Ken Bloomberg and Greg Jania, Global Co-Heads of Private Equity at APG, started to build their team from scratch in 2013. Now, the total assets under management amount to approximately 50 billion euro. In this interview, Bloomberg speaks about the philosophy of the Private Equity team, important market developments and opportunities.
Invest in the best private equity managers to deliver the highest returns. Keep costs down and enhance returns through co-investing. Lead on and push the industry to raise ESG standards and practices. That is the investment philosophy of APG’s private equity team. Bloomberg: “We have a dual goal of achieving the highest net returns and the best ESG outcomes at the lowest cost.”
Is APG’s private equity approach different from other investors in the industry?
“The way we approach PE is distinctive because of our scale and our team setup. Our program has dedicated teams for investing in funds and secondaries as a limited partner, as well as a dedicated co-investment team. That, along with the size of the capital from our pension fund clients, differentiates APG in the market. But why is that important? Because it means we can be one of the top limited partners investing in the funds of our general partners (GPs). That positions us to influence and push our GPs on our demanding ESG initiatives, which is key for APG and for our clients. It also positions us best for co-investments that are fee and carry free, and to get discounts on the funds because of our size. It’s not easy to do a co-investment / direct deal. Many limited partners struggle with it because you have to be very quick yet very thorough. To have a dedicated team that can do all that, and with size, is differentiated in the market. I would say we are viewed as one of the few global leaders in our approach to private equity.”
Could you give some examples that illustrate this approach?
“Generically speaking, we are one of the largest fund investors in each fund that we invest in across the spectrum of the market. In addition, we have done over 85 individual co-investment transactions since the inception of our inhouse co-investment program. We used to outsource our PE investments to an external firm that we had to pay fee and carry to. Eight plus years ago, we brought the fund and co-investment program inhouse, which saved a significant amount of fees because we didn’t have to pay anybody else to do it for us. In the last seven years we have invested 40 plus billion Euro’s. The performance of our team has been very strong, since the start of the overall program but also since the inception of the inhouse program. And we’re proud of the excess returns that we have been able to return to our pension fund clients and their participants.”
If you look at the private equity market, what are the most important developments you see?
“The industry is always evolving, but I think the biggest and most significant change I’ve seen since being here at APG is market adoption of ESG initiatives. APG has really been a leader on that front. I don’t think there is any limited partner that pushes harder on ESG standards and outcomes than APG does. And the market has really come our way in terms of its willingness to address our ESG requests and requirements. We are a founder of the ESG Data Convergence Project, which is an initiative to have general partners report on certain metrics for us in a clear and transparent way. Many of our general partners have signed up for that, which was unthinkable when we started the program years ago.”
What opportunities do you see for private equity in the coming years?
“We have the opportunity and the responsibility to push the industry to generate positive ESG outcomes. Private Equity attracts a lot of criticism in the mainstream press, but the industry can be a powerful way to change the world for the better by creating more sustainable businesses. The stereotype is that private equity firms make money by gutting businesses and laying people off. That is largely based on a few historical deals with bad or controversial endings. While those outliers make for good headlines and drive negative perception, most of the industry is focused on a growth agenda in terms of hiring and growing businesses to make them better. A strong business that grows typically makes more money than a business that shrinks and has layoffs. That’s why it makes sense to focus on doing good, making businesses more valuable and more sustainable -- that’s where the returns are being created. And on that note, businesses that adopt strong ESG policies should be worth more at the end of the day than those that don’t.”
And what are the main challenges for the industry, apart from the bad press?
“There’s always the challenge of finding the right opportunities to invest in. Through different cycles, you sometimes see private equity investors chase too few deals with too much money, meaning returns can come down in those times. Or you might have times when there might not be open capital markets to fund deals appropriately. But the key is investing consistently through the cycles with a long-term mindset. Investing for the short-term, or pulling out of the market because a recession is looming, is not the right way to do it.”
Lastly, what do you admire most in the APG Private Equity team?
“We started this from scratch and now have a global team of about forty professionals in New York, Amsterdam and Hong Kong. It makes me proud that I, along with Greg, had the chance to build this team to what it is now. We have really built a talented global team of colleagues who are super bright, very energetic and driven by APG’s mission. That motivates me, and makes me happy to come to work every day. Also, the fact that APG is a significant responsible investor that cares about societal issues such as ESG, makes this a pretty unique place to be and a truly rewarding organization to work for - for me and for our team.”