundamentally different positition. Partially because it has investment options that require scale, professional knowledge, and staying power. These types of investments, which a private investor does not have access to, are a source of extra revenue for pension funds.


Not the only smart investor

Knaap: “Malkiel was right in the sense that so-called stock picking does not make sense for private individuals. You are not going to be the only smart investor who analizes a company and tries to predict the price movement of that stock based on that analysis.  Information is usually factored into prices - prices reflect expectations. With that assumption, it is not possible for a private investor to beat the market with active investing. In that case, it is better to invest in the entire stock index. And that is possible today with inexpensive index trackers.”


However, there is a world of difference between investing in equities as an individual and investing as a pension administrator, which invests total assets of 620 billion euros for its clients. First of all, because a pension fund must match its investments to the (payment) obligations to participants, a process called asset-liability management.


“If you let the proverbial monkey invest in stocks, the choice to invest only in stocks is already made. But do you want to invest in shares at all, and if so, how much of your capital do you want to invest in them? Two thirds of our investment portfolio consist of other investment categories. These include bonds, real estate, commodities, infrastructure and loans to companies. As a pension fund, you have to decide which categories you want to invest in, and in what proportions. In such a way that you can pay out the right pension amount to each participant at the right time. This requires a great deal of analysis, because it is quite complex and there is no one right method.”


No lists

A pension fund also differs from a private equity investor because its position is better in terms of information, and because participants expect more from their fund than just a market return.

Knaap: “We talk to the companies we invest in about sustainability and good corporate governance - by voting at shareholders’ meetings and denouncing any abuses, for example. We  are familiar with companies as shareholders, as discussion partners, and also from the debt market. And the same applies to their competors.  Compared to the private investor, you therefore often have better information and can perform better analyses. Of course, that also involves costs, but in this way we think we can beat the benchmark - the index. And if you look at it over a longer period, our stock and corporate bond investors are doing the same, by a wide margin.”


And thirdly, perhaps the most fundamental reason why you can’t compare APG to a private investor: An investor of this scope can invest in assets that are not an option for the individual. Knaap: “You can only invest in asset categories like infrastructure and loans to companies if you have enough capital for that. In addition to scale, you must also have the required knowledge to be able to invest in them. For certain assets, in China for example, you must have considerable local knowledge. There are no lists of such investments to choose from, as there are at a stock exchange. You really have to look for them. Our stake in the joint venture with KPN for the rollout of fiber optics only becomes an asset once we have established the joint venture with KPN. But there is an entire process that precedes that. And you wouldn’t send a monkey to Rotterdam for that.”


Sell quickly 

Knaap continues: “Moreover, you invest in such assets for the long term. You don’t just sell illiquid investments like that overnight. As a pension fund, you are in an excellent position to invest in a certain asset for a long period of time. It is precisely in the markets where patience is required that we are currently seeing the best opportunities. As a pension investor, you can beat the index by investing in the more illiquid, less accessible markets. Liquid markets, such as the stock market, still have a function, because you also need assets that you can sell quickly if necessary. But for large pension funds, active investment in illiquid assets is currently a major source of return. And this works out in the favor of the participants in the long run.”

Volgende publicatie:
“Is the AEX going to keep breaking records, or is the end in sight?”

“Is the AEX going to keep breaking records, or is the end in sight?”

Published on: 10 September 2021

Current issues in the field of economics, (responsible) investment, pensions and income: every week, an APG expert gives a clear answer to the question of the week. This time: chief economist Thijs Knaap on the stormy development of the AEX. “The 800-point mark is a good time to scratch your head and wonder.”

Shares have never been so expensive. On Monday, September 6, the AEX narrowly missed the "magic" mark of 800 points. Has equity become too pricey? Not really, Knaap says, because the prices reflect the good results of Dutch business. Moreover, other investment classes are also expensive. So, there are not a lot of alternatives. But you also can’t really say that the AEX cannot go down. “Is there any way this can get out of hand? Yes, if savers leave the market en masse again. There is a good chance that we will say afterwards: these valuations were too high.”


That 800-point mark is a good time to take stock of where we stand and to scratch our heads and wonder, according to Knaap. “For APG as an investor, the AEX is not that relevant. We invest globally, so we focus on the MSCI World Index. But the AEX has risen 27 percent this year, outperforming, for example, the S&P500, and it did much better than the MSCI Europe. Why? Because the Dutch economy is doing quite well - we came through the pandemic reasonably unscathed. In addition, technology companies carry a lot of weight in the AEX: ASML, ASMI, Adyen. Those companies have done very well this year. In that sense, the development of the AEX is simply a reflection of the positive Dutch corporate results.”


However, that is not the whole story. Because even if you take those great company results into account, the price/earnings ratios - the share price divided by the earnings per share - of AEX companies are high. Such a high price-profit ratio can mean two things: the share is overvalued, or investors expect a large increase in profits. The latter does not seem to be the case. So it is overvalued? Knaap: “I understand that the AEX companies are doing well, but the current valuations are very high. That makes future expectations of returns on shares low. As an investor, the first tool you use to determine whether a share is expensive or cheap is the price/profit ratio. But apart from that, there is also simply the question of supply and demand of course.”

Hard evidence
And that demand has clearly increased, while the supply of shares has not. According to Knaap, this has to do with a hefty influx of money in the stock markets. "Central banks are not in a hurry to tighten the money supply and during the corona crisis the support measures did not reduce most people’s incomes. At the same time, opportunities to spend money - vacations, eating out - decreased. This has led to huge savings surpluses. Savings currently yield nothing, so the assumption is that much of that money has ended up in equity markets. I don’t have hard evidence for this. But there is anecdotal evidence, for example, the difficulty many people had in opening an investment account. Normally, sharply rising demand - and thus sharply rising prices - are met with stock offerings by other investors. However, that is only partially the case now. In that regard, the recent paper by Ralph Koijen and Xavier Gabaix was an eye-opener for me. They argue that every euro that now flows into the stock market increases the total market value by 3 to 8 euros. So a relatively small increase in demand leads to a large increase in price. The cause of this disproportionate reaction, according to Koijen and Gabaix, is that large institutional investors - pension funds, insurers, index funds - are dominating the market today. They have a strategic investment plan to implement, with fixed allocations to equities. There has to be quite a shift in price for them to relinquish those pieces. Thus, a small increase in demand can lead to a sharp rise in price. Relatively small investors can therefore have a relatively big effect on the stock market.”

And at the same time, this relatively large influence is the risk of the current situation. Knaap: “If this model is correct, and savers want to get out of the stock market again, the market can move downwards just as fast - without the companies doing worse. And that also applies to the AEX.” 

Volgende publicatie:
“Boring is the new sexy”

“Boring is the new sexy”

Published on: 27 July 2021

587 Billion euros. That is APG’s total invested assets worldwide (end of May 2021). The goal: a good pension in a sustainable world for the funds’ participants. Naturally, the portfolio is broad. From investments in wind farms in Zeeland to shares in international hotel chains. And from safe bonds to the more volatile trade in gold or soy. Who are the people behind these investments? What drives them? What choices do they make? And why?


In this episode: Herman Kleeven, head of Focus Equities.


The Focus Equities investment portfolio has a strong long-term focus. Interests in companies are essentially taken for more than ten years. As the conversation kicks off, it is already clear why Kleeven is in this position. He is not interested in short-term results and believes in investing for the long term.  

“We are sometimes put under too much pressure for the short term,” Kleeven believes: “Many investors say they focus on the long term, but the average holding period for a share is only nine months. The financial world is full of sprinters. Marathon runners are relatively rare.”

Kleeven is not surprised by this short-term pressure. “Reward structures are often designed to focus on short-term results. Incentives are usually given on an annual basis. In doing so, you create sprinters. With such a short investment horizon, you must, by definition, try to outsmart the rest. Otherwise you can’t beat the benchmark. But the equity sector attracts the smartest people in the world. And they all think they know better than the rest. That means you are competing against the world’s top sprinters and they’re not easy to beat. So, it might be better not to try to beat them at their own game. Maybe it’s better to focus on the marathon and invest for the long term.”

But the equity sector attracts the smartest people in the world. And they all think they know better than the rest"

From good to great
The Focus Equities team runs this “marathon” by taking large stakes in a limited number of medium-sized, listed companies with a holding period of at least ten years - preferably for more than 5 percent of the share capital. The team looks to move the companies from “good to great,” as Kleeven puts it. To achieve this, they have regular and in-depth discussions with these companies about improvement opportunities, including on sustainability practices and performance.

Kleeven: “We see ourselves more as a committed owner than a volatile shareholder. We currently have positions in 25 European companies and in 17 companies outside Europe. Eventually we want to have a portfolio with the 50 best medium-sized companies worldwide. We want to be among the ten biggest shareholders in each company, because that gives us a seat at the table where we can collaborate with management. Our average stake in these companies is about half a billion euros.”  


Not an activist
That in-depth knowledge and close contact with company leadership is a form of risk management, Kleeven explains. “Normally you do that by spreading your investments over a large number of companies. Our risk management is based precisely on the small number of names, because it enables us to know a lot about those companies and keep our finger on the pulse.”

The Focus Equities team does not follow a short-term activist investment strategy in which a company that is performing poorly is forced, sometimes quite aggressively, to go for the quick profit, for example by forcing layoffs or divestments. “We don’t even consider companies that are not doing well structurally. We really focus on players who have a market leadership position within a certain industry and a healthy breeding ground for sustainability. We then try to further strengthen that leadership position. The chance of success is greater when a company focuses on its core activities. That’s why we avoid conglomerates.”

If you look at the list of companies that Focus Equities invests in, you will not find explosively growing disruptive technology start-ups there. Instead, they are “solid” companies with a proven business model, such as Arcadis, JCDecaux (bus shelters, billboards) and Tomra (packaging machines). The same goes for recent investments in WD-40, Vestas (wind turbines) and MSA Safety (safety gear, such as firefighting helmets and breathing apparatus). And that is no coincidence, Kleeven agrees.

So, if necessary, we don’t just bark; we bite"

Half a billion euros

“We like solid, almost boring companies with a certain predictability. We have to, because we deviate quite a bit from the benchmark with Focus Equities. If you have a thousand companies in your investment portfolio and one or two fail, your portfolio can take that. In a portfolio with a limited number of companies, you can’t afford that. So, we ignore risky companies.” Kleeven laughs as he sums up the approach: “Boring is the new sexy.”

The emission figures of the investment portfolio show that there is a breeding ground for sustainability at these companies. Globally, the portfolio’s carbon emissions are 67 percent lower than that of the benchmark. The European portfolio's carbon emissions are a whopping 82 percent lower than the benchmark. And of all the investments, 36 percent of the companies contribute to achieving the UN Sustainable Development Goals (SDGs).

When you invest half a billion euros in a company, you’re obviously not going to leave anything to chance. In addition to all the criteria like competitive position, sufficient return for the pension fund clients, financing and focus on core activities, the Focus Equities team also draws on expertise from outside the team. For example, from APG’s GRIG team (Global Responsible Investment and Governance team), local lawyers (for a critical look at the company’s articles of association), industry experts, a forensic accountant, and strategy consultants.  



Look them in the eye
When all signals are “go,” the team will engage in a conversation with the company. “We want to look the executive board in the eye. And the supervisory board too because they test whether management is implementing the corporate strategy properly.”

Does such a conversation ever lead to the team abandoning the investment? “Yes, we regularly decide not to invest after all. Sometimes, when we have requested a conversation we get told, ‘but we already have shareholders’ or ‘we already talked to you five years ago, didn’t we?’ Look, if it’s that difficult to start a conversation, we don’t have confidence that we can build a long-term relationship with a company like that. It is inherent in that kind of relationship that you talk to each other regularly.”


Even if the initial exchanges give the impression that the company in question is not playing an open game or that its principles only exist on paper, the team will bow out. Kleeven: “Moreover, we don’t want our clients to be in the news in a negative way. If we have any doubts, we follow a pretty simple principle: if we can’t explain it to our children without blushing, we do not participate.”


