Despite the ongoing Covid-19 crisis, 2021 was a year of excellent investment returns. “Good for our funds, good for the participant”, says Ronald Wuijster, member of the Executive Board of APG and responsible for Asset Management. And how does the CEO view 2022? “Investing is always uncertain. It's just a matter of keeping your professional calm.”
Looking back on 2021, Ronald Wuijster says: “It was a rather crazy year. At least in the context of Corona. When it comes to investments, we can look back on a very good year with excellent returns. Both in absolute and relative terms. The absolute return is obviously mainly used to pay the pensions. Eighty percent of the pension payment is realized by the returns we achieve. But thanks to the good relative returns, we were also able to add additional value. Moreover, we managed to make a number of truly great investments, such as the large investment on behalf of ABP in the accelerated rollout of fiberglass.”
Did those good results not come as a surprise given the ongoing Covid-19 pandemic?“We had a fear for a while in the previous year: will Covid-19 have a major impact on the economy and the companies in which we invest? In 2020 we witnessed that the impact was less than expected, if not absent. Sectors were affected that remained below the investment horizon, such as the SMEs, the somewhat smaller companies. And furthermore, a number of specific sectors were hit, such as the entertainment industry and tourism. But a larger number of sectors, such as tech, service provision, luxury consumer goods and the construction industry actually benefited. This because people transitioned to a different way of working, because the spending patterns changed. The money had to go somewhere as people couldn't go to festivals or on holidays.”
According to Wuijster, the investment markets prospered as a result of both monetary and fiscal measures.
“Monetary speaking, we were already in an environment with very low interest rates and asset purchases by the central banks that were continued for a longer period of time due to COVID-19 as the central banks wanted to prevent the economy from deteriorating. And those measures were reflected in the investments. We saw much needed asset purchases, but some of these were somewhat unfocused. The American government, for example, transferred more than 3,000 dollars to virtually all citizens. Many people really needed that money but there were also plenty of people thinking: Hey, I am going to invest that money. Both monetary and fiscally driven there appeared to be more support for the investment markets. And that's an important incentive for good investment results.”
The inflation rate is meanwhile skyrocketing. What is the effect of those figures on the returns?
“That depends. Inflation is not really a bad thing for a number of investment categories. Shares, commodities have elements incorporated that offer protection against inflation. But it does have an impact on the economy. The big question is whether or not we will end up in a recession. The opinions are mixed in that respect, almost fifty-fifty you might say. The logic is: the purchasing power decreases; the world is a little less global than it was before. That is of course also caused by the war in Ukraine and by Corona, which are both not stimulating a worldwide economy. The overall picture is that the recovery after COVID-19 is fading a bit. People will enjoy it for a while. But some economists expect this to subside. It's possible, I think it's a bit of touch and go.”
What does that insecurity mean to the investments?“
Investing always entails a factor of insecurity. I would almost say: it is business as usual. We have a well-diversified, widely spread portfolio. Some investments benefit, others suffer, but on balance you are trying to achieve reasonable returns. And we are doing quite well so far. The returns are obviously less than last year. We have suffered some losses in absolute amounts. But it's really not that bad when you look at it in percentages. It sometimes involves large amounts but it's not very shocking given the events. In short: keep the professional calm and continue to do your job. What are the things that might change following these developments and are we able to anticipate? So, we could be partly positioning ourselves for the future already.”
But how? Can you give some examples?
“In general terms: you look at the global regional circumstances in the current context. Has Europe not become a bit more vulnerable? What is the role of China in this conflict? Is China benefiting or is it not? You can also look at certain sectors, like commodities for instance. Those were ignored for a long time because the energy prices declined over a longer period of time. But now you can obviously see these generating returns.”
Europe has become more vulnerable in more ways than one. Investing in weapons suddenly seems to be socially acceptable.
“You could say beforehand that this is not a good investment if sustainability is highly prioritized. At the same time we have always said that the defensive use of weapons is relevant. This has now proven to be true. We have always excluded a certain type of weapons from our investment policy, like cluster weapons and chemical weapons. But it is possible to invest in regular weapons. Some peers are saying that it is sustainable. Those views are currently emerging in Scandinavia. There people say it could be considered a positive social value. I believe that's nonsense. But as a result of the recent developments, the position of certain weapons manufacturers has changed given the countries’ intention to invest.”
A noteworthy news item in 2021 was ABP's announcement to withdraw from producers of fossil fuels. Did that lead to a different view of APG on the engagement policy?“That is a legitimate question. It just seems weird to me that the public opinion is often only targeting Shell. Because ABP didn't announce its withdrawal from just Shell, but from producers of fossil fuels. That involves a lot more companies.”
But that link with the engagement policy is correct, says Wuijster. “The question was: shouldn't you draw conclusions from the fact that all of those discussions are yielding less than actually desired? It has resulted in us looking once again at the consequence management of our policy. ABP believed too little was accomplished in our conversations with companies about fossil fuels in the past years. They said: we don't think there is enough time to reach the climate goals this way. So, we withdraw and refrain from continuing the conversations.
We have supported that decision. We agreed that time was running out. Engagement on the demand side is more effective than engagement on the supply side. The user is able to change quicker and easier than the producer.”
And does this also mean that the full width of the portfolio has to be looked at in a stricter manner?
“Yes, we must be stricter and more rigorous. Even stricter and more rigorous than we are now. We are rethinking the inclusion policy: what companies are to be included? And we also look at the criteria. There are frontrunners, promises and laggards. You don't want to invest in laggards unless they are willing to change. Then these companies become the promises in which you could invest if there's a chance of engagement success. We have done so for a long time, but we have to be more selective. It shouldn't be an excuse to keep investing in something, knowing beforehand that nothing will change. And we also look at the frontrunners again: shouldn't the criteria be stricter? However, we are still scoring very well in terms of our sustainability policy, the professional world especially considers us a leader.”