“There’s a difference between ESG-investing and what we do”

Published on: 28 April 2023

In 2020 APG’s quant equity investment team was faced with two challenges: improvement of investment returns and meeting the sustainability-criteria of its biggest clients. Gijsbert de Lange, Head of Quant Equities, picked up the gauntlet and three years later both goals are achieved. Of course  he didn’t do the job all by himself, so we talk to De Lange and one of his team members, Melissa Lin, who leads the quant research. What makes APG’s quantitative equity investment different from other quant equity houses?


APG’s current quantitative equities investment could be qualified as a success story. In the last three years, it has evolved to a sophisticated strategy that meets clients’ requirements on both investment performance and sustainability. The approach they have taken De Lange describes as “Quant 3.0”. So what does quantitative equities investing at APG look like?

De Lange: “Quant investing starts with identifying and combining many different factors, like for example the stock price relative to the calculated company value, the growth potential of the company, and many more. Based on the combination of those factors, we rank all companies in our investment universe. So then we can determine which companies we favor most and which ones we favor least. But before we can actually decide which ones to buy and sell, we need to build a portfolio of these companies. For example, if all companies that we selected on the basis of our ranking happen to be in the IT-sector and none in, let’s say utilities, we would end up with a portfolio that is leaning towards IT too heavily – so heavily, that it could result in an unacceptable risk. So investment risk is one of the considerations that we take into account, but we also have ESG-constraints. After we have looked at those, we can actually take our buy and sell decisions. We periodically review the portfolio to see if it’s worthwhile, given the transaction costs, to change the current portfolio into the portfolio that would be ideal according to our model.”

De Lange on the basics of quantitative equities investment

“Fundamental or discretionary investors take investment decisions with what is in their head. Humans can usually focus on a relatively small number of companies. By comparison fundamental investors have deep knowledge of a few companies, while quant investors have less knowledge, but of many companies.

We build a mathematical model and use that model to decide where to invest in and where not. Because it’s a computer model, you can replicate it many times and can look at many thousands of companies. If your decisions turn out to be right even a little bit more than 50% of the time for each company, you come out profitably across the whole portfolio of companies.”

Not good enough
So far, what De Lange describes is quant equities investment in the way it started in the nineties – Quant 1.0, as he calls it. This then developed into more sophisticated Quant 2.0 versions of these traditional factors. But lately we’ve seen a drive to alternative data, he says. Merely looking at accounting data and price data like quant investors used to do in the past, is not good enough anymore.


“More and more we find that you can’t derive a profitable investment proposition from the old data alone. We need to build factors unrelated to Quant 1.0 and 2.0. For a profitable investment strategy you need to be more sophisticated, for example by using text data or data from patent databases. The techniques for extracting information from those data are more complicated – something Melissa (Lin, ed.) is very well versed in, for example machine learning and natural language processing. Moreover, you need much more computing power, so you need to do it in the Cloud. We work in the Cloud, we make our calculations in the Cloud and now we also start accessing data providers in the Cloud. So it’s state-of-the-art technology, researched and developed by a team of very smart people, that all have different specializations.”

The greater good

If you can do all this, as a quant investor you’re basically matching the best quant equities houses in the market, says De Lange. But APG’s Quant Equities team goes further than that.

“We want to find companies that not just maximize shareholder value. A good part of our strategy aims to select companies that maximize value in the long term for all stakeholders: shareholders, but also employees, customers, suppliers, society & communities and the natural environment. We try for example to find companies that have happy employees, as we believe these make better companies, and there’s actually academic research to back this up. We also look for companies that are actively positioning themselves, and their supply chain, over the next few years, for the transition to a green economy. For instance, we try to find companies that own patents on technologies that help in this transition. What we find, is that these kinds of companies deliver both good financial performance and good stock market returns. We also have a preference for companies that have good corporate culture, and focus on maximizing long term value. This is where we differ from other quant investors and where we think our competitive edge lies. And at the same time we satisfy the needs of our pension fund clients. They are also looking for investments that both deliver financial return and contribute something to the greater good.”

Computing power

Melissa Lin: “You need to think creatively to identify factors that are more forward looking than, for example, historical carbon intensity or financial performance. You want to find factors that, for instance, reflect whether a company’s innovation capability creates future business opportunities. Opportunities that result in the growth of its customer base or profitability. Those kinds of factors are difficult to find if you use the more traditional, simple metrics that were used by many quant funds in the past. To find these forward looking factors, you have to look through other datasets and because you need to do it more efficiently, you need Cloud computing power.”


De Lange: “There’s a difference between ESG-investing and what we do. ESG-investing is basically driving a car by looking in the rear mirror, because the data from ESG-data providers is always based on how the company is performing now – and these data are also provided with a delay. Also, they say nothing about the company’s ability to make money going forward. ESG-ambitions are important for our clients, and as a quant equities team we don’t just select companies with good past and current ESG-performance. We use themes that are related to ESG and that contribute to long term stakeholder value, to see where companies are going. How will they perform financially in the future years and how is this related to sustainability? So it’s ultimately about selecting high-quality sustainable companies with responsible behavior and conduct, in order to make a good investment return. This is how we deliver on what we agreed with our clients three years ago.”

Pushed the envelope

In those three years, a team of 26 researchers, developers and portfolio managers was formed that built the capabilities needed to carry out this strategy – and not without result.

De Lange: “we have developed a good track record in those three years. We’ve met all the financial targets that we were supposed to meet. We’ve built the team. We’ve pushed the envelope on the technology. And we meet the standards of our clients on responsible investment.”

But the team can go further and needs to go further than that, says De Lange. Because APG’s clients have also evolved in those three years and so have their needs.

Lin: “We now have a capability to build many different products, depending on what our clients want. For example, we were asked to structure a thematic impact investment fund, something we couldn’t have done three years ago – now we can. Our product development is data-driven,  sustainable and delivering returns. Recently, our investment strategy was found to meet the criteria for SFDR’s Sustainable Risk Integration (Sustainable Finance Disclosure Regulation, ed.), so we are operating in that new regulatory context. We have significantly increased our research and development capability and we’ve built a mindset of innovation. We have also improved our decision-making process and ability to adapt to changing client needs.”

Team composition matters

In the achievements of the past three years, the composition of APG’s Quant Equities team played an important role, Lin and De Lange believe.

De Lange: “It was a conscious decision to form a diverse team, as group think is a big hazard in the financial world. We have a relatively high percentage of women and our team members have a Dutch, Chinese, Indian, Indonesian, Vietnamese, Ukrainian, Russian, French, English, Swiss or American background. Everybody’s able to speak their minds, we score high on psychological safety. Our team culture is focused on individual accountability and responsibility, but also on supporting each other. For instance, to ensure drawdowns remain limited, our portfolio managers propose adaptive risk management actions in their own portfolios, that in the PM team we collectively challenge and decide upon.”

Delivered on commitment
In short: APG’s Quant Equities team has come a long way in the past three years. It has delivered on its original commitment to clients and has the ability to meet clients’ evolved requirements.

De Lange: “The best quant investors have the sophistication, knowledge and the computing power to extract information from data that other investors haven’t. There are not that many that combine this ability with a focus on long term stakeholder value. We do.”