Gloves off
As a rule, discussions with management take place a few times a year. In principle, the discussion always focuses on the long-term prospects of the company. These meetings are usually conducted in a good atmosphere. But there are also times when things go sideways in the boardroom. For example, that time when a company in the Focus Equities portfolio became a takeover target. Kleeven: “At a certain point the company was approached by a potential bidder. But because the acquiring party did not like the management, the company rejected that rapprochement. Then they went looking for a white knight and accepted a much lower bid from them. Many boundaries were crossed at that time, including the fact that management had given this white knight access to the books. That access gave the white knight a knowledge advantage. For us, that was unacceptable. We did not want the company to be taken over in the first place. Certainly not at that discounted price. We wanted the company to create value for the long term, for the benefit of the pension participant. It turned into a very serious clash. Our discussions with the management at the time were not friendly. That’s when the gloves come off. We are generally an amiable partner to the companies we invest in, but we are ultimately there for the participant. So, if necessary, we don’t just bark; we bite. We might do that by seeking publicity, for example, but also by pursuing legal options. Fortunately, the latter has never been necessary so far. In this example, the takeover ultimately proved unavoidable, but we did ensure that the takeover bid was raised three times.”


Volgende publicatie:
Is the growing popularity of investing creating a new 'bubble'?

Is the growing popularity of investing creating a new 'bubble'?

Published on: 8 July 2021

Current issues in the fields of the economy, (responsible) investment, pension and income: every week, an APG expert provides a clear answer to the question of the week. This time: Chief Economist Thijs Knaap on the risk of a (bursting) bubble due to the rising popularity of investing.


Investing is hot. In 2020, the number of Dutch people investing money increased by more than a quarter. That's the biggest increase since the 1990s. Many young, often inexperienced investors enter the stock market via smartphone apps from online brokers. And that is not without risk, according to some. Such as American top investor Jeremy Grantham. Earlier this year, he stated: "Private investors have created a historic bubble that is likely to burst before May." A bubble like at the turn of the century (the dot com bubble), when private investors massively invested in Internet companies, pushing stock prices to record highs. Until prices suddenly collapsed in 2000, which was followed by a slowdown of global economic growth. Although May is behind us, the question remains: is the chance of such a bursting bubble still real?


Permanent effects

Thijs Knaap is cautious with terms such as bubble. "Before you use a word like that, you have to understand what causes the increase in retail investors (private investors, ed.). It's down to three factors. First of all, the possibilities for private individuals to invest 'just for a while' have increased, both in terms of convenience (via simple and handy apps) and in terms of costs (in the Netherlands, you also have parties where you can conclude transactions free of charge). The second factor is the corona pandemic: people are at home, sometimes have money to spare and the time to do something with it. So they started investing. The third reason for the growing popularity is the low, sometimes even negative, interest rates. Since July 1, you have to pay some of the banks to be able to save. That drives people to the market. Some of these factors will remain with us for a while – or for good. That technology, that low-threshold investment, is not going away. The low savings interest is also likely to stay with us in the coming years. The demand for stocks therefore continues to grow. These are permanent effects, so in that respect there seems to be no question of a boom, with everyone getting out en masse after corona and never coming back. Structural changes explain a larger part of the movement."


Other types of investors

However, according to Knaap, that's not the end of the matter. "Individuals are different from large investors. They tend to take more risks. They often buy individual stocks, for instance, and don't have a diversified portfolio. And call options are popular, which quickly increase in value when the stock goes up, but are worth nothing when the stock goes down. When you get these kinds of investors, all kinds of things happen. Especially in a time when people find each other on Internet forums where they can arrange to buy stocks of a particular company en masse to raise the price. Even if the company isn't really worth it. It happened this year with the loss-making GameStop and the bankrupt Hertz. By joining forces, hundreds of thousands of investors managed to increase the price to an extreme. That's problematic, and it's not even permitted. In fact, it's market fraud, but you try and do something about it with some many people behind it."

It's much harder to blow up the entire market

Continued confidence

Individuals egging each other on, stock prices being pushed up when the company doesn't seem worth much; are these the typical bubbles we're concerned about? "The developments surrounding these investments – also referred to as meme stocks – do indeed have the characteristics of a bubble", says Knaap. "But that doesn't entirely hold true. During the dot com crisis, stock prices eventually plummeted completely when a lot of people got out. At both GameStop and Hertz, the value of the stock is still and consistently much higher than it was in the beginning. So people seem to have real confidence that the company is doing something good with it. And the suddenly low-cost financing also gives the company the opportunity to reinvent itself."


Blow up the market

Back to the question: due to the growing popularity of investing, are we heading (again) towards a bubble that is about to burst? Knaap doesn't think so. Although he emphasizes that you can never be 100% certain. "Sure, in the examples given and in some sectors, private individuals can drive up the price. But only for companies that are relatively small. They only form a limited part of the stock exchange. You don't see it in the rest of the market. It's much harder to blow up the entire market."

Volgende publicatie:
Tax Burden

Tax Burden

Published on: 8 July 2021

Big (tech) companies often reduce tax by cleverly shifting profits to tax-friendly countries. As an investor, APG has been appealing to companies for years about responsible tax policies and is now going to further increase the pressure. Alex Williams explains how.


Have you grabbed a latte macchiato at Starbucks, ordered something online from Amazon Prime Day, liked a post on Facebook lately? Every coffee, every online purchase, every click, brings in money for these three companies but they can reduce the tax burden on those earnings. Big companies with global operations sometimes manage to significantly reduce their tax bill by shifting their profits to tax havens. The G7 - the club of seven major industrial nations - wants to combat this with a recently concluded agreement: from now on multinationals will have to pay tax in the countries where they made their turnover, at a minimum rate of 15%. Currently, 240 billion dollars is lost annually worldwide through tax avoidance, according to the OECD, the Organization for Economic Cooperation and Development.     

APG has been using its invested assets of nearly 600 billion euros for years to influence the tax policies of big companies, according to responsible investment specialist Alex Williams. What's more, those efforts will be stepped up considerably in the coming period. This is also in line with the tax principles that ABP - the largest affiliated pension fund - published at the end of last year. ABP not only wants to demonstrate responsible tax behavior itself, but also to promote it among the companies it invests in through its pension provider APG. A survey showed that the majority of participants agree: 62% disapprove of tax avoidance and many believe that ABP should not invest in companies that evade (51%) or avoid (32%) tax. The first illegal, the second legal but undesirable form a societal perspective.  

The pressure on companies to pay their fair share of taxes will therefore only increase in the coming years. But how is APG approaching this in practice and how difficult is it, according to Williams? 


Were you happy with the G7 agreement?

“It is good that the importance of a responsible tax policy is now receiving a lot of attention in the press and is now on the radar of politicians and society. This puts it higher on the corporate agenda and makes it easier for us as investors to ask about it. But the tax policies of multinationals have been under discussion for much longer: the OECD and the European Commission have been working for years to reduce aggressive tax planning. Their action plans and rules against profit-shifting between countries are at least as important as the G7 agreement. As investors, we too have always been looking at companies’ tax policies in order to call them to account if necessary.”


As investors, what do you think is fiscally responsible behavior and what is not?

“Our vision is that companies should not shift their profits between countries for the lowest tax rate. We believe that companies should adopt an ethical stance, that they should act not only according to the letter but also according to the spirit of the rules. It is sometimes possible to avoid paying tax while strictly complying with the law. But the fact that it is possible does not mean that you should want to do it. As an investor, we therefore look not only at whether the company is complying with the tax rules, but we also make a moral judgement on its tax policy. This is also because aggressive tax planning comes with a reputation risk, especially for consumer companies like Starbucks. Negative stories in the newspaper can put pressure on future returns. We also want companies to be more transparent about their tax policies; currently, it is often unclear how much tax they pay in each individual country.”   


How do you hold companies accountable for their tax policies?

“We make a list of companies with the lowest effective tax burden: that is, the tax paid divided by the pre-tax profit. In roughly three quarters of cases there are bona fide reasons for the low tax burden. For the remaining quarter, we ask companies why they pay so little tax. We start this dialogue at the top, although tax policy is still often a matter for the management layers below. That is one of the things we want to change: tax policy is part of being a responsible company, so the highest level should be involved.”


Can you give an example of one of those dialogues?

“Yes, here’s an example: we started a dialogue with a telecom company. That company had a fairly low effective tax rate, for which they had a valid reason in itself: they had made losses in several countries. But there was also a tax issue in India that led to a lot of negative media attention. The company then opened up: they published a 90-page report in which they answered all the questions in one go. This shows what pressure from media and investors can lead to. Another example is a mining company. We asked them about the use of tax havens. New management had just taken office, which proved to be a good catalyst for change. Sometimes as an investor you can then suddenly get a lot done.”


And in what situations does it not work?

“We also spoke with a tech company, because we couldn’t find a good reason for the low effective tax rate in our own analysis. Frankly, we are still not 100% convinced by their explanation, so there is still work to be done there.”


Big Tech, big talks about the tax policy?

“With Big Tech companies, there are so many other issues, that sometimes we focus on those first. Mainly about data usage and privacy. But also about employee rights and union representation. But eventually we will start discussing tax policies as well. With some Big Tech companies, we are already doing that.”

Do you collaborate with other big investors?

“Yes, with coalitions of about four to five like-minded investors you can exert more influence. That applies not only to responsible tax policy, by the way, but also to issues like sustainability and social equality. For example, we are working with the Dutch pension administrator MN and with Scandinavian investors. Perhaps in the future we will also work more with American investors now that the Biden administration has put the tax policy of multinationals on the agenda.”  


Do you ever vote against tax policy at shareholder meetings?   

“Companies often don't put tax policy on the agenda of the shareholder meetings, so then it can’t be voted on. I expect that to change in the future, yes. What we can do as investors, is vote against the appointment of the directors that are responsible for tax policies, if a company behaves undesirably in tax matters.”


Can an irresponsible tax policy be a reason to stop investing in a company?

“We see this as the last resort. We would prefer to remain shareholders, because then we can at least use our interest to exert influence. If we sell the shares, we no longer have a say. But if nothing seems to be working and we see no change or, insufficient change, it may become difficult to continue to invest in such a company.”


Does a responsible tax policy come at the expense of profitability? 

“Aggressive tax planning to report more profits and pay shareholders more dividends is a short-term strategy. No company can sustain that for years. Loopholes in the tax laws are also increasingly being eliminated. So, it is not a sustainable model. We are a long-term investor: the short-term results that companies achieve with an aggressive tax policy make little difference to our ultimate return, while the risks involved are high. Tax evasion or avoidance can backfire on companies in the form of fines or reputational damage. In our investment analysis we therefore always look at how sustainable the tax policy is, because ultimately that is what generates the greatest return. So, the financial and ethical perspectives overlap.”


How intensively will APG hold companies accountable for their tax policies in the coming years, and what does it take to do this?

“So far, we’ve been looking at the effective tax burden from company to company; it is a manual process. We will soon be automating this process so that we can map and analyze the tax policy of all the thousands of companies which we invest in all at once. We are currently in discussion with external parties who can provide us with the data for this. On that basis, we can start classifying companies into leaders  and laggards in terms of responsible tax policy, just as we do for sustainable and social behavior. This way, we will soon be able to address the laggards about their tax policy on a larger scale. We have already freed up extra manpower for this purpose.”


Are your hands itching?

Laughing: “Our hands have been itching for a long time. Now that we have been stepping up our efforts in recent years, we can exert even more influence on companies - and focus that influence - to pay decent taxes. The pressure is continually increasing.”     

Volgende publicatie:
APG selling half of Spanish rental property portfolio

APG selling half of Spanish rental property portfolio

Published on: 1 July 2021

The Spanish rental market is growing steadily. Reason enough for APG to invest heavily in this market. Now APG is selling half of these homes to the Australian company Aware Super. Why? And why would a Dutch pension investor invest in Spanish rental homes anyway?

In 2017, APG and Spanish partner Renta Corporación launched Vivenio, which invests in rental properties in major Spanish cities like Madrid and Barcelona. A stable investment, yet APG is now selling half of it to an Australian partner, pension fund Aware Super. APG will receive more than 400 million Euros for this and will reinvest half of it in Vivenio for further growth in the quality and quantity of the residential portfolio. Aware Super is investing the same amount.

From APG, Rafael Torres Villalba, expert portfolio manager of Real Estate Europe, has been closely involved with Vivenio since its inception as one of the directors.    

Why did APG start investing in Spanish rental properties four years ago?

Torres Villalba: “It is an attractive growth market. In the past, the Spanish government encouraged the population to buy houses. This has been successful; over 80% of Spanish homes are owner-occupied. In the Netherlands, that figure is a little more than 55%. But in recent years a growing group of Spaniards want to be more flexible. They do not want to commit themselves; they want to be able to move easily for their work. And then it makes more sense to rent a house than to buy one. Because currently less than 20% of all homes are rental properties, we expect a lot of growth there. On top of that, just like in the Netherlands, the number of single-person households in Spain is rising rapidly; so there is simply more demand for housing.”


What are the returns on these investments for APG?

