"We always try to separate the signal from the noise"

Published on: 18 July 2022

553 Billion euros. That is APG’s total invested assets worldwide (position at june 2022). The goal: a good pension in a livable world for the pension fund participants. The portfolio is obviously diversified. From investments in wind farms in Zeeland to Australian listed shares in stores. And from safe bonds to the somewhat more fluctuating trade in gold or soy. Who are the people behind these investments? What choices do they make? And why?


In this episode of the series The Investors: Henny Crauwels, responsible for investments in the Communications Industry at APG.


The playing field for Henny and his long-time colleague Frank Dekker is well defined: large companies in the telecom, media and social media sectors in developed markets. The portfolio includes a diverse range of stocks: from KPN and T-Mobile US to Netflix and The New York Times and to Facebook and Twitter. Their aim is not to outsmart the market on a day-to-day basis, their 'opponent' to beat is the index that reflects the average value of all the companies in their 'universe'. "Everything we do is relative", explains Henny. "If the index drops 40 percent and our portfolio loses only 38 percent, we're doing a relative good job and we're saving lots of money for the pension funds." In fact, they have beaten the index in nine of the past twelve years, by an average of 2.5 to 3% per year. This year they are on track to do the same.


What does it take to beat an index more often than not?

"We take a very structured approach to investing. We look at how relevant markets are organized and at the relative strengths of the companies in those markets. In the telecom part of our portfolio for example, a market with three incumbent mobile operators is generally more attractive to us than one with four or five plus a number of challengers. The latter means more competition, lower prices, less stability and more risk. We also take into account what impact new regulations or the issue of new licenses might have, and the potential for new entrants and mergers and acquisitions."


And how do you identify which companies will be most successful in an attractive market?

"For individual companies we try to assess how their long-term competitive position will develop. For telecom providers an important indicator is the quality of their customer service. So we collect and buy data on churn, the amount of customers that leave. But we also want to know how well their digital transformations are going, because that will determine how well they can interact with their customers in future. Therefore we try to form an opinion on the quality of their leadership, their innovation culture, their ability to attract new talent and so on. In telecom trends usually play out over quite a long period. So when you get your fundamental analysis and your investment case right, you could benefit for years."


Sustainability and ESG criteria play an important role in the investment policy of APG. How does that apply to your specific portfolio?

"These criteria play an increasingly big role. We invest on behalf of pension funds like ABP and of course their participants, and these funds have a big social and media exposure in the Netherlands. They do not want to be associated with anything unethical. But it's not straightforward. In our sector the most problematic issue is how social media platforms handle privacy concerns and content moderation. A platform with a very strict privacy policy may be safe for children to use, but such a policy also makes it attractive for criminals who trade in say drugs or guns. At the time of the Arab Spring uprisings, Facebook was praised because it empowered people who sought freedom and democratic reforms. Since then it has also been condemned as the platform that was used to incite ethnic violence against the Rohingya in Myanmar and for Russian interference in the US elections."


Are ESG criteria important in investing because you think companies that apply them will be more valuable in the long term, or because of idealistic motives?



But what do you do when idealism and a profitable investment are in conflict?

"Sometimes they are indeed, and that can present a real dilemma. If a social media platform can be easily used to spread lies, hate speech and racism, that might well be reason for us to no longer invest in them. But for investors like us, it's easier to exclude say Twitter from our portfolio than a company like Facebook: it's too big, it has generated impressive returns and may well continue to do so for years. And at the end of the day we're here to make enough money to be able to pay the pensions now and in the future."


Engagement is another important pillar in APG's investment policy. Can you influence the way these companies deal with the content that is shared on them?

"As APG we're big enough to get a meeting with someone at say Facebook, but it's not like Mark Zuckerberg will clear his agenda when we want to see him. We have, often together with other investors, an ongoing dialogue with some social media platforms about these issues. And we can use our voting rights as shareholders. It's hard to tell however how much impact we have. Sometimes you think they're trying hard to improve but are really struggling with this issue too. Other times you get the impression they just listen and nod politely but in fact only care about growing their businesses."


