APG leans on private assets to manage portfolio volatility

Dutch pension manager APG Asset Management (APG) is expanding its investments in Asia and focusing on private assets with an eye toward lower long-term volatility. Control over sustainability efforts is also a top objective.

Thijs Aaten

APG

“The trend is very much to add more private assets because we believe we have more control and can impose more sustainability requirements. And private assets are also less volatile,” Thijs Aaten, Asia CEO at APG, said while speaking at AsianInvestor’s 19th Asian Investment Summit on May 23 in Hong Kong.

While public equities are known to offer relatively high returns paired with high volatility, Aaten made the case that private assets, at the other end of the spectrum, are less volatile than public fixed income.

He also addressed the general concept that relatively low volatility in private markets is due to an absence of immediate mark-to-market valuations, such as those available in public markets.

“My counterargument would be whether the public markets are always showing the right price? Occasionally the public market does show what we consider true value. But most of the time I’d argue markets are either above or below true value. It's a mixed bag, but there's definitely a benefit of having something that moves a bit more slowly in your portfolio,” Aaten said.

LOCAL PRESENCE

As private assets are less liquid by nature, picking the right investments for the appropriate long-term returns is a more critical task.

APG has therefore around 90 people based in Hong Kong, as well as an office in Singapore, to source potential deals and track macroeconomic trends across Asia.

“With private assets, it's important that you have local presence to build networks with trusted investment partners. Once you have that, you should marry those investment opportunities sourced in that network with long-term trends,” Aaten said.

In April, APG and Japan’s Government Pension Investment Fund (GPIF) announced a partnership for overseas developed-market investments in strategic infrastructure assets. 

Also read: GPIF, APG team up for strategic infrastructure investments

Climate, energy transition, urbanisation, and demographics are key trends for APG.

Multifamily living – housing multiple generations in the same building – is a specific type of real estate investment that ticks several of these trends, for example. This type of asset also serves the social component of environmental, social, and governance (ESG) factors.

“In Asia, two billion people will be added to middle income class. They will be needing robots, energy, all kinds of infrastructure. There's lots of opportunities in that space as well,” Aaten said.

In January, APG invested in the development of the Indonesian Trans Java Toll Road alongside sovereign wealth fund Indonesia Investment Authority (INA).

Also read: APG, ADIA invest in Indonesian road infrastructure

ACTIVE MANAGEMENT

APG’s €569 billion ($617 billion) in total assets under management as of December 2023 are diversified globally and across both public and private asset classes, Aaten emphasised.

With a relatively small share of around €30 billion allocated Asia, there is room for expansion in the region’s private markets. And with around 70% of assets managed internally, control and active management is preferred.

“We leave the financial analysis with the portfolio managers to determine whether it is a good project and a good deal,” Aaten said.

In cases where external management is the best route for certain assets, markets, or strategies, manager selection becomes critical. Beyond ensuring capabilities and aligned interests, APG makes use of an operational due diligence team.

“Then you send that team in to make sure that the partner that you're working with has the right internal controls and the right administrative procedures to ensure, for instance, a real estate project is done properly,” Aaten said.

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