547 Billion Euros. That is APG’s total invested assets worldwide (end of November 2022). 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 (NL) 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: Michael Neft, head of Focus Equities.
Promoted from within the team, Michael Neft started as head of the Focus Equities team at the beginning of October 2022. The Focus Equities portfolio currently consists of 35-40 companies, which is supposed to grow to 40-50. The investment strategy is to take large stakes in a limited number of medium-sized, listed companies with a holding period of at least ten years. The goal is to be one of the top active shareholders in the company, because it gives the team a seat at the table with the company’s management. The idea is to move the companies from “good to great”. To achieve this, regular and in-depth discussions are held with company management about improvement opportunities, including on sustainability practices and performance.
The investment horizon of the Focus Equities strategy is quite long. To what extent do current developments, like the hefty inflation, have an impact on your portfolio?
“Apart from rebalancing the portfolio to maintain the strategic allocation, with the rising interest rates we’ve seen a trade out of quality. Quality stocks are out of favor at the moment and that certainly has been a headwind for the portfolio. But it doesn’t change our strategy.
We like to invest in companies with pricing power. So we’re confident that all our companies will be able to recapture inflation in their prices – otherwise we wouldn’t have invested in them. And if they make a strategic decision to keep prices low to gain market share, we have to be on board with that decision. It depends on the market circumstances.”
And what is the more direct impact of the energy crisis on the Focus Equities portfolio?
“We’ve spent a lot of time with companies trying to understand how secure their energy supply is. But in the end we look at it as a shorter term concern. If a company would be hit by the energy crisis, it could even be a buying opportunity for us, as long as we think there’s no structural change in them being able to get the energy they need to operate their business. We’re concerned with structural changes, not cyclical ones.”
How do you find and use investment opportunities that others do not see?
“First of all, our long term investment horizon gives us an advantage over investors that are driven by short term results. We don’t care about quarter-to-quarter results, or even year-to-year figures. We care that the company we invest in is going to be around for the long term. To select those companies, we do a very thorough due diligence, which can take from nine months to two years – during the pandemic it was more difficult, because we always want to meet in person with company management. In our analysis we really focus on the qualitative side of it. We talk to the company’s management and board, to industry experts and we even hire external consultants to do deeper dives on accounting and legal matters. We visit industry conferences, too. And we keep on doing these things after we’re invested in a company.”