APG eyes multi-country asset push in Southeast Asia
APG Asset Management, the Netherlands’ biggest pension fund manager, intends to grow the €13 billion ($15.8 billion) of assets it has invested into Southeast Asia by targeting infrastructure and natural resource assets, particularly in the Philippines, Vietnam, Indonesia and India.
Hans-Martin Aerts, head of infrastructure and natural resources for Asia Pacific, said the Dutch pension fund was actively eyeing growth opportunities in a region that often plays second fiddle to the larger economies to the north.
“We don’t have a specific target allocation, but we’re keen to increase our footprint in the region,” said Aerts, speaking to AsianInvestor on a video call from his quarantine hotel room, where he has entered a mandatory third week of isolation for those returning to Hong Kong.
Aerts said APG, which manages €560 billion assets on behalf of the Netherlands’ largest pension scheme, ABP, and two other Dutch retirement funds, has to date been the most active in the Philippines in the Southeast Asian region.
This might seem surprising given that the country is far from the region’s largest, by population or economy. Aerts said the concentration is largely down to the efforts by the government of Rodrigo Duterte to involve the private sector in infrastructure development. In 2017, Duterte’s administration launched an ambitious programme to drive the country’s infrastructure development.
The programme consists of over 100 flagship infrastructure projects, including roads, airports and seaports. This led to a more streamlined approval processes and faster project implementation, which helped APG to make multiple investments “across different infrastructure sectors” in the Philippines, according to Aerts.
In addition to the Philippines, APG also sees investment opportunities in Indonesia and Vietnam, its next two most important markets in the region. And, similar to the Philippines, Aerts highlights infrastructure as an area in which APG sees the greatest investment potential. Indonesia in particular is making its desire to build more infrastructure built, with the country's planned sovereign wealth fund aiming to attract funds from foreign investors to fund more projects.
By investing more into such countries, APG may improve its regional diversification. Southeast Asia investments represent just 15% of the €85 billion it currently has invested into Asia Pacific.
Aerts said the region offers potentially better returns, as well as higher risks. However, he declined to state what level of return APG would look for from its investments, noting that it does not like setting fixed returns targets. Instead, the investment team sets a return target based on the asset being evaluated or the way the investment is structured.
“It really varies from investment to investment,” he said.
INDIA APPEAL
Besides Southeast Asia, APG eyes interesting opportunities in India. The fund recently invested in Godrej Fund Management’s $500 million office property fund and has previously set up joint ventures to invest in real estate here.
“India has been one of the most active markets in Asia – not just for APG but for many of our peers. We’ve seen a lot of foreign private investments in infrastructure, real estate and private equity,” commented Aerts.
He noted that APG was interested due to a combination of the country's growth potential, its liberal foreign direct investment policy, and the government's apparent desire to encourage further development and economic growth via reforms.
One longstanding example of APG's interest is a partnership it has had with Piramal Enterprises since 2014, to provide mezzanine financing to Indian infrastructure companies. Through this platform, the Dutch pension fund deployed over $750 million dollars, mostly in the renewable energy sector, Aerts said.
He declined to share figures on the returns from these partnerships or disclose exactly how much APG has invested in India to date, but said the pension fund has successfully exited several investments in the country, which delivered “pretty attractive returns in line with our original underwriting.”
APG is not the only asset owner to aim to invest into such possibilities. Canada's Caisse de dépôt et placement du Québec has also been seeking to invest more into India, and Southeast Asia more broadly.
ASSESSING AGRICULTURE
APG's focus on renewable energy in India aligns with the core of its investment mandate, which contains a focus on sustainability and environmental, social and governance (ESG) principles.
These commitments are increasingly common and look set to become even more so; in March, the European Union will introduce new landmark regulations that standardise ESG standards, transparency and reporting for investment funds.
One way in which APG is pursuing these aims in Asia Pacific is to focus upon investing into agriculture. The pension fund has globally invested $3 billion in private natural resources, and 40% of this sum is allocated to Asia Pacific. But most of this is invested into large tracts of farmland and timberland in Australia and New Zealand.
It is yet to make such investments in Southeast Asia, but Aerts said it could be a possibility in the medium term. “It’s probably not something that we expect to be doing in the next six months, but it’s certainly on our radar for the next few years,” he explained.
APG is also focusing on conducting real asset investments internally, be it in agriculture or other areas. It has swiftly ramped up its Asia Pacific team in the past few years, and added 10 more colleagues last year to give it a regional headcount of 79.
“For real assets, be it infrastructure, natural resources or real estate, we’re very focused on direct investing,” says Aerts, adding that he does not see any challenges with finding and hiring the right talent to build in-house teams.
One of the major exceptions to its go-it-alone approach is private equity, where APG continues to rely on funds and co-investments to expand its portfolio.
EYEING ALLIANCES
APG is not the only asset owner to want the capabilities to better decide how it invests. Many of its peers are being attracted by the increased portfolio flexibility, better governance and lower costs inhouse asset management can provide, including Thailand’s Government Pension Fund, Korea’s National Pension Service and Canadian public funds Ontario Teachers’ Pension Plan and Ontario Municipal Employees’ Retirement System.
In addition, APG is actively allying with regional asset owners to better spread its investment capabilities This includes a $1.2 trillion venture with Korea’s NPS to explore mega-deals in developed markets. The aim is to help both parties benefit from each other’s expertise, share costs, and further unlock attractive opportunities. Other notable partnerships include with China’s E Fund Management to run its fixed income and A-share portfolio.
While APG is not currently planning tie-ups in Southeast Asia, Aerts said the fund is open to exploring new alliances with like-minded investors. “We consider partnerships key to a successful implementation of our investment strategy.”