“In terms of rental income, we assume 3 to 4% cash return per year. Low?  Not really. Now that interest rates are so extremely low, and we don't earn much on bonds, for example, that’s an excellent return. On top of that there is the expected annual revaluation of the real estate. As a result, this investment has an attractive total return every year.”


What is APG's strategy, when it comes to investing in real estate? 

“We focus on a portfolio of global real estate investments that offers predictable returns. In doing so, making our properties more sustainable is a top priority. We invest not only in rental properties, like we do in Spain, but also in shopping centers, outlet centers, offices, distribution centers, hotels and student housing.”

“Making our real estate more sustainable is a top priority for us”

Wouldn’t it be better for APG to invest in Dutch rental properties so that our retirees can benefit from them as well?

“We certainly do that too. For example, through our interest in Vesteda, which owns over 27,000 Dutch rental homes. But in the interests of our members, it makes sense for APG to spread the investment risks as widely as possible. After all, that gives the best chance of stable returns in the long term. And that includes investing in real estate worldwide, not just in the Netherlands.”


Vivenio invests in some 6,000 homes. Are these the more expensive rental properties, or does that also include some social rental properties?

“It’s a mix. Spain does not have social housing as we know it in the Netherlands. For some of the rental properties, the possible rent increase is limited by the government, to protect the position of the tenant. We do include some of these in our investments, but the majority of what we invest in is in mid-range houses, with an average rent of 840 Euros per month, ranging from 1400 Euros at the top and 400 Euros at the bottom end of the scale.”


Are these relatively high rents by Spanish standards?

“Not really. A relatively high number of highly educated people live in the big cities and have good jobs. In most households, both partners work, so those rental fees are affordable for them.” 


What does APG do as a homeowner? Do you refurbish rental properties?

“Wherever possible, Vivenio adds value to the residences by building additional facilities. Such as an extensive gym and other sports facilities, rooftop terraces, spaces for flex offices for tenants who also want to be able to work from home, etc. Vivenio tries to be efficient with the space it has available in order to offer as many facilities as possible to its tenants. For example, by converting former retail spaces or office spaces.”


Is sustainability a priority?

“Absolutely. Vivenio participates in the Global Real Estate Sustainability Benchmark (GRESB). This is an international real estate benchmark that assesses the sustainability performance of real estate portfolios. For individual rental properties, BREEAM is the most commonly used assessment method to determine the sustainability performance of buildings.  The building materials used or the energy consumption, for example, are considered in this assessment. According to this assessment, Vivenio’s recently built rental properties score ‘good’ to ‘very good’. In addition, together with our internal Global Responsible Investments team, we are constantly looking for opportunities to raise the bar.”


What effect did the Covid-19 have on APG’s investments in Spanish rental properties?  

“In the beginning, people stopped spending money, but that soon changed. We then immediately said that if tenants could no longer pay the rent because they no longer had a job, we would not immediately throw them out into the street anyway. We felt it was important to treat our tenants in a socially responsible way and to make arrangements for this group. In the end, that turned out not to be needed.” 


You outlined the advantages of this Vivenio investment, such as the stable returns earlier. So why are you selling half of this equity stake?

“In the beginning, we had the ambition to grow this housing platform to a certain scale. Vivenio is now well on its way, but there is still room for further growth, becoming more efficient and ultimately delivering better returns. By admitting a new investor, more capital is available to achieve that growth and APG can cash in on part of this investment. We chose pension investor Aware Super, with whom we already work well in other investments, such as that in aparthotel chain City ID. The return is more than 400 million Euros, giving us nice total return. We have therefore met our return requirements. My coworkers and I are quite proud of that. We are reinvesting the proceeds partly in Vivenio, and partly in other real estate investments.”


Do your Spanish roots help when working with Vivenio and on a deal like this?  

“Haha, I was born and raised in the Netherlands, but yes, I do have Spanish relatives. The fact that I speak the language fluently is useful; it quickly breaks the ice. But for the rest all communication is in English, which is nice for my APG coworker. Culture clashes? Not so much. It is obviously not an Anglo-Saxon negotiation culture like we encounter with other investments, but that can also be a good thing. And the Spanish lunches are a relief, compared to the Dutch cheese sandwiches with milk.”   

Volgende publicatie:
“When will the rise in the housing market stop?”

“When will the rise in the housing market stop?”

Published on: 24 June 2021

Current issues related to economy, (sustainable) investments, pension and income: every week, an expert from APG gives a clear answer to the question of the week. This time: macro-economist and senior strategist Charles Kalshoven, about the forecast of the Dutch housing market.

The prices of owner-occupied homes keep rising. Can that continue to go well? Kalshoven suspects it will. The economist thinks that the most likely (base)scenario is that the housing market is not going to collapse for the time being. The crucial factor in that is the interest rate.

“In the early nineties, we were still seeing percentages around 10% and the average interest rate in that decade was well above 6%. But it will not go up that high this time. We also expect that the rise will be very gradual, while incomes grow along with the economy. But for now, the ECB is keeping interest rates low, which is also reflected in mortgage rates. We think it may take five to ten years before interest rates reach a new, somewhat higher equilibrium. You shouldn’t think about the levels of the 1990s, or the ‘years zero’ - when interest rates averaged about 5 percent. For the homeowner, this is a favorable scenario, because low interest rates make everything more expensive. Stocks and bonds as well as homes.”


In a more unfavorable but also unlikely scenario, a new virus variant rears its head, with accompanying lockdowns. The global economy would be dealt another blow. 

Kalshoven: “In that scenario we would see low interest rates, but also high unemployment and many bankruptcies. Banks may then put the brakes on the provision of mortgages. In that case, a buyers’ market would emerge, with house prices falling. We see no signs of this scenario at the moment. There is no sign that the housing market is cooling.”

Another unfavorable scenario arises when the economy is going too well, strangely enough. In a tight labor market, employers are more likely to meet new wage demands. And that can lead to permanently high inflation. “Central banks would then have to raise interest rates. Borrowing then becomes more expensive and house prices may come under pressure. This happens especially if interest rates rise abruptly, because then the negative interest rate effect dominates the positive effect of rising incomes. But such a wage-price spiral is really still a long way off.”

Anyone who wants to understand the Dutch market for owner-occupied houses cannot ignore the scarce supply of houses. “That supply is not so flexible here. We live in a small country, where you can’t just build more - partly also because of the strict rules. So, if demand increases, the housing market can only respond in one way and that is by raising prices. There are now plans to build 1 million houses by 2030, but I have yet to see it. You can’t live in plans.”

Big bag of money
So, the Dutch are putting more and more money on the table for their homes. As to where that money is coming from, Kalshoven doesn’t have to think long. “Since the early 1990s, interest rates have fallen sharply and, at an average of 1.6 percent (April figure - ed.) they are still historically low.  As a result, buyers can bid more on a house, which drives prices up. For those who don’t own a house yet, it is unfavorable, of course.”

Besides those low interest rates, there are other reasons why we can enter the housing market with such a big bag of borrowed money. “The lending standards have also become more flexible. In the 1980s you could only get a mortgage on the income of the breadwinner. Later, you could also add the income of the part-time working partner - usually the woman. And women have also started working more, so double earners can get higher mortgages.


So it is mainly the persistently scarce supply and the long-term low interest rates that are the foundations of the Dutch housing market. Unless the economy surprises us unpleasantly, those foundations are not going to fall away anytime soon. The market for owner-occupied homes will remain buoyant for the foreseeable future.”

Volgende publicatie:
APG awarded twice during Global Capital Bond Awards

APG awarded twice during Global Capital Bond Awards

Published on: 18 June 2021

APG's Credits team garnered two awards during GlobalCapital’s Bond Awards ceremony. APG took second place in the Most Influential Investor in Corporate Bonds category, moving up one spot from last year. And for the first time ever, APG placed in the financial bonds category, where the Credits team came in third.


The Bond Awards rankings are based on a poll among various players in the bond market, such as issuers, investors and banks. Each year participants cast a vote for the best performing players in different categories. "That is the reason why we are especially proud," Tim Slütter, Head of EU Credits, explains. “The award truly is an acknowledgment from our colleagues working in bond markets around the world."

Rinse Boersma, portfolio manager financial credits, thinks that APG owes its nominations to the transparency that the pension provider stands for. “Especially in times of COVID, the market was very volatile. Companies and banks needed financing but got a cold shoulder. APG has always been very forthcoming about what we buy for what price. That reliability is important.”


Oscar Jansen, portfolio manager corporate credits, thinks that APG's leadership in the field of ESG was also beneficial in getting awarded. “Green bonds, social bonds, there are more and more of them. For companies that bring these products to the market, it is important that you provide clear and substantiated feedback. APG is at the forefront of this.”


In the corporate bond category, investment manager BlackRock came in first. Pimco came in third place. In the financial bonds category, it was a matter of trading places. In this category, Pimco took first place, BlackRock came in second, while APG came in third. Tim Slütter: "Of course APG is a sizable candidate too, but compared with these parties we are almost punching above our weight. We are proud that we can compete with these kind of world-class players."


GlobalCapital is a news and data service for international professionals working in the capital markets. It has hosted the Bond Awards for twelve years. More information about the Bond Awards can be found here: Welcome to the GlobalCapital Bond Awards 2021! | GlobalCapital

Volgende publicatie:
The taxman and the investor

The taxman and the investor

Published on: 18 June 2021

We may have seen the end of a trend. Since the Beatle song from 1966, Taxman, which was a lament about high taxes, tax rates have gone down quite a bit all over the world, especially for companies. It seems like things are changing now. What does that mean for investors?


First, a word about why rates had fallen so much. Tax competition between countries plays an important role in this. With lower rates you can lure companies and still fill the treasury better. Although these are real dollars or euros for the treasury, they do not usually attract real economic activity. The main result is that multinationals use all sorts of clever tricks to ensure that profits are low in countries with high rates (and vice versa).  


There was growing international criticism of this economic sham. It pushes profit taxes ever lower, because otherwise companies - or their paper profits - will move. Evaders also undermine the tax morale of those who do pay the full amount. Ultimately, these tax tricks create all sorts of distortions, because governments have to get the resources from somewhere else. Then you get higher taxes on labor, for example - because workers are simply less transient - and that costs jobs.


Especially now that Covid and climate ambitions are putting a hefty strain on budgets, additional tax revenues are welcome - including in the US. This is one of the driving forces behind the G7 proposal for a minimum profit tax of 15%. This proposal - which is still a long way off - would provide governments with direct money and could stop the race to the bottom.

“This proposal provides governments with immediate money”

Judging by some initial estimates, governments would rake in billions of dollars from this, as much as some 10% of profits in the coming years. Now it is no news that investors would rather see more profits than less. Still, we think you need to look beyond the immediate effects here. The proposal allows for less distorting taxation, which promotes economic growth. This is true even if the extra revenue goes to smart public investments that promote productivity and support profit growth.  In addition, investors look not only at returns, but also at risk. More inclusive economic growth - with a reasonable division between labor and capital - could also lead to a more stable economic environment, i.e. fewer trade wars or "yellow jackets.”


In short, you can't just say that higher profit taxes are bad for companies and therefore for stock returns. Yes, every euro that goes into the treasury cannot be paid out in dividends. But as mentioned, for those euros you can also get something back in the long run: calmer waters. In the past, tax increases - or announcements of them - have also had little effect on equity markets.  By the way, let's not forget another cornerstone in pension portfolios - bonds. In that sense, it is good for governments to have a solid tax base.


Is the tax pendulum swinging back now? In any case, it seems that the race to the bottom is nearing its end. Governments initially allowed their own space to be curtailed by the market, but they are now taking a more dominant role themselves. Yet the reverse, a race to the top, will not happen overnight. The taxman that George Harrison complained about used a "supertax" of 95% - "one for you, nineteen for me". The Beatles almost went bankrupt because of it. Things will not be as bad now. There are many good reasons to play the Taxman track, but for the time being economic news is not one of them. And for investors, it won't be so bad.



Charles Kalshoven is a macro-economist and senior strategist at APG

Volgende publicatie:
“Will the computer chip shortage lead to inflation?”

“Will the computer chip shortage lead to inflation?”

Published on: 17 June 2021

Current issues in the fields of economics, (sustainable) investment, pensions and income: every week an APG expert gives a clear answer to the question of the week. This time: chief economist Thijs Knaap, about the economic consequences of the worldwide shortage of computer chips.


