APG, on behalf of its pension fund clients ABP and bpfBOUW, has committed EUR 200 million to AllianzGI’s Impact Private Credit (AllianzGI’s IPC) strategy. Marcin Lenart (Expert Portfolio Manager Alternative Credits), Aimee Johnston (Portfolio Manager Alternative Credits) and Menno Van den Elsaker (Head of Alternative Credits) from APG provide insights into the characteristics and objectives of this investment.
Published on:
10 September 2024
In a nutshell:
• APG invests EUR 200 million in private loans to European mid-size companies addressing environmental and social challenges.
• As an anchor investor, APG played a crucial role in structuring and developing the fund.
• With this investment APG helps its clients to achieve their ambitious impact goals.
The AllianzGI’s IPC strategy provides private loans to lower and middle-market European companies that are implementing innovative solutions to three of society’s most urgent environmental and social issues: climate change, planetary resilience, and inclusive capitalism. AllianzGI’s IPC secured EUR 560 million in total commitments from leading institutional investors during its first close, surpassing half of its target size.
Can you give examples of the innovative solutions that AllianzGI’s IPC investments aim to support?
Johnston: “One example is a company that focuses on delivering smart buildings and energy efficiency solutions, significantly reducing energy consumption, from a products and services lens. This aligns with Sustainable Development Goal (SDG) 7: Affordable and Clean Energy, including the aim to double the global rate of improvement in energy efficiency. Another example, aligning with SDG 6 clean water and sanitation, is a leading manufacturer of agricultural irrigation components with superior performance in water efficiency and energy consumption through innovative products, leading to increased crop yield too.”
Why were the core themes of climate change, planetary resilience, and inclusive capitalism chosen?
Lenart: “These are the themes on which both the fund managers and our pension fund clients want to focus. We have agreed with AllianzGI’s IPC that at least 70% of the invested capital will align with the impact themes critical to our clients: climate change, circularity, and an inclusive society - education and healthcare, where affordability and accessibility aspects of such investments do not harm each other.”
Johnston: “It’s also important to note that AllianzGI provides regular and comprehensive reports on the outcomes of the impact investments, using the IRIS+ framework. This framework translates impact intentions into measurable results, which are used by both APG and our clients.”
AllianzGI stood out as one of the few managers qualified to meet our rigorous standards
What makes AllianzGI’s IPC’s framework for assessing impact in private credit investments advanced?
Johnston: “The depth of the underwriting process and the alignment with our own impact framework set it apart. We assessed and analyzed nearly a hundred fund managers to find one of the few capable of meeting our clients' ambitious impact goals. Most could not meet these goals or deliver the quality we sought. AllianzGI stood out as one of the few managers qualified to meet our rigorous standards.”
Lenart: “APG has developed a sophisticated impact framework for our clients, and AllianzGI’s framework aligns closely with it. Unlike many private credit peers that focus on achieving impact by improving companies’ operations, AllianzGI’s IPC’s framework is centered on delivering impact through the products and services of portfolio companies. AllianzGI’s IPC’s goal is to build a portfolio where every company makes measurable contributions to at least one SDG through its products or services. Companies that only achieve impact through operational improvements will not be considered for impact investment classification. AllianzGI brings together experienced impact managers with a strong credit track record, having been in the private credit space for quite some time.”
Impact investing through private debt is relatively new. What challenges does this investment face?
Van den Elsaker: “One of the main challenges is the relatively small size of the market. We need to identify companies that can qualify as impact investments and are capable of reporting accordingly. As a lender, rather than an equity owner, we have less influence on the portfolio companies' operations while on the other hand, we have to ensure there is a strong case of enterprise contribution. Another challenge relates to data. Reporting on the actual impact of an investment is still evolving. AllianzGI must ensure that the portfolio companies agree to provide the necessary impact data to both them and us. We’ll have to see how this works in practice.”
APG places significant emphasis on engaging with the companies and external managers it invests in. What is APG’s role and influence throughout the lifecycle of these investments, particularly in relation to AllianzGI and the portfolio companies?
Lenart: “Even though we do not make the investments directly ourselves, we have a substantial impact on this fund. We agreed with the manager that our Separately Management Account (SMA) would be tailored to our clients’ needs, with 70% of the portfolio to be invested in our clients' impact themes. Additionally, we will engage with the manager on each specific investment to ensure it meets our clients’ requirements and that the reported impact aligns with our expectations. We have also collaborated with AllianzGI to establish impact performance targets for 30% of the underlying portfolio companies, expecting them to improve their impact over time, which we will monitor together with AllianzGI."
Van den Elsaker: "APG has been instrumental in structuring and developing this fund in partnership with AllianzGI. Due to our significant contribution and ongoing engagement, we are recognized as an anchor investor."