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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.

Long-term investment
Collection Contents
32 Publications

“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 (tangible investments) as they call it at Asset Management. Patrick Kanters, Managing Director Global Real Assets, expects this trend to continue in 2020. He also hopes to gain more foothold in the Netherlands.


Based on the many reports, the share of Real Assets in APG's portfolio seems to be growing. Is that correct?

“Yes, it is. Our largest customer, ABP, strives for a growth of 2 percentage points of the total Real Assets portfolio; 1 percent for real estate and 1 percent for infrastructure. In addition, an expansion of the Natural Resources portfolio is pursued through investments in forestry and agricultural lands. That seems quite modest at first glance, yet we’re talking about approximately 10 billion in total expressed in money. We witness a market trend of increasing investments in Real Assets. The share of direct investments has been growing at APG since 2010 as compared to investments in funds.”


What is it that makes these types of direct investments so attractive?

“First of all, we are able to save significantly on costs. When investing in funds, a lot of money is charged for fund management. And besides that, direct investments provide more control over the type of investment we make. Does it fit within the return and risk profile we envisage? Does the investment meet our investment beliefs? It also provides us with an opportunity to have a greater say in strategic decisions. How much borrowed capital will be allocated to underlying investments, what sustainability requirements do we impose?”


How high is the return on Real Assets?

“The return on real estate and infrastructure has been more than 9 percent on average in the past 15 years.  This in combination with the diversifying role against stocks and bonds ensures for it to be an attractive investment. Of course, we notice it has been getting increasingly easier to acquire borrowed capital for investments in real estate and infrastructure, due to the current low interest rate. As a result, the prices, in addition to a strong demand for higher returns, have risen sharply. Expectations for the future are therefore more moderate and the situation may arise in which returns on investment we estimated no longer counterbalance our required returns.”


What are the risks of this investment category?

“In real estate, for example, we have to consider the economic risk of vacant buildings. When it comes to infrastructure, the fees of toll roads and the number of passing moves of drivers may influence the return. But within infrastructure we also receive income that is less depending on the economy, such as fixed fees for maintenance and provision of infrastructure. In addition, we often conclude long-term regulated contracts with governments and semi-governments. Those parties are often very reliable.”


What other criteria does a Real Asset have to meet for it to become interesting for APG?

“An investment, first of all, must have a sufficient volume. To give an idea, we focus on interests in real estate and infrastructure with a minimum of around 200 million Euro. Should an investment opportunity come along with less volume, we have to be convinced the investment can be scaled-up in the near future. CitizenM is a good example of such investment. We have partly built that hotel chain from the ground up into a large platform. The governance of a company is also important. Do we, as an investor, get a vote to block, for instance, the addition of new real estate objects and greater use of borrowed capital? Sustainability also is an important criterion. Every investment has to participate in the so-called annual GRESB-survey (sustainability benchmark for Real Assets). It will have two to three years to perform above average in terms of sustainability.” 


So, the scale of APG works to your advantage in this case.

“Absolutely. We belong to the three largest asset owners worldwide within real estate. We are meanwhile part of the top 6 for infrastructure. That scale provides us with the opportunity, as said, to influence the strategy. In addition, our scale allows us to develop new markets and to improve innovative investments.”


What type of markets are you talking about?

“Take the rental properties in England. Eight years ago, a professionally operating rental housing market barely existed. We have approached some parties there and co-established platforms that started to specialize in this real estate segment. That’s how we gained a foothold in that region. Another example are outlet centers, large shopping malls selling the brand collection of last season with substantial discounts. That’s a growing market attracting many tourists as visitors. However, it’s not a real estate category that just falls into your lap as an investor. Thanks to our scale, long-term focus and reputation, we gained access to the best specialized parties. Without our scale and accumulated expertise, we would never have been able to invest in this category.”


Besides the role of investor, you also fulfil the role of developer?

“The role of our teams at Asset Management has indeed changed significantly in the past years. Where the focus previously was on the stones (the location and quality of the building itself), it becomes increasingly important what actually happens to those stones. Do the activities taking place within a certain type of real estate align with a certain trend or market need? How does the management distinguish itself? In which way could smart technology contribute? Those questions are becoming more and more relevant. The intangible value of Real Assets is making an increasingly large mark on the return.”


Does that also require a different role for your team?

“Yes, it does. More entrepreneurial, closer to the business, being able to make more rapid decisions. More is required from us, but, at the same time, the work has also become more interesting. Fortunately, there’s room to hire new people. We will recruit 8 employees at infrastructure and 5 employees at real estate this year.”


Don’t these additional personnel costs have a serious effect on the return?

“When you look at the overall picture, it is actually more cost-effective. It is way cheaper than spending money on a fund manager. On balance, we have noticed a major decrease in the investment costs of our customers.”


What are your expectations for 2020; what are the interesting sectors for APG?

“Renewables such as wind and solar parks continue to be interesting in relation to infrastructure. However, the sharp increase in prices could possibly change that somewhat. We furthermore consider telecom an interesting sector because of the growth in data traffic. The growing electrification, in cars for example, also makes us consider electricity networks as an interesting investment. In real estate, distribution halls are interesting because of the growth in e-commerce and we continue to focus on the development of rental properties and student residences.


In the past year, APG has mainly made infrastructure investments abroad. Is the Dutch market not interesting enough?

“On the contrary. We would be happy to invest more in the Netherlands. What is difficult in the Netherlands, however, is that much infrastructure is fully owned by the government. When Eneco was offered for sale, we considered taking a stake, but eventually decided not to. Through the energy transition fund ANET we will invest in relatively small and innovative companies committed to the transition to sustainable energy. We also see opportunities to gain a foothold in the Netherlands in other sectors, such as telecom and wind farms.”