“The simplest and most immediate effect is that chip machine manufacturers are doing well. As of the end of October, ASML’s share price has now risen by 85 percent, while the AEX has risen ‘only’ 37 percent over that period. But of course, this will not continue. For an investor in chip machine manufacturers, it is helpful to know that the demand for chip machines has some of the same characteristics as the hog cycle. When the demand for pork chops - and therefore the price - is high, hog farmers expand. On the other hand, when that new meat comes onto the market, there is immediate excess, which then brings the price down. The same is true of the market for chip machines. As with pig farmers, it takes a while for new supply to be created. This carries the risk that in a few years there will be a surplus of chip machines and chips. An investor in chip machine manufacturers must therefore know exactly when to stop.”

The indirect effect of the chip shortage is much greater, Knaap explains. “You can’t think of anything without a chip in it nowadays. The shortage is a well-known bottleneck for car manufacturers, but it is currently affecting the entire supply industry. When it doesn’t get enough chips, it also leads to a shortage of other parts. There is a risk that the Western economies will stall because of this shortage.

Everything is expensive now, not only chips but also oil. If the prices of many components and semi-finished goods go up, in the worst-case scenario a situation similar to the oil shocks of the 1970s will arise. The big question hanging over the market is: will it lead to inflation? That is the fear of many investors. Central banks are now pursuing a loose monetary policy by buying up government bonds and corporate bonds, among other things. This is good for investors, because it pushes up the prices of bonds and shares. But if inflation does occur, central banks lose the excuse to pursue this broad monetary policy. They must then stop buying bonds and in that case the mechanism works the other way round. The chance for stock markets to fall increases and, because the current monetary policy has been pursued since 2008, you could even see a major correction. It may be a bit of a shock to investors.”

Crypto currency
The main cause of the worldwide shortage of chips was the extremely high demand caused by the Covid-19 pandemic. Working from home, and the increased demand for game consoles in particular, played a role in this. Still, according to Knaap, that’s not the whole story. “The demand for chips has also increased due to the increased popularity of crypto currencies. A lot of chips are needed to mine bitcoins. And there is also a lot going on on the supply side. In the early 2020s, many companies in Asia were at a standstill due to lockdowns. You can still see that in the availability of goods, including chips. Plus, Covid-19 made us ask ourselves whether we want to be so dependent on foreign producers for certain products - mouthguards, medical equipment, and so on. The answer is no. There will be more production in Europe and the US again, rather than in China. That’s good for our independence. But it does mean that everything will become more expensive.”

Volgende publicatie:
“It should not be all about growth”

“It should not be all about growth”

Published on: 3 June 2021

Annette Mosman started in March as CEO of APG. In the first months of her new position, she wants to gain as many refreshing insights as possible. That is why she walks from Amsterdam to Heerlen in 25 meetings. A journey through the Netherlands of tomorrow, in which someone else accompanies her on each part of the route. Colleagues, but also people outside APG. Like economist Rutger Hoekstra.

Is growth always good? Comprehensive wellbeing economist Rutger Hoekstra from Leiden, has his doubts about that economic mantra. Hoekstra feels it is time to start defining growth differently. He is looking for alternatives that will allow us to measure social progress better. He believes we need a new economic story, in which wellbeing, sustainability and equality are the focus. But how do you make that happen?


What’s wrong with the gross domestic product (GDP)? Not much, Rutger Hoekstra says, as long as you use it to measure whether the economy is growing or shrinking. “Economic growth should not be a goal in and of itself, but that is what it is currently. There is more to life than money. The GDP is not an indicator of wellbeing, wealth distribution and sustainability within a society.” Hoekstra, who is connected to the University of Leiden and the United Nations University as an economist, thinks the current system is outdated. He studies alternatives to the GDP, and also wrote about this in his book Replacing GDP by 2030, which received high praise.


Continuous improvement

Since World War II, there has been a deep-rooted idea that the economy and growth are important. “A hundred years ago you hardly heard anyone talk about economics or economic growth. The latter term has only been around for fifty years. Now it has become almost a synonym for society. Everyone has an association with it. If the economy is growing it is good, if it is shrinking it is bad. Because of that idea, we are constantly asking ourselves how we can improve the economy, how we can grow faster, and what role we have in driving that economy. In that sense, human beings are at the service of the system.”

However, economic growth is not necessarily good, Hoekstra argues. “It has been very good for our quality of life in the past centuries. And for poor countries, economic growth is still good. There, growth is necessary. But particularly in the Western world, that is not the case. If you are very poor, more money contributes to your wellbeing, but there is a limit to that, research shows. At a certain point you have enough money to live a good life and you do not become happier by having more. Moreover, the current growth goes hand in hand with sustainability problems, such as climate change and loss of biodiversity. In addition, inequality has risen in many countries in recent decades.


By this I do not mean that all sectors should grind to a halt. Industries that are shaping a sustainable future may continue to grow rapidly; that is where pension funds can earn a return, for example. But the mantra ‘growth is good’ does not apply to the entire economy.”


Shift the focus

So what is the alternative? Shift the focus to increasing welfare, sustainability and equality, Hoekstra believes. Those should be the social goals. We can achieve this in concrete terms by, for example, considering a four-day work week throughout the Western world, says Hoekstra. “Over the years, we have started to work less and less. In the 19th century, the common man still worked seven days a week. After the war, five days a week became the norm. But in ten years, four days a week could well be the norm. More free time benefits wellbeing. And with less income, people will automatically consume less, which in turn is good for the environment. That kind of relationship between wellbeing and sustainability is something to think about. Income is just a means of shaping the future.”

The term 'carefree retirement’ suggests a certain standard of wellbeing, but I rarely see it fleshed out

Carefree retirement

A carefree retirement is also definitely part of welfare economics, Hoekstra says. "Including the present. If you have worries about the future and whether things will work out in your retirement, that can lead to stress long before you retire.” But what does ‘carefree retirement’ look like? That is something pension funds need to make more transparent, Hoekstra believes. “If you only look at it from an income perspective, it is often so abstract. Okay, you get a certain amount, but what does that mean in concrete terms? What will you be able to buy with it by that time? The term ‘carefree retirement’ suggests a certain standard of well-being, but I rarely see this concept fleshed out. You just have to trust that it will be enough.”


Unfair system

And what about equality? Hoekstra quotes writer and historian Rutger Bregman, who at the World Economic Forum in Davos, Switzerland, frankly confronted the rich, mostly tax-avoiding attendees with the instrument to fight income inequality: “Taxes, taxes, taxes”. Especially the rich and multinationals should pay more taxes, Hoekstra says. “We have to put the pain where it’s caused: in the richest part of the Western world. Warren Buffett (one of the richest people in the world, ed.) once called out that he pays less tax than his cleaning lady. There is also increasing public outrage about the fact that multinationals pay so little tax. Bookstores pay taxes, while Amazon, which delivers those same books to your doorstep, pays nothing at all. The current system is not sustainable or fair. Even at the top, people are starting to realize this. The picture is tilting, but it’s slow going.”


Reach an agreement

The current economic narrative, with GDP as its starting point, was formulated by economists after the stock market crash of the 1930s and the war. It was crisis time, people yearned for a way out in which jobs and income were central. That was a decisive moment. In that respect, the corona crisis can be an opportunity to bring a new story into the world. But then there must first be agreement on what exactly that new narrative is, Hoekstra says. “The community suggesting alternatives is far too fragmented. There are hundreds of systems to measure wellbeing, sustainability and equality. The human development index, the broad prosperity monitor, sustainable development goals, the genuine progress indicator, the better life index, etc. And everyone thinks their own system is the best, while the overlap between all these systems is enormous. That is not helpful. For lay people, it’s impossible to make sense of it all. If we can’t achieve harmony among ourselves, there’s no chance of landing a different story with the general public.”


Speak one language

In that respect, as a community, they would be better off following the example of the economists they like to hate so much, Hoekstra believes. “We have to speak one language, just like the economists do. When it comes to terms like import, export, income and consumption, everyone around the world knows what they mean. In 200 countries GDP is measured in exactly the same way. That is clear and effective. We, as a community, do little in return. There are no global definitions for wellbeing, sustainable development or broad prosperity. It’s a mess. That frustrates me. We need to reach agreement if we are ever going to be taken seriously.”


Hoekstra sees a role in this for the United Nations, which also helped lay the foundation for macroeconomic science after World War II. “In fact, the situation in the 1930s was exactly the same. At that time, the UN said: there is not much we can do with this. You have to choose one system. If the UN had not done that, GDP would not have come into being. I think they should start a harmonization process again. The time is ripe for that.”

We need to come up with one worldwide measuring system for wealth distribution, wellbeing and sustainability

Working on harmonization

Hoekstra is currently developing this idea with the UN. “I don't want to give the impression that we have already started that harmonization, but we are preparing to enter the harmonization period. Nobody benefits from this constantly expanding mishmash of systems. We should not be looking at the differences, but at the similarities; working towards a common goal. There needs to be one global measurement system for wealth distribution, well-being and sustainability. I am exploring what the fundamentals of such a system should be, what it could look like. We are calling it the WiSE Transformation Initiative. WiSE stands for Wellbeing, Sustainability and Equity.”


So, one language and one system. With the goal of increasing wellbeing in a sustainable, fair way. What does Hoekstra think the future should look like if that goal is achieved? “That is perhaps the biggest challenge, to make it clear what it means for people in concrete terms.”


A turnaround is already underway in New Zealand, says Hoekstra. “They draw up their budget with the welfare of the population as the starting point. They look at which groups in society are struggling and reserve a portion of the budget for them. All the ministries can submit proposals for how the money should be spent, and each plan is evaluated for effectiveness. In this way, the ministries compete with each another for the best idea. This method has been enormously successful there. New Zealand is also working with other progressive countries in the Wellbeing Economy Alliance. Concrete steps are being taken worldwide.”


Sustainable ideas

Another, smaller-scale idea for a sustainable, fair future comes from England. How do we get people to fly less? Increasing the tax on airline tickets may sound like a good idea, says Hoekstra, but it is mainly the common man who suffers. “People who are very rich can easily afford it and will not fly less. But suddenly Joe Blow can no longer go on vacation. From an environmental point of view, it doesn't matter who flies, but from a sense of fairness, of course it does. This problem was put to a citizens’ panel in England, which came up with a better idea: what if you make the tax progressive? For the first time you fly in a year, you pay a small amount. And for each subsequent time, you pay more and more. That’s a fairer system.”


With respect to sustainability and equality, we as a society are actually already on the right track, Hoekstra believes, “although it could be faster.” Pension funds, he says, can make a big difference by putting the billions in pension money they manage into sustainable companies. “There is so much money involved in that; it greatly affects wherever it is invested.”


Phased retirement

In terms of wellbeing, the four-day work week is an example that will appeal to many people. And why do we often retire so abruptly in the first place, instead of gradually working less in phases? “The question is whether it is good, from a wellbeing point of view, to step out of working life cold turkey. For many people, work is more than income. It is also part of social life and the enjoyment of life. In fact, we now write people off very abruptly, from five days to zero sometimes. Surely it must be possible to do that differently.”

What the welfare pillar should look like next is more difficult for Hoekstra to explain. “The best thing would be for everyone to have the opportunity to develop and to live their dream life, within the natural boundaries that our earth imposes on us. But what exactly would that look like? We need more research and social dialogue for that. If we can clarify this more, I think a large group of people could get excited about a narrative of wellbeing, sustainability and equality.”


APG-economist Charles Kalshoven also writes about economic growth in his new column. You can read it here.

Volgende publicatie:
Stop growing?

Stop growing?

Published on: 3 June 2021

If something doesn't make you happy, it's better to stop doing it, especially if the collateral damage is large. No, this article isn't about bad relationships, it's about economic growth, because that's what the above reasoning is often applied to. So should we stop economic growth?


Of course, economic growth still has fans. Especially if it's high and politicians want to pat themselves on the back. However, economic growth has also been criticized. As Bobby Kennedy pointed out more than half a century ago, gross domestic product (GDP) doesn't measure the things that make life worth living. Examples are the health of our children, the beauty of our poetry or the integrity of our administrators. Also, issues such as environmental damage and resource depletion are not properly taken into account.


So it's an imperfect measure. But then again, the score on the scoreboard doesn't always reflect how well – or badly – my football club has played. Is that a problem? Well, it is if you apply the credo of what gets measured, gets managed. If the game's good, but the results aren't forthcoming, the trainer will be fired. By the same reasoning, a politician without economic growth can say goodbye to his job. He or she will therefore want to pursue a growth-promoting policy.


What are the consequences if we continue that line of arguing? Ugly and boring football that's focused on results. In the case of football, the damage is limited to dozing off before the final whistle. Economic scoreboard policy could do more harm. "Economic growth is a monster that is exhausting the earth and claiming human lives," someone said in a newspaper interview last week. With the recommendation to take a step back, say, 'to stop growing'.