Talking about Twitter: what do you make of the spectacle that Elon Musk's takeover bid has become?

"As a long-term investor we always try to separate the signal from the noise. Much of what we hear in this case is noise I think. And when the stock jumps 40 percent or so when a takeover plan is announced we'll just accept that we missed that. You can't invest on the possibility alone that a company may become the target of a takeover. There always has to be an underlying story, and the market is not too positive about Twitter's story. They don't have a good track record when it comes to implementing successful new features, their content remains primarily text-based while user preferences tend more towards visual content, and they aren't the platform of choice in performance advertising that can very precisely target certain users. Those are the real signals that we base our investment decisions on."


Do you see new technology, regulations or trends in consumer behavior that will reshape the communications sector in the coming years?

"There is a lot of talk about the Metaverse of course. What's relevant to us today is that Meta is investing billions in it. In general however it's too far out and too difficult for us to put a value on it because there simply are no use cases yet. It's like with the early days of the internet, no one could foresee then how it would develop into what it is today and how it would change our lives. 5G is another important and more proven new technology that will enable many new services. From my perspective the risk for telecom companies is that, like with 4G, it will be the Googles and Amazons that will develop the most profitable services, while the telco's merely provide the basic infrastructure. That's why we're positive about a Canadian telecom company for example that is actively developing 5G-based services for agriculture and e-health."

Who is Henny Crauwels?

Henny studied International Economics at Tilburg University and afterwards wanted to pursue a career abroad. "Hailing from the south, my orientation was toward Brussels or Paris, but somehow I ended up in Amsterdam." His first job there was in investment research. After six years he became a stock investor when he moved to SFB (formerly the Sociaal  Fonds Bouwnijverheid, that later became part of APG. Henny lives with his partner Alide in the center of Amsterdam. They have no children. He likes to hike, visit architectural highlights and once in a while plays the piano. Spain is his favorite country.


Investment Philosophy

“Money follows eyeballs. For media companies and social media platforms advertising income is essential, so the more visitors, viewers and readers they attract the better. Therefore we study closely how well these companies are able to reach various target groups, how efficiently they can convert ads into sales, and how well they can sell their propositions to advertisers. For telco’s it’s more about the market structure, and changes in competitive environment. This could be due to regulation but also technology shifts."


"The worst thing that could happen when you start as an investor is that your first four trades become fantastically successful. Then you start to believe you know it all and are infallible. But that's impossible when you're dealing with the future. You always have to be aware that there is risk involved and things might turn out very different than you expected. If 60 percent of your decisions are right and 40% are wrong, you're still a pretty good investor."


On his 12-year collaboration with Frank Dekker:

"Frank and I have very different personalities but we very much respect each other's professional opinions. Frank is a lot younger and he is focused on opportunities and taking chances. I tend to look at risks first, and have to see something to believe it. Sometimes Frank is able to get me enthusiastic about a certain investment, sometimes I'm able to talk him out of one. It also works the other way round and we get regular proof that our different perspectives and the way we challenge and complement each other lead to success. That's what keeps things working between the two of us."



Facts & Figures 

Where could APG invest in in terms of telecom and media?

Interactive media: Google, Meta Platforms (Facebook), Snap, Twitter

Broadcasting: Fox, Prosieben, Discovery, Paramount

Interactive home entertainment (gaming companies) Activision Blizzard, EA

Cable & satellite: Comcast, SES, Charter

Advertising: (Advertising agencies) Publicis, WPP

Movies & entertainment: Netflix, Disney

Telecommunications: Vodafone, KPN, Deutsche Telekom, Orange, Verizon, AT&T, T-Mobile USA


How much?

At the moment, the Communications Industry portfolio invests close to 650 million euros.