Ronald Wuijster, CEO of APG Asset Management, looks back on a turbulent year. He says this is due to both all kinds of internal changes at APG and the fact that APG’s asset management division had to deal with new investment choices made by APG’s biggest pension fund client ABP. In addition, geopolitical unrest has been affecting the investment markets and the debate around ESG criteria has been flaring up.
We spoke to Wuijster ahead of the publication of the Annual Report. How does he view the investment year 2024? “It was a good year, our investment return was 8.9 percent. Developed markets, in particular, did well, especially those in the United States. Based on absolute investment returns, 2024 was a strong year. This does need to be seen in light of declining inflation fears and moderate economic development, which enabled central banks to relax their interest rate policy.”
The absolute return over five years amounts to 85 billion euros. How satisfied are you with that?
“That’s a nice number, of course. But if you compare it to other five-year periods, this is one of the worse periods. An important factor is the development of interest rates. Interest rates have risen over the past five years due to increased inflation levels. If you look at the additional return in 2024, you see that a limited number of shares did very well on the capital markets. But a large part of our portfolio is also in illiquid investments, which we compare to the capital markets to determine the additional return. Now these illiquid investments have done quite well, but less well than the investments in capital markets. One year is far too short a period to compare public and private markets, due to the different principles used to determine valuations. To do that, you need to take a longer period, perhaps even ten years.
The one-year extra return doesn’t mean much to me, but the five-year extra return does. Then you see a slightly negative percentage for the total portfolio, and that is not what we want. We did manage that portfolio better than the passive alternative, but it is below the standard of the extra return we pursue for our clients. We will have to do better. There is no magic wand for that, we are discussing it, of course. Sometimes it means making changes to the organization or changing propositions. But it is not a quick fix.”
The one-year return doesn’t mean much to you, yet that is what the outside world looks at most. What do you think of that short-term type of thinking?
“Sometimes things happen to coincide in the strangest of ways. Just look at the sale of Tesla shares, which was the result of a much broader realignment due to adjusted investment mandates in the fall. Many people found that strange, as the share price rose sharply in December. But now the world suddenly looks very different again, and Tesla’s share price has fallen sharply this year. We invest based on inclusion, in which criteria such as climate, biodiversity, human rights, and good governance play a rol. This policy results in a very diversified portfolio that historically yields a return comparable to the broad market, is very well diversified, liquid, and expected to be more resistant to risk. If you change the strategy and move from one approach to another, that implementation costs money. That cannot be avoided. That result should, therefore, not be judged in the short term. Investing with a long-term horizon means that you try to realize value every day for the long term. And in the longer term, we achieve an average investment return of just under 7 percent for our clients.”
In other words, there was a transition of strategies in 2024 that placed a large portion of the equity products in Responsible Investment (RI) index strategies. The negative additional return of the RI Index over 2024 can largely be attributed to this transition, as can be read in the Annual Report. Are the sustainability criteria not too onerous?
“The factors of return, risk, costs, and sustainability are equally relevant to all of us when making good investment decisions that contribute to pensions with purchasing power. So, sustainability factors are relevant, but they are not and cannot be at the expense of return. In fact, we even think that taking sustainability into account can have many benefits for the return in the longer term. We use the ESG factors for the risk management analysis of investments. It is possible, for example, that certain investments will suffer in the long term due to climate problems. By taking this risk into account, we can anticipate and limit these risks. Moreover, we also see opportunities, such as renewable energy. Very good returns can often be achieved in this area.”
The AM organization is changing considerably in 2024, partly due to ABP’s new investment beliefs. How do you deal with that as a director?
“ABP’s choice for a new policy has affected us. For example, we stopped the Quant Equities strategy for shares as of September 1. It is always difficult to say goodbye to colleagues. Especially at Quant Equities, which, after a difficult period, was really picking up steam and showing very good results. That is why I am also very happy that these colleagues have ended up in good places. Many of them have found work at Northern Trust, some have ended up at the APG organization, and a few colleagues have found work elsewhere. Change is part of our times; you have to be realistic about that. The world is changing, customer demand is changing, and that is why we are changing too. We always do so carefully, with a human touch.”
Where is APG Asset Management heading?
“We certainly have to adapt in the coming period, but we have also already completed much of the mandate. Looking at what we are doing now, we mostly have the wind at our back when it comes to investments in infrastructure. Within private investments, we are rolling out impact investing. We will continue to make credit investments in an active style, and the LDI-related asset classes are also doing well. For some other investment categories, we will need to make changes in the long term. But we will continue to manage the majority of the asset classes internally, at least partially.”
APG managed assets worth 616 billion euros in 2024. What does this number tell you?
“I look at it from a broader perspective. It is 1 percent of all pension assets in the world, which is huge. A significant portion of Dutch invested capital is managed by pension funds. That is almost 2,000 billion euros. That money is all intended for the future, for people’s financial security, and for social prosperity. That makes us proud because, in many other European countries, things are organized very differently.”