Steering towards the type of growth rather than stopping seems more meaningful to me

I have problems with that diagnosis and with that, the remedy. Now, I'm not a political scientist, but I don't want to believe that a different composition of the GDP figure – say: we remove the gas revenues – makes a difference in the voting booth. Of course, purchasing power charts are an obsession in The Hague, but that's totally different from scoring with economic growth. The frenzied austerity measures after the financial crisis aren't an indication of a monomaniac focus on growth either.


The dark sides of economic growth – such as CO2 emissions, reliance on finite resources – can't be reduced by measuring growth differently. And stopping growth itself is quite rigorous. Growth has dramatically improved lives and can help further reduce poverty. Another, not insignificant fact: without economic growth, you can't save because no one's investing.


Steering towards the type of growth rather than stopping seems more meaningful to me - less shade, more light. Less production of goods, but more reuse and more services. Make sure energy-intensive production and CO2-intensive energy are reduced. Last month's scenario of the International Energy Agency with a climate-neutral economy in 2050 is on that track. Such an economy will grow. How do we steer growth? Well, with rules, taxes, subsidies and government investments, for instance. This influences the relative prices of raw materials, emissions and labor and helps to make growth healthier: fairer, greener, more circular, 'decluttered'.


Is economic growth a monster we should lock up? I see it more as a happy pet that unfortunately also regularly needs correcting for its rambunctious behavior. It's unfair to say the neighbors are crying shame over it. You should never just let him go. And you have to show him who's boss – with punishments and rewards. That's when you will enjoy the animal the most.


Charles Kalshoven is a senior strategist at APG


Volgende publicatie:
“Does Brexit offer any opportunities for pension investors?”

“Does Brexit offer any opportunities for pension investors?”

Published on: 21 May 2021

How do we keep our British economy interesting to foreign investors now that Brexit is a reality? With that question in mind, UK Trade and Investment Minister Gerry Grimstone launched the "Investment Council" at the end of April. This is an advisory body consisting of directors of forty large international companies from various sectors: from Airbus to Kraft Heinz, from Deutsche Post to Hewlett Packard and Morgan Stanley. The only Dutch participant, Gert Dijkstra sits on this Investment Council on behalf of APG. The think tank advises the British government on how the UK can remain an interesting market for foreign investors, for example in terms of legislation and tax rules.  So that they do not turn their backs on the United Kingdom and British jobs are preserved.

Is the UK, which has isolated itself with Brexit, still an important market for a pension fund to invest in?

Dijkstra: “Absolutely. The British economy is still among the global Top 5, even after Brexit. It is an open and well-regulated economy that is very accessible to us, also because of the language. On top of that, the British have had extensive experience with privatization since the 1980s, led by Margaret Thatcher at that time. This means that they are very familiar with public-private partnerships, a construction that we often like to use. On behalf of our clients, we have been investing in the United Kingdom for some twenty years. We have built up good contacts, including at the British Embassy and the Ministry of Commerce. The British, in turn, find us an interesting discussion partner, partly because together we have invested some 35 billion Euros in the United Kingdom.”

Invested in what?  

“APG has invested in hotels like CitizenM, ports, rental and owner-occupied housing, among other things. And we also invest in shopping centers and all kinds of infrastructure, such as wind farms and London’s water company. We also continued to invest during the Brexit negotiations, such as in homes in London and a large shopping and recreation center in Edinburgh.” 

What is the average return on all those British investments?

“I don’t know exactly; that is not how we look at it. We don’t compare returns between countries or regions, but between themes or sectors. But in general, the long-term returns are good.”


Is Brexit unfavorable to a pension investor like APG? 

“At first glance, yes: we are pre-eminently a long-term investor that benefits from calm, certainty and predictability. Well, you can forget about that with such a drastic exit from the EU. We were not excited about that at all. An additional disadvantage is that we really have lost a ‘buddy’; in our pension lobby in Brussels, they were often on our side because their pension system was similar to ours. They often advocated the same interests to the EU as we did.”


Will Brexit make the prices of potential investment assets go up, and will you not be affected by new regulations?

“The process of the UK leaving the EU has caused short-term price fluctuations of - potential - investments in the UK currency. First they fell, then they rose. In the long term, this will average out to realistic market prices. So far, I have seen no signs that new regulations are preventing us from making investments in the UK.”

As investors, we hope for an atmosphere in which we feel welcome to enter the UK market.

Does Brexit have any advantages for a pension investor like APG?

“Certainly. Every disadvantage has its advantage including in this case. For example, because the British government is going to invest heavily in things like renewable energy, mobility and infrastructure. For almost every investment this rule applies: preferably as sustainable as possible. Exactly what we’re aiming for. For example, they want to invest four billion British pounds in inter-city transport, such as roads and railroads. And within the telecom market they are going to invest in both cables and fiber optics, where we are also seeing opportunities; see also our recent joint venture with KPN, for the installation of fiber optics in the Netherlands.”


Is it pleasant for foreign investors like APG to negotiate with the British now that they have isolated themselves through Brexit?

“Yes, I can’t deny that. We can negotiate in quite a relaxed manner, although we are not the only foreign investor, of course. The British understand that they need to stay focused on their business, make new trade deals and re-establish contacts. They want to reaffirm or rebuild relationships. The creation of such an Investment Council fits in well with that. Getting advice from big investors and companies from abroad and finding out what they think is important is a really smart move. In this way they create more cohesion. For APG, our participation in this Investment Council means that we are in the front row when new investment opportunities arise.”


You just finished the first meeting of the new Investment Council. What points did you bring to the table?

“I outlined that predictable government policy is crucial for us as long-term investors. Secondly, that on behalf of our clients we are making a move towards increasingly responsible and sustainable investment; and we therefore take this into account in our investment policy. And third, that we benefit from a good climate for entrepreneurs. If they are stimulated to take initiatives, we get more opportunities to invest. Ranging from small start-ups to very large companies and initiatives. Most of the other participants had similar points, with the desire to invest sustainably in particular really being a common thread. As investors, we hope for an atmosphere in which we feel welcome to enter the UK market. Including in terms of fiscal options.”  


Finally, on what issues do you see the biggest challenges now in terms of investing in the UK?  

“For us, a stable political environment and consistent government policies are important, with a clear role for long-term institutional investors. For example, you can see that the current government is now rolling back privatization, including in the area of public transport. Secondly, I expect competition with large investors that should not be underestimated.”

Volgende publicatie:
APG invests in the Chilean transmission market

APG invests in the Chilean transmission market

Published on: 31 March 2021

APG and the Chilean company Celeo Redes, S.L.U. – or briefly Celeo – signed a shared purchase agreement to acquire 100% of the transmission line business of Colbún Transmisión, S.A. With this agreement both APG and Celeo increase their presence in the transmission market in Chile doubling their portfolio and strengthen their position as one of the Chilean leading transmission players.


Colbún Transmisión S.A. consists of 29 operational transmission line assets totaling 899 km and 27 transmission substations located across Chile. The portfolio accounts for c. 5% of the total transmission market in Chile. Through this acquisition, APG and Celeo will become the second largest player in the regulated Chilean transmission market.


APG will acquire an 80% stake in the company on behalf of its pension fund clients ABP and PPF APG, with Celeo acquiring the remaining 20%. The transaction is subject to the approval of the relevant antitrust authorities. The closing of the transaction is expected to take place in the second half of 2021.


Ron Boots, Head of Infrastructure Europe at APG: “We are pleased with today’s agreement and acquiring such a strong foothold in the Chilean transmission market through the acquisition of Colbún Transmisión together with Celeo. We are always looking for solid, stable infrastructure investments because they help us to realize profitable and long-term returns for our pension fund clients and their participants.”


Watch this CNN news item: 

Volgende publicatie:
Are you afraid of ghosts?

Are you afraid of ghosts?

Published on: 18 March 2021

No one likes to have a monster under the bed. And even if your parents say there is no such thing as a ghost, as a child that’s not what it feels like. In the financial market, there is also a monster lurking sometimes. One that has the capacity to scare the living daylights out of everyone: the inflation ghost. How afraid of that should we really be?


The bad news: this ghost is real. In western countries there have been three periods of massive inflation in the last century. In the Netherlands, this amounted to an average of about 10% during both world wars. In the seventies, it was 7% a year. At that rate, your money is only worth half of what it was after ten years. That means the same pension will only get you through half of the month.


The damage can already start before the monster even stirs. Because it is the fear of inflation that can cause interest rates to rise before even one price tag has been received. Because inflation makes government bonds with fixed remuneration in Euros less attractive. If scared investors then dump these items, the price goes down and interest goes up. And a higher interest rate also has a negative effect on shares and housing prices. It makes future profits and renting worth less. And home buyers will also not be able to borrow as much.


Financial markets take rising inflation into account. This can be seen in the increasing price of insurance for inflation. Why? Rising optimism about economic recovery due to vaccines and fiscal injections plays a role. Inflation is higher in an economy that is growing. But more expensive raw materials and logistical problems can lead to higher prices. A shortage of chips affects production costs, a shortage of containers in the right place drives up transportation costs.

High inflation is not the most likely scenario, but it would be unwise not to take it into account.

Still, these types of problems should be temporary. Rising prices for specific products and services are what solves logistical problems – greater supply of containers where they are most needed - trigger higher production. The current production problems are certainly not economy-wide. For the time being, the world is still far below its old production level. Therefore, overheating – a spiral of rising wages and prices – is still far away. Also consider that the inflation rate has been (too) low for years, despite the substantial money offer from the ECB.


So, can we rest easy? No, not quite. High inflation is not the most likely scenario, but it would be unwise not to take it into account. In the somewhat longer term, it is conceivable that supply will be constrained while demand rises. Trade restrictions, climate damage, strict regulations, and cost-prohibitive taxes are examples of barriers on the production side. Additional demand can come from hefty public investment programs backed by generous monetary policy. Several scenarios are conceivable. To mention one: a late, abrupt energy transition that converges with physical climate damage.


Should you encounter the inflation specter in a nightmare, go with it for a while. Think through the consequences if such a scenario occurs. Imagining a risk scenario helps you to make better decisions the next day. As a result, you will be able to sleep a lot more soundly the following night.


Charles Kalshoven is a macro-economist and senior strategist at APG

Volgende publicatie:
Chief economist Thijs Knaap at BNR on Shell, dividends and China politics Biden

Chief economist Thijs Knaap at BNR on Shell, dividends and China politics Biden

Published on: 25 February 2021

“There is not one template for all energy companies to follow. A dogmatic approach to 'more renewable energy at any price' is not the solution.” says APG's Thijs Knaap in the Business program on BNR Nieuwsradio in response to news that Shell failed to meet its climate targets last year. “We will continue to discuss the energy transition and climate policy with Shell, and how Shell is making concrete arrangements for achieving climate neutrality. And we will continue to follow Shell closely and critically on the path to energy transition.”


Knaap, chief economist at APG, regularly joins the Zakendoen investor panel. In today's broadcast, he also discusses China's desire for President Biden to cut trade tariffs. “In policy there is sometimes a gap between idea and implementation. Trump's idea of ​​seeing China as an adversary was sensible in some way, but the implementation was chaotic and yielded little. Biden has largely the same idea, but a different implementation.”, He says in conversation with presenter Thomas van Zijl and panel member Martine Hafkamp.

Lower dividends are also discussed. Knaap: “No problem. It is no surprise that it was a bad year and that little profit was made. Much more important: survive the year and then just continue paying dividends. ”


Listen to the entire broadcast (Dutch) here. 

Volgende publicatie:
APG is expanding investments in high-quality student accommodation

APG is expanding investments in high-quality student accommodation

Published on: 22 February 2021

After a successful start in Australia, APG has further expanded its investment in Scape student accommodation on behalf of its pension fund clients. To this end, Scape and APG have set up a £ 500 million (€ 580 million) joint venture for the United Kingdom.


Scape develops and manages student accommodation with a high standard in city centers. The residents have access to high-quality facilities such as fitness rooms, study rooms, stylish furniture, wireless music systems, weekly cleaning, food delivery, et cetera. With these accommodations, Scape is responding to favorable long-term demand due to increasing international student mobility and growing domestic demand.


For APG and ABP, this step in the British market offers very attractive investment opportunities with a stable return in the long term.

Volgende publicatie:
The alliance between the free market and democracy

The alliance between the free market and democracy

Published on: 18 February 2021

In a time of increasing global protests and with the Dutch elections just around the corner, I like to look at the ‘alliance’ between the free market and the democratic rule of law.

