APG invests in different ways. From private investments to major listed companies. Needless to say, there is an idea behind that: our policy. What do and don’t we invest in? What requirements do companies have to meet? And does that always work out well? For these stories and backgrounds, click here.

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

Published on: 30 November 2022

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And if we look further into the future?

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

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

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

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

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

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

What makes the energy sector so interesting to you?

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

Volgende publicatie:
“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:
Why does Dutch pension money pay off so well?

Why does Dutch pension money pay off so well?

Published on: 27 November 2020

What catches the eye first in the OECD report “Pension Markets in Focus 2020” published earlier this month, is the investment returns obtained on pension assets in the Netherlands (in the second and third pillars, i.e. pension funds or insurers). With a return of 13.7 percent, the Netherlands was surpassed only by Ireland (18.5 percent). A superior performance? Ronald Wuijster tempers the enthusiasm: "The return from one year doesn’t mean anything to me. Our clients' obligations are long-term in nature, so APG also invests for the long term. The returns over five, ten and fifteen years are relevant to us".


Strong logic

In terms of average annual yield over a fifteen-year period, Colombia (6.2 percent), the Dominican Republic (6.8 percent) and Uruguay (5.2 percent) performed best. But the Netherlands and Canada were also among the global leaders with a figure of around 5 percent. This is not only due to skill.

Wuijster: "Certainly, we have a well-structured investment policy, we've given it a lot of thought via ALM (Asset and Liability Management, matching your investments to your short- and long-term payment obligations, ed.). We have a long-term orientation, well-targeted investment solutions, and we respond to sustainability. This quality as an investor certainly contributes to the strong Dutch performance over the past fifteen years. But that performance also has to do with the fact that Dutch pension funds are the only ones to have an interest rate hedge (a way of limiting exposure to the investment risk of falling or rising interest rates, ed.). This hedge is not mandatory in itself, but there is a very strong logic to applying the FTK".


Seriously contributed

The FTK (Financial Assessment Framework, part of the Dutch Pensions Act) stipulates the statutory financial requirements for pension funds. The guidelines of the Financial Assessment Framework (FTK) require a pension fund to assess its investments (and therefore also their risks) in relation to its obligations. For example, for a payment obligation that lies far in the future, you can take more investment risk now than for a payment you will be making next month. 

Wuijster: "As a result of the FTK, it is customary for a pension fund to hedge about 50 percent of the interest rate sensitivity. And that has been an unexpected factor that has seriously contributed to the investment returns of Dutch pension funds over the past 10-15 years".


In “Pension Markets In Focus 2020”, the OECD provides a global overview of the accumulated pension capital of the 37 member states and describes the most important developments. The most important financial indicators are listed, such as the total accrued pension assets, what these assets are invested in, and the returns achieved.

Volgende publicatie:
APG starts investing in Chinese shares

APG starts investing in Chinese shares

Published on: 19 December 2017

APG starts investing in Chinese equities for pension fund clients and their participants. The first 250 million investment will be realized in the very near future.


E Fund

The investments are being made in collaboration with E Fund, one of the largest investors in China. APG and E Fund exchange knowledge relating to asset management, ICT, and pension administration. The partnership with E Fund fits in with the strategy of APG and its pension fund clients to invest explicitly in sustainability and growth markets. APG expects to realize higher returns on long-term investments for its participants.

When selecting companies, APG and E Fund review both the risk–return profile and the sustainability criteria. APG makes direct investment without intervention of external parties, which keeps the cost of investing in Chinese equities relatively low.


Attractive investment opportunities

Gerard van Olphen, CEO of APG Group: “Smart and sustainable investment is a basis for a good pension for the participants of the pension funds. The Chinese economy is growing at a very fast rate, offering very attractive investment opportunities. The partnership with E Fund brings benefits to both parties. As a sustainable pension investor, APG brings in extensive ESG (environmental, social, governance) knowledge and experience. As a major Chinese investor, E Fund contributes extensive knowledge of the local market. APG aims to share its knowledge with other institutional investors in the future.”

Volgende publicatie:
APG and E Fund start Chinese equity fund

APG and E Fund start Chinese equity fund

Published on: 20 September 2017

APG and the major Chinese asset manager E Fund are launching an ESG fund that invests in Chinese equities. According to the promoters, this is the first of its kind.


"The collaboration with E Fund as a strong local partner makes it possible to invest in Chinese A shares and to apply ESG criteria," said Harmen Geers, spokesperson for APG. "The fund provides access to stock markets in mainland China. It invests in a limited number of companies. "


Currently APG does not invest in these shares. APG invests in Chinese companies through the Hong Kong stock exchange where many large Chinese companies are listed. APG customers initially pledged € 250 million. These pension funds view it as emerging market equities. APG expects the fund to grow even further in the coming years. A team consisting of investors from APG and E Fund is in charge of the new fund. When selecting companies, this team examines both the risk-return profile and the ESG criteria.


In a statement, Ronald Wuijster, cio ad interim of APG, states that the asset manager likes to act as a responsible long-term investor for his clients. "Our responsible investment approach combined with local knowledge offers unique investment opportunities in China." Wuijster expects the trend to invest more in China to continue and wants to share the knowledge gained with other institutional investors.