By David De Jong
PGGM aims to expand private market infrastructure investments
Limiting hedge fund investing due to complexity and high costs
PGGM NV plans to expand infrastructure assets by about 3 billion euros ($3.3 billion) by the end of next year as the investor for Europe’s second-largest pension fund seeks more stable and higher returns to help better meet funding requirements.
“We find it attractive to buy companies with relatively stable cash flow that can be on a balance sheet to cover our pension obligations for a longstanding period,” Eloy Lindeijer, head of investment management at Zeist, Netherlands-based PGGM, said in an interview last week.
The investor currently has about 6 billion euros in infrastructure assets including toll roads and windmill parks. PGGM joins pension funds around the world in adding such investments as record-low interest rates, volatility in equity markets and low bond returns make it more difficult to achieve steady returns. Three Canadian pension funds bought London City Airport in February and Australia’s largest pension fund has invested in the redevelopment of London’s Kings Cross station.
PGGM has about 187 billion euros under management, the majority of which is invested on behalf of Stichting Pensioenfonds Zorg en Welzijn, or PFZW. PFZW aims to have about 5 percent of its investments in infrastructure by 2017, up from 3.4 percent currently. Zorg en Welzijn shifted investment from hedge funds in 2014 due to the high costs and complexity of the interests — it now has “significantly less” than 0.5 percent of its holdings in such entities, down from 2.7 percent in 2013.
Pension funds in the Netherlands are struggling amid turbulent financial markets and low interest rates. Both Zorg en Welzijn and Stichting Pensioenfonds ABP warned in January that they might need to reduce payouts to retirees in 2017 if their funding position doesn’t improve.
“Currently defined benefits lead to a bigger part of assets being invested in fixed income, which is very disadvantageous for future pensions,” said Lindeijer.
PGGM is also making direct investments outside of infrastructure, such as real estate, structured credit and in private equity, including last year’s investment in fleet-management company LeasePlan Corp. The investor buys stakes like that intending to never sell them again, Lindeijer said. Zorg en Welzijn had about 6 percent of its portfolio invested in private equity at the end of 2015.
Lindeijer, who’s a former director of the financial-markets division at the Dutch central bank, also said that he’s worried that a U.K. withdrawal from the European Union through a so-called Brexit, would be bad for the Netherlands and the greater economy, especially as markets are currently not anticipating it.
“It’s one of those things that gives extra insecurity, and therefore is eventually bad for the economic-growth prospects,” he said. “The markets are now expecting that it’s not going to happen. If it does happen, then I expect a huge shock wave.”