The economists Acemoglu and Robinson discuss the economic and political institutions in their book Why Nations Fail. Those institutions can be inclusive - everyone is allowed to participate - or exploitative. In the latter case, an elite group is draining the rest in terms of prosperity or control. One of their thoughts is that economic freedom and political freedom mutually reinforce one another. My question: is it still a happy marriage?


Why would political and economic freedom actually go hand in hand? A part of the story is (in)equality. In a rather unequal society, rulers have to implement weightier resources in order to defend their property. Economic freedom is threatening, as it also entails more competition. And before you know it, political freedom leads to reallocation. If a country (nevertheless) develops, a middle class arises that wants participation and tries to enforce certain rights. Their success, if achieved, is also beneficial to the economy. Entrepreneurs in a democratic rule of law, have to be less concerned about someone else benefitting from their investments.

And that's how we continued to have a clear world until the end of the Cold War. You either lived in a democratic nation with a free market - and at the same time a wealthy country - or you were restricted in both your economic and political opportunities and you would be poor.


The major deviation from this delightfully clear picture is China. We all know that the economic rise is unprecedented. But political freedom is not particularly part of the success formula. The Dutch republic showed success in the seventeenth century - much to the dismay of surrounding monarchies - thanks to the combination of economic and political freedoms. In turn, the Chinese show the world that a lack of freedom doesn't have to stand in the way of wealth. That's an example of which you hope it will not be replicated on a large scale.


Yet, the question is whether or not the success has a continuing status. Migration from rural areas to the city - an important growth engine - will come to a standstill someday. And there's also another reason to doubt the durability of the Chinese model. Acemoglu and Robinson state that the combination of authoritarian leadership and economic freedom is far from stable. It can go two ways. It is possible that increasing prosperity leads to increasing participation. That means it will become a free market democracy. But it is also possible to slip into unfreedom on both fronts.


Even the stable alliance between democracy and the free market can be undermined. Growing inequality can feed social dissatisfaction. And the free market can generate a lot of fake news. That has been an important factor for the storming of the Capitol on January 6th. There is no economic law determining that the most objective communication sells best.

We can therefore not just expect that everything will turn out for the best once you have economic and political freedom. That's a good thing to remember in this period of election. The election programs - but also society - pay much more attention to inequality these days. That also helps in keeping the free market and the democracy together. You ask me if I have an appropriate voting recommendation when election day has arrived? Absolutely. Make sure to vote!



Charles Kalshoven is senior strategist at APG

Volgende publicatie:
The pros and cons of short selling

The pros and cons of short selling

Published on: 8 February 2021

Private investors got together recently via the social network Reddit to take action against short selling: speculation on the decline in the price of stocks or other securities. This has been going on for centuries, but is it still fit in with our modern times? Investment expert Patrick Bronger of APG takes stock.


A bridge in 17th century Amsterdam: a group of men (women were not allowed to trade in shares) has gathered around Isaac le Maire, a wealthy merchant and cofounder of the Vereenigde Oostindische Compagnie, or VOC (United East Indian Company), the first multinational in the world and the first company that issues shares. Le Maire has been thrown out of the VOC after a fight and is looking for vengeance and a way to feed his 22 (!) children.


Short selling avant la lettre

On that bridge, Le Maire sells VOC shares to the people present, where the price is determined through bargaining. (The stock exchange doesn’t exist yet. That is still a few years away.) This concerns so-called term contracts: Le Maire must deliver the shares at a later time against the price that has been agreed upon. If the price decreases in the meantime, he will make a profit. Short selling avant la lettre. That is allowed. But what does Le Maire? He talks down the price by spreading false rumors, for instance, that a VOC ship supposedly has sunk off the coast of Cape Good Hope. And that is not allowed. The price of the VOC shares indeed starts to go down.


Reddit rebellion

Fast forward to the 21rst century. At the end of January, private investors massively buy shares of GameStop, an American retail chain for video games, encouraged by internet forum Reddit. The price on the stock exchange increases very rapidly, causing the short-sellers – who just had bet on a decrease in the price of the poorly running company – to lose billions of dollars. That was exactly what the Reddit followers wanted to accomplish: they manipulated the share market to make a fist against the in their eyes reprehensible big business: hedge funds that supposedly enriched themselves improperly with their speculation on falling prices.  

Are the Reddit rebels right or does short selling also have advantages on the share market? How much does the pension participant notice? And: what is short selling exactly anyway? We asked Patrick Bronger, Expert Portfolio Manager Hedge Funds & Alternative Alpha with APG Asset Management. Here follows his explanation.


A lesson in short selling

Short sellers actually do exactly the same that Le Maire did, but then on a large scale. They speculate that the price of shares (or bonds, or raw materials, such as gold and silver) will fall. Why? “Because they think that those shares are valued too high on the stock exchange”, says Bronger. “If the company performs worse in reality, the price of the share will go down at a certain time. Short sellers take an advance on that.” Hedge funds also participate in short selling to cover the risk of investments with which they speculate that the price will increase (‘going long’). “If that jump in price does not happen, then at least they earn from the short shares.”


How exactly does that work?

Short-sellers borrow securities – for instance, shares – against compensation from brokers, pension funds, or insurers. “By the way, APG does not lend shares or other securities in principle”, Bronger emphasizes.  Then the short-sellers directly sell the borrowed shares at the rate that is then current at the stock exchange to another investor. He can lend the shares again to another short seller. This way the same shares can be used to take a short position. Compare it with e-tickets for a music concert: you can sell them as many times as you like. But those tickets allow entrance for only one person; with short selling, the shares can be used more times by different parties.   

At an agreed-upon time the short sellers buy back the shares again to return them to the party they borrowed them from, Bronger explains: “If the price has gone down in the meantime, they pay a lower price and they make a profit. But if the price has gone up in the meantime, they have to pay a higher price and they suffer a loss.”


Is there an ‘emergency stop’?

The profits, but also the losses can be enormous, like the loss of billions by the hedge funds with the Game Stop shares shows. When the losses become too large, the hedge funds sometimes use a kind of emergency stop, the kill switch, Bronger says: “They are going to buy many shares rapidly, in an effort to compensate for their loss in the short positions or to keep it as small as possible. However, often the time pressure is big, and more parties start buying at the same time, which drives up the price of shares enormously.” That is called a short squeeze. In the case of Game Stop the brokers – including the Dutch ones – shut down the trade-in shares to prevent high peaks.


Do the criticasters have a point?

The Reddit action is a reflection of the social inequality in the (American) society and exposes the dissatisfaction and anger about that. The Corona crisis plays a part in that too: people have a lot of savings and spend much time at home. Now that shopping for fun is no longer possible, some people start trading for fun. Apart from that, a part of the criticism of the Redditt-ers is rightfully so, says Bronger. According to him, it is also important to not tar all short sellers with the same brush and to separate the wheat from the chaff.

The chaff, that’s the modern-day Isaac le Maires. “In the 21st century, there are also short-sellers who spread false rumors and via social media that can be done a lot faster than on a bridge or in a coffee house”, Bronger laughs. However, now the involved companies can refute such rumors just as fast via Twitter, while back then it only appeared after 18 months or so that such a ship had sunk or that it had returned with a rich cargo.

On top of that, some short sellers take an aggressive stance toward the management of companies that they have their eye on. Another point of criticism is that short sellers make money on companies that already have a hard time and that push those companies into the abyss even faster. Speculation on a falling price then becomes a kind of self-fulfilling prophecy. On top of that, the market for short selling is opaque because of the loaning between themselves and the reselling of shares.


Are there also arguments in favor of short selling?

Yes, there certainly are, says Bronger. For that we have to look at the wheat: those are the short-sellers who thoroughly investigate companies. “That way they can signal differences between the valuation at the stock exchange and the true performance of a company at an early stage and even detect fraud or other abuses.”

Bronger takes the example of the American energy concern Enron, which collapsed in 2001 because of a bookkeeping scandal: “Nobody realized that the top people at Enron conducted business transactions with their own company, except for an analyst of their bank. Enron demanded that the bank would fire the critical analyst, after which he went to a short seller and announced the affair to the world.” The same goes for the Lehman Brothers: the bankruptcy of the business bank marked the beginning of the credit crisis in 2008. Three months earlier a hedge fund manager had already sounded the alarm about the weak financial position of the bank and irregularities in the bookkeeping. A recent example is the payment company Wirecard, for years the crown jewel of the German tech companies. The German overseer announced a ban on short-selling with Wirecard, until the so-called ‘rumors’ about irregularities with numbers turned out to be true. An enormous bookkeeping scandal was exposed, and the company went bankrupt.

So, short-sellers do have a function, poses Bronger: they can ensure that the price at the stock exchange forms a better reflection of the true value of securities and at the same time sound the alarm in a timely manner for problems with companies that are listed at the stock exchange. “And that is valuable information for investors, both professionals and private.”


Does APG participate in short selling?

APG invests a small part of the invested capital in hedge funds, which sometimes invest that via short selling. “If APG chooses for hedge funds, then we solely do that because of their knowledge and experience in specialized investments”, Bronger explains. In total it concerns about 22 billion Euros. That seems like a lot of money, but relative to the total capital of 573 billion Euros it is not even 4%. Bronger: “That fits in our policy to invest in different categories, to spread the risk as well as possible that way. Besides, we do not participate in short selling with the pension money that our teams invest themselves. So, in principle, APG does not lend shares to short-sellers.”   

To make sure, after the publicity around Reddit and Game Stop a stress test was performed, but it barely concerned APG in the investment portfolio. “We again considered the ethical aspects of short selling”, Bronger shares. “After all, APG is a long-term investor who wants to take a responsible position. But short selling can possibly help with that too.”

The valuable expertise and information of hedge funds can increase the return on the investment portfolio and decrease the risks because bad performances and problems with companies are shown early. On top of that, short-sellers sometimes denounce undesirable behavior: how companies are being managed, or how they treat their people and the environment. “As a large investor, APG can address those issues with those companies”, according to Bronger.

APG does want to handle short-selling responsibly. That means that the pension investors don’t build up enormous short positions but, as said before, spread investing. There is also a critical eye on partnerships: not with activist hedge funds with a short term focus and not with short sellers who spread misleading market information. So, not with the Le Maires of this world. “Our own investment teams keep a close eye on the social media for new Reddit-rallies, to be able to deal with that quickly”, says Bronger.  


1.5 million lost in 30 years

What actually happened with Isaac le Maire? The VOC persuaded the government to announce a partial ban on short selling, after which the price went up. Le Maire and his companions supposedly lost an amount with today’s value of about ten to twenty million dollars. Isaac died in 1624, approximately 65 years old. On his headstone is written ‘that in 30 years’ time, he lost more than 15 00000 guilders’, or about one and a half million.


The information about Isaac le Maire is based on an interview on the American radio station Planet Money with Lodewijk Petram, historicist, economist, and author of the book De bakermat van de beurs. (Thecradle of the stock market)     

Volgende publicatie:
“Focusing on your financial affairs should be as regular a routine as your six-monthly dentist appointment”

“Focusing on your financial affairs should be as regular a routine as your six-monthly dentist appointment”

Published on: 28 January 2021

If people want to make better financial choices, they need to get a grip on their financial affairs earlier and more often, say Paulien van Gurp and Henk-Jan Boersma from Prikkl. APG took a 40 per cent interest in the financial coaching and advice platform today. Both share the same mission of removing the barriers to financial insight. Sounds great, but a bit abstract. How do you do that exactly?


It’s one of the goals that APG sets itself: making people in the Netherlands ‘financially fitter’. In other words, helping people get a good grip on their financial affairs so they can make informed choices. APG has been achieving this by developing various initiatives and tools to support APG affiliated pension fund employers and participants. The partnership with Prikkl is the most recent addition to this armory. Prikkl has been helping companies ensure their employees financial ‘agility’ since 2017, via a combination of software and personal advice. Chris Veerkamp is involved in the partnership as business owner from AGP: “We share the conviction that every person in the Netherlands is entitled to accessible and affordable financial coaching. And we want to encourage people to use this.”


Where does this “urge to encourage” come from? Don’t people simply seek advice if they need it?

 “That’s exactly the point. The barrier is too high for many people. It’s too expensive, or too much work, the result being that they often seek financial help too late. If you only seek help when it’s become a real emergency, the options are very limited. People only talk to the bank if they’re actually going to buy a house and only start investigating early retirement if they don’t feel like working anymore and state retirement age is approaching. But they’d be much better off thinking about this when they’re forty, when they can still do something about it,” replies Boersma.


Veerkamp adds: “And ‘doing something’ means making choices. The introduction of the new pension system is making these choices even more important. It will make pension levels less certain and people will need to know the potential impact of their choices in time. Buying a house, early retirement... How will these affect your finances and income now and later?”


And Prikkl and APG will be helping with this?

“Of course, that’s the aim. We want to make sure that we can offer services to pension participants at the moment that their finances play an important role; give them the right information at the right time. This means offering quick support that’s tailored to people’s circumstances instead immediately coming up with a complete financial plan. We want to help people make financial choices in their lives or careers; preferably before these choices come up,” says Veerkamp.


Isn’t it difficult to anticipate these choices?

 “Of course, and that’s where the challenge lies,” says Veerkamp. “On the other hand, as APG we know from experience which problems can arise, which choices people will make, and what impact these can have on their pensions. Through our funds, we have a lot of contact with clients every day. This means we hear what’s important to people and employers, including with respect to finances. We should be able to use this more so that we can facilitate and help people.”


“And a lot of behavior can be predicted. It’s something you can anticipate,” replies Boersma. “A good example is first-time buyers on the housing market. All they hear about is how low their chances of buying a house are. That may make them abandon the idea. When a first-time buyer starts working for an employer, we can chat to them while the contract’s being drawn up. We can then make a quick calculation of their potential maximum mortgage so they can see whether they’re likely to be eligible to buy a home. This gives people the chance to consider options they wouldn’t normally have thought of.”


Van Gurp continues: “That’s also the core of our approach. We first look at someone’s financial situation and use this to decide which solution or approach is appropriate.”


Do you only focus on employees and employers?

 “In principle, yes,” answers Van Gurp. “The employer is an important and reliable link in helping employees with their financial affairs and encouraging them to take action. We don’t target self-employed persons and freelancers, although we do of course help people who are considering starting for themselves. Who knows? Perhaps we’ll focus on the self-employed and freelancers in the future.”


APG also offers other services aimed at financial fitness, such as Kandoor and Geldvinder. What do Prikkl’s services add to this?

Veerkamp adds: “The services we offer as a ‘trusted guide’ for employers and employees are still very application and platform-driven; they’re largely only online tools. Prikkl combines advice software with personal support from a financial advisor. Moreover, Prikkl focuses on financial coaching and advice across the board – not just on pensions. We can also learn a lot from this. Partnerships with parties outside of APG mean that we don’t need to do everything ourselves to be a trusted guide for employers and participants. It is, however, important that these services enhance each other. They should be a sum of their parts.”


What are the next steps in the partnership?

“We’re going in two directions. We’re investigating how we can make optimum use of Prikkl’s current service for employers and employees of APG's affiliated pension funds. And we’ll also be investigating the development of two new propositions in the coming months. These are new ways to combine Prikkl’s knowledge and services with what we do at APG,” says Veerkamp.


When will you be satisfied?

 “When we can really ensure that improved financial insight is accessible to a large audience,” says Van Gurp. “And when we manage to reach people earlier on a large scale. We can then help them before they get into financial difficulties or before their choices become limited. As far as finances are concerned, I want to prevent that someone thinks, if only I’d....”

Boersma adds: “I’d be happy if people start seeking help with their financial affairs as a matter of course. It doesn’t need to be something you enjoy, but it should be just as regular a routine as a dentist appointment. Just go and see them once or twice a year. And we’ll be there, ready and willing to help.”

Volgende publicatie:
“Enterprising investment is the name of the game”

“Enterprising investment is the name of the game”

Published on: 22 October 2020

As a long-term investor, how do you deal with the short-term developments in a rapidly changing world, resulting from Covid-19? How do you not get distracted by the issues of the day? Enterprising investment in real assets is the name of the game, says APG’s Ronald Wuijster, executive board member, responsible for Asset Management. This means direct investments, without intervention from financial markets. Wuijster spoke about this during the World Pension Summit, which is happening from October 19 to 23.  


An institutional investor like APG invests for the long term. That makes sense, because the financial obligations of a pension fund last well into the future. The advantage of this is that you have time to allow an investment to fully mature, if necessary. The returns do not have to be withdrawn from one day to the next. However, that does not mean that you can just ignore all short-term developments, especially if these are extreme developments, such as we are currently experiencing with Covid-19.


Big dent

Whether it concerns government bonds, shares, real estate or private equity, today’s expected returns have all fallen by about 2-3%, as compared to 2012. Wuijster: “That may sound like a modest decline, but over a period of several years, it signifies a considerable dent in invested assets. If you look at the causes of that decrease in returns in the past few years, roughly four factors emerge. Low productivity growth in companies and an increase in government, company and household debts. Those are the first two. In addition, during the past five years, the central banks have also pursued a monetary policy by rapidly buying government debt – to stimulate the economy. And the increasingly intensive search for investment that will still generate some returns, has also put further pressure on returns.”

Please note: this was the situation up until March of 2020. The outbreak of the Corona pandemic had a further accelerating effect on all four of these trends. In other words, the expected investment returns further declined, because of it.

Masks and medications

At the same time, Covid-19 is accompanied by several trends that you can take advantage of as an institutional investor, according to Wuijster. “The tendency of authorities to act with decisiveness and intervention is greater than the fear of getting into debt. This creates opportunities to invest with those authorities in projects that are aimed at softening the crisis. In addition, face-to-face meetings have rapidly decreased, which has a significant impact on retail, the office market and travel behavior. And that, in turn, provides interesting opportunities for investing in infrastructure, but also requires a re-orientation within the real estate portfolio: does it fit in optimally with these developments? What we are also seeing is that a development is occurring where particularly crucial production – masks, medications – are being ‘brought home’ again. That development, incidentally, had already started before Covid-19; the long value chains between, for example, China and Europe are seen as too vulnerable. As long as things go according to plan, it seems to work fine, but if just one little thing in the chain goes wrong, the consequences are huge.”


Another trend Ronald draws attention to is the boost that working remotely got from Corona. Because, once people are used to working that way, how small is the step to offshoring? Does that legal analysis really need to be done in Amsterdam, or can it also be done in Delhi? Services are becoming marketable at a furious pace, which may lead to a new globalization wave, Wuijster predicts.

The Corona age therefore brings its own investment opportunities with it, but it is also clear that as an investor, you seriously need to take into consideration the threat of a lurking financial crisis. 


The door remains closed

In a world in which safe assets with sufficient returns are really no longer available, “enterprising investment” is the name of the game for an institutional investor. These are direct investments, without the involvement of financial markets. And that is exactly why there are advantages for a big investor like APG. Wuijster: “Due to the scope of the invested assets and knowledge of local markets, there is access to such real assets, while the door remains closed to parties that don’t have the same large scale. That scope is also required for being able to monitor those direct investments, which is, of course, a much more labor- and knowledge-intensive process than investing in the stock market.”


Finger in the pie

These kinds of investments in real assets offer the opportunity to have a significant finger in the proverbial pie. Those strong governance rights are really essential for the further development of our real assets investment portfolio, as far as we are concerned. In addition, partnerships play an important role as does cost efficiency in the investment process. We must also be able to influence the sustainability and governance factors that are relevant for a specific investment,” Wuijster states.   

Volgende publicatie:
Will corona lead to a financial crisis this time?

Will corona lead to a financial crisis this time?

Published on: 18 August 2020

Senior Strategist Thijs Knaap on the economic impact of a second corona wave


As more and more signs are emerging of a wave of the corona virus, the key question for investors is: how heavy will the blow for the economy be this time? And what will be the impact on financial markets? Thijs Knaap, Senior Strategist at APG Asset Management, reveals his vision: “From current prices, it looks like investors in the MSCI World Index think that corporate profits will be back at the pre-crash level within two years’ time.” 


As an investor your mind is constantly occupied with the question to what extent  information is reflected in the price of a certain investment category or index. Given the global economic impact of the corona pandemic, it only seems logical that Thijs Knaap is pretty occupied with the question: What will be the economic consequences of a second corona wave?


To what extent do equity markets already reflect the economic consequences of a second wave?

Knaap: “Everyone of course has different models and projections, but the current consensus is that the companies in the MSCI World Index will be making approximately thirty percent less profit this year as a result of the first wave of infections. But then again, the price of a share is also determined by profit expectations beyond 2021. Based on all of those expectations together, investors in the MSCI World appear to assume that corporate profits will be back at the pre-crash level within two years’ time.”


That is rather quick.

“Yes, but don’t forget that relatively few companies had to file for bankruptcy and that we are not in a financial crisis at the moment. And that has everything to do with the monetary and fiscal policy of national governments. Central banks are really stimulating the economy, with the result  that credit is cheap. That is the monetary part. In addition, there are many government regulations in place that enable companies to continue salary payments, such as the NOW-arrangement in the Netherlands. This fiscal policy has also contributed to the survival of many companies.”


How sustainable is that policy?

“Well, that is indeed the question. Should a second wave of infections emerge, then expected profits will further decrease in the short term. That is not pleasant, but two years of decreasing corporate profits is manageable. More important is the question of whether that second wave will be leading to a financial crisis or a wave of bankruptcies this time around. That will depend on the response of governments. They could continue the monetary policy for a while, but fiscal policy is quite a different story. The upcoming elections in the United States may lead to a Senate and House of Representatives with different political colors which means a second round of support measures could prove to be difficult - and don’t forget that the first round of support measures was already very difficult to establish. In Europe, considerable efforts were needed to reach a deal  (about the EU budget up to and including 2027 and a corona fund, ed.), but that meant spending most of the available political capital. Debt ratios (debts as a percentage of the gross domestic product, ed.) are already increasing considerably, reducing the margin for governments to maintain a fiscal stimulus. And that margin is definitely smaller in emerging countries. Anyway, the stock and bond markets are not ready for a second similar wave of infections that will indeed lead to a financial crisis or wave of bankruptcies.”  


This means the markets are not yet taking this into account?

“No, the markets appear to assume that the second economic blow will be less severe than the first one. That is not unreasonable. We know a lot more about the spread of COVID-19. Complete lockdowns are becoming less likely. More differentiated, restricted lockdowns will be implemented. The economic damage of those lockdowns is smaller, and a vaccine is being developed as we speak. There are fewer uncertainties which means the economic consequences of a second wave will be considerably less.”


Could we still get an unpleasant surprise?

“Yes, winter is coming during which the virus could spread much faster because people are spending more time indoors. And also the long-term effects of the virus on people’s health appear to be significant, but most of those consequences remain unknown for now.”

Volgende publicatie:
APG moves towards full ownership of VIA Outlets

APG moves towards full ownership of VIA Outlets

Published on: 6 August 2020

Also participates in the rights issue of Hammerson


APG has reached an agreement with the UK listed real estate company Hammerson to acquire substantially all of Hammerson's remaining interest in VIA Outlets (includes Batavia Stad). The purchase is still subject to approval by Hammerson's shareholders, as well as approval by the relevant competition authorities. In addition, APG has declared it will participate in the Hammerson rights issue announced today.


VIA Outlets operates eleven Premium Outlets in nine European countries with more than 267,000 m2 of floor space and more than 1,130 stores. In the Netherlands it operates Batavia Stad. VIA Outlets is one of the leading Premium Outlet operators in Europe, with the third largest portfolio in Europe. As of June 30, 2020, the market value of the VIA portfolio was approximately € 1.55 billion. APG is expected to pay around € 301 million for Hammerson's interest, equivalent to an 18.7% discount compared to the market value of the assets.

APG has a 19.6% interest in Hammerson and has declared its willingness to participate pro rata in the rights issue. This is expected to amount to € 120 million for APG. The Disposal to APG is conditional on the Rights Issue proceeding, and is expected to complete in Q4 2020

With the sale of the stake in VIA Outlets and the rights issue, Hammerson expects to strengthen its capital structure and thereby gain a better starting position to execute on the refined strategy.


Robert-Jan Foortse, Head of European Property Investments at APG:

‘The international retail sector has been under pressure for some time due to structural changes in the sector that are now also exacerbated by the COVID-19 crisis. This also had an impact on Hammerson's portfolio and valuation. We support Hammerson's financial and strategic measures as announced today and therefore we have decided to support Hammerson in a holistic package of a pro-rata participation in the Hammerson rights issue in combination with the acquisition by APG of substantially all of the stake Hammerson owns in VIA Outlets. With the latter transaction we move towards full ownership of VIA Outlets. We believe that Premium Outlets in strategic locations are increasingly popular with modern consumers. They are an important part of the omni-channel distribution strategy of leading brands. Premium Outlets constitute a material part of our European real estate portfolio.’


Hammerson press release

Volgende publicatie:
“We are also looking at the opportunities this crisis offers”

“We are also looking at the opportunities this crisis offers”

Published on: 2 July 2020

APG belongs to the top three biggest investors in real estate and the top six in infrastructure, worldwide. How is APG using their influence during this crisis? “The world has not changed. But I am seeing an acceleration of the megatrends that have been going on for some time.”


This is his second economic crisis at APG already, and just like ten years ago, he wants to make the best use of this crisis. During the first one, Patrick Kanters (51), managing director Global Real Assets at APG Asset Management, was still focused on finding smarter ways of organizing the 49 billion Euros invested in real estate and infrastructure, which he is responsible for. At that time, this was ten percent of the investment portfolio, a portion that continued to rise steadily, at the expense of shares and bonds. During this new crisis, he can look outward more; at the new world that is already emerging.


But, wait a minute. This is not happening that fast. This crisis is very different from the crisis back then. Wasn’t it primarily the banks that were having a problem at that time? And wasn’t “Main Street” affected only years after “Wall Street” was? This time, Main Street got hit right away; this is the street that Patrick and his investments teams travel on. It is a street made of brick and mortar, or rather, asphalt. The visible world, which has been hit hard. There are eighty employees, located in Amsterdam, New York and Hong Kong, who are experiencing the impact every day. Stores that have stopped paying rent, less profit from toll roads, in dozens of countries. The first thing this requires is what Patrick describes as “defensive measures”. Before he can look for opportunities in a world hit by the crisis, the existing investment must be supported where necessary.


Right of veto

Intervention was not easy in that previous crisis. The investments primarily consisted of relatively small interests in real estate funds at that time. And with just a few percent, APG was powerless to take a stand. So, that had to change. “We scaled back the number of funds. Instead, we took bigger interests in fewer projects,” Patrick says. “We also invest more solidly now, i.e. less risky, with less borrowed money. In real estate, the proportion of outside capital was initially over fifty percent, and currently that is less than thirty. A third measure we took was that we started to invest less in the relatively crisis-sensitive office market and more in homes, distribution centers and hotels. Now that the retail and hotel sectors are being hit hard, it is good that we are investing more directly. It makes a difference in fees, which we used to have to pay to fund managers, but in also sometimes laborious negotiations. This time, we have influence.”


About eighty percent of all real estate and infrastructure has been invested directly by APG by now. “As an investor with a minor fund interest, you have to conform to the fund’s policy. The fund determines how the investment is handled. Now we are also involved in that decision-making. Because we don’t only own bricks and mortar (asphalt), but we also make important strategic decisions. When issues come up during this crisis, we can look over the manager’s shoulder. We hear about what is going on first-hand, and then can we shift gears together faster. For example, we are currently having to deal with stores and hotels that are having liquidation problems. Are they justified in exacting discounts or withholding rent? For the hotel chain CitizenM, besides management, we are only dealing with a big co-investor from Singapore. We often figure things out faster together, partially because they are a like-minded partner that we chose ourselves. Our interests often agree. Of course, it does take time to assess the situation. But, because you have the same long-term horizon as the other party, you can take measures to protect your interest more quickly.


Closer to the business

Since the beginning of the Covid-19 crisis, teams have been gaining extra insight into the debt position of the investments, but also into the business strategies, the potential opportunities. Some fifty people are in constant consultation with managers, assisted by a growing army of highly advanced digital researchers and analysts who edit and interpret data.  “Do we need to reserve capital? Are there any megatrends we should take advantage of right away? Can we capitalize on price discrepancies?”  Of course, we don’t want to throw good money after bad. Besides looking at defensive measures, we are therefore also looking at the opportunities this crisis offers in terms of offensive measures.”


 “The teams are much closer to the business now; they have to initiate and negotiate investments, take action and be involved in making decision. This is requiring something different from them than before. For example, they must be able to serve on the company’s board or be part of the investment committee – this may be required for close collaboration with the other parties involved.”


Trends accelerate

What are the forecasts for airports once the pandemic is over? For traveling, for tourism? “The world hasn’t changed. But I see the pre-existing megatrends accelerating. For example, the need for material things had already slowed down before the crisis. Consumers are increasingly focusing on experiences. That will continue. The vigorous growth of the middle class in Asia has not disappeared. But I don’t see the number of intercontinental flights returning to the old level anytime soon. I think further growth in tourism will be mainly regional.”


Online shopping is another unstoppable megatrend. “That has gone way up and I don’t see that ever coming down. Stores that were already struggling will fold sooner. That means that we are investing more in datacenters, distribution centers, homes and highly distinctive outlet centers.”

Volgende publicatie:
Pension funds are also not immune to Covid-19

Pension funds are also not immune to Covid-19

Published on: 25 June 2020

APG experts on


Not only many professional groups are affected financially by the corona crisis, also the pension funds. This is why.


Charles Kalshoven has a background in economy, scenarios and investing. As a senior investment strategist at APG he advises pension funds on their investment policy


You probably had the flu at some point in your life. Not nice, but eventually you recover and feel as fit as a fiddle again. It is a very different story when it comes to Covid-19. The intensive care units of hospitals become overloaded and over 300,000 people worldwide have meanwhile not survived the infection with the corona virus. Imagine this being your beloved.


Many people do not realize that this pandemic can also have an impact on the pensions. Pension funds are also not ‘immune’ to Covid-19. To prevent the disease from spreading, governments placed the economy in an artificial coma. Entire industries came to a standstill which lasted for weeks. The hospitality industry, hairdressers and dentists were not allowed to open their doors. The automotive and kitchen showrooms attracted only little attention. Consumers have the tendency to postpone large purchases in times of uncertainty. Only supermarkets and DIY stores went through golden times.


The economic consequences are unprecedented, even worse than during the credit crunch. That is affecting you, as an employer, entrepreneur, and pension participant. Let me explain this: companies witness their profits disappear and have to file for bankruptcy sooner. That causes a drop in equity rates and, with that, the assets of pension funds.


Usually, it never rains, but it pours. The interest rate also dropped due to the economic crisis. That decline also has consequences for pension funds. For every Euro of pension in the future, they now have to put more money aside. That works more or less like this in the current pension system: image you want to go on a trip around the world in 10 years' time and you need 10,000 Euro to make this happen. If you have 6,000 Euro on your savings accounts right now and the interest rate is 5 percent, you can stop putting money aside. The amount increases on its own. But when the interest rate drops, you have to deposit more funds. At an interest rate of 1 percent, you will now need 9,000 Euro instead of 6,000 Euro. That is 50% more. The numbers are different, but the principle is the same for pension funds: when the interest rate drops, the pension funds have to put more money aside for the future.


That results in a double hit: the assets decrease and the obligations increase. The coverage ratio of a pension fund is nothing more than the ratio between these two numbers. And that ratio has deteriorated significantly due to the corona crisis.


Recovery or complications


The key question here is the time it takes for the pension funds to recover. The honest answer: nobody knows. I can tell you what is needed to make a fast recovery happen: a considerably higher interest rate, a rebound of equity prices or a combination thereof.


It is not inconceivable but could only happen if not too many things go wrong in the quarters to come. The virus has to be under control to such an extent that the economy is allowed to wake up from its artificial coma quickly. Because the longer it takes, the higher the risk of complications  - think about bankruptcies and persistent unemployment. That would have an instant effect on families. A continued crisis would also deteriorate the outlook for economic growth later on. In that case. the lower equity prices and interest rate even worsens the position of pension funds.


Let me end with a hopeful note. Covid-19 is more than just a flu, but in terms of the economy it may possibly not go any further than temporary (severe) shivers. Yes, we are experiencing an economic recession, but not caused by financial excesses or a natural disaster that has wiped out our production facilities. If a vaccine or drug is developed quickly, we can resume our operations with all the lessons learned in the past few months in our back pocket. That also benefits your pension (fund).

Volgende publicatie:
"Financial sector is part of the solution in this crisis"

"Financial sector is part of the solution in this crisis"

Published on: 31 March 2020

How should boardroom members deal with the current corona crisis? And to what extent can they learn from the 2008 crisis? These questions are central to an article published today by the Financieele Dagblad.


The Dutch newspaper interviewed three directors before that. One of them is our own chairman of the board, Gerard van Olphen. Gerard, as Achmea's chief financial officer, experienced the 2008 crisis up close and is able to make a good comparison. The current crisis is more visible and tangible for everyone, he notes. And now the financial sector is not the problem, but part of the solution.


Read the full article here (Dutch)

Volgende publicatie:
APG long-term investment horizon “of huge importance”

APG long-term investment horizon “of huge importance”

Published on: 30 March 2020

APG wants to guarantee the continuity of the services we provide for the pension funds and 4.6 million participants – especially in a time where society faces a lot of uncertainty due to the developments around Covid-19. To counter the consequences of the Covid-19 spread, we have been taking various measures.


One aspect of this, is to ensure our clients’ pension administration remains robust and accurate; especially now, it is important participants receive the correct pension, on time.

But also investing pension money well and responsibly is something that “simply” continues during these difficult times. The worldwide insecurity of this moment is having a considerably negative impact on the financial markets. Interest rates are also still at a very low level. Both factors strongly impact the coverage ratio of the pension funds APG works for. That is why a significant part of our attention is currently focused even more on the investments we make for our pension fund clients.


Ronald Wuijster, APG board member responsible for Asset Management: “Recently, the first priority has been to be able to keep working: analyzing, structuring and trading on financial  markets. We are ensuring that we continue to follow well tested procedures, agreed upon with our pension fund clients: We are preserving the hedges, we continue to re-balance and we are protecting the investment portfolio. As with many companies, the majority of APG employees, including most of the investment professionals, have been working from home these past few weeks. Only when there is no other option, work is done from the office.”


Even during this difficult period, APG continues to focus on realizing a responsible long-term return. On this, Ronald Wuijster states: “We believe in diversification, in which time-diversification in particular suits us well. It’s times like these that underline the immense importance of holding on to a long-term investment horizon. After more than ten good investment years, the near future will be challenging in terms of returns. At the same time, opportunities arise as well. Opportunities we need to think about already, because every crisis leads to a number of things never being the same again. There will be dozens of new trends and we will be able to take advantage of that for our clients.”


Bleak coverage ratio outlook, but some bright spots are also visible

APG is already discussing those future scenarios with pension fund clients: “Their coverage ratio outlook is bleak right now. But at the same time, there are rays of hope. The belief in the usefulness and necessity of spreading (collective) investment risk in time is seeing a strong resurgence nationwide. Another possible scenario is – and that would be the opposite of what happened during the credit crisis – that although the interest rate has initially fallen, it will be trending upwards for years to come, thanks to the financing needs of governments, which will probably lead to higher coverage ratios.”

Volgende publicatie:
Institutional investors: Companies should ease corona impact

Institutional investors: Companies should ease corona impact

Published on: 27 March 2020

In a joint statement , APG and other institutional investors urge companies to take what steps they can to mitigate the social impact of the corona crisis. The investors state that the health and safety of employees is the number one priority. However, companies should also try to prevent workers, suppliers and customers from being faced with insurmountable financial challenges.


The 195 investors – representing € 4.700 billion USD in assets under management – recognize that the corona crisis and the (near) shutdown of public life have huge impact all over the world. “Millions of working people are affected as the virus shuts down schools, employment and transportation. We know that vulnerable communities are the most strained, as they have limited access to social safety nets and financial resources to weather this uncertain periode”, according to the statement.


Paid leave

The statement asks companies to take responsibility and do their part to contribute to the protection of workers and other stakeholders. Specifically, they call upon companies to make emergency paid leave available to all employees, including temporary and flex workers. This will allow them to stay at home while retaining an income. In company locations that are still operational, measures should be taken to protect workers as much as possible, such as remote work and rotating shifts.


Retaining the workforce

While health and safety are the top priorities, companies should also acknowledge the financial impact of the crisis on employees, suppliers and customers. The investors ask companies to make every possible effort to retain workers, as widespread unemployment will only worsen the crisis. Retaining an experienced and well-trained workforce will also allow companies to resume operations quickly once the crisis is resolved. In addition, the investors encourage companies to ensure timely payment to suppliers and to work with customers facing financial challenges.

The investors emphasize it is crucial that companies demonstrate financial prudence. This may include the suspension of share buybacks and limiting executive and senior management compensation.


Volgende publicatie:
"APG direct investments in real assets reduce investment costs"

"APG direct investments in real assets reduce investment costs"

Published on: 31 January 2020

Hotels, rental properties, wind farms, airports, parking garages; APG has invested a lot in 2019 in Real Assets (t