In 2023, APG Asset Management US Inc. will celebrate its 25th anniversary. President and CEO Matilde Segarra explains how APG US has become a thought leader and standard bearer in the U.S. market when it comes to responsible investing.
How does the New York office fit within APG?
"From the New York office we manage around 15 percent of APG's total assets under management. About two-thirds of our investments are private investments and the other third in the public markets, predominantly in corporate fixed income. Naturally we focus on our side of the world, on investments in the U.S. and to a lesser extent also in Canada and Latin-America. Our portfolio managers are, however, all part of global teams that execute a global mandate and work according to APG's global operating model. So the job description or profile for a portfolio manager in New York is no different than for one in Amsterdam or Hong Kong. What sets us apart and what enables us to add value is our expertise in local markets. We need that local knowledge to implement our investment strategies in the most effective and efficient way. Some of our strategies require such specific professional knowledge and skills that realistically you can only run these locally. Our Real Assets teams, for example, invest in U.S. infrastructure projects and real estate. They have deep knowledge of local market conditions and of local laws and regulations that we can only find here."
How does APG distinguish itself from other asset managers in the U.S. markets?
"A first obvious difference is that we have a much longer investment horizon compared to commercial asset managers. As a pension fund manager, the goals we are evaluated on are long term. Another big difference, which derives in part from the first, is the amount of attention, focus and priority we give to responsible investing in our processes. Responsible investing criteria are on par with risk, return, and cost. Most asset managers in the U.S. market do not give environmental and social considerations the same priority as returns. Although sustainability has been picked up as an investment theme in all areas of the world, the importance we attach to it in our investment decisions, in our research, and in our engagements is still much higher."
Even compared to other pension fund managers with a long-term investment horizon?
"I would say yes. There is a lot of diversity in the U.S. pension fund universe. Many have one single, core objective and that is maximizing returns. Sustainability is secondary, and in some states regulatory guidelines even prohibit pension funds from taking environmental and social factors into account because legislators claim it might distract from focusing on returns. Other pension funds, including some very large ones, are taking sustainability very seriously and are quickly catching up. But I think APG is still more advanced in implementing this in our long-term investment strategy. You can see that in our presence in private markets. We were pioneers in a number of alternative asset classes and we're known in this market for our direct investments in infrastructure and real estate projects. This all starts, of course, with the preferences of APG's pension funds clients. Their commitment to responsible investing enables APG to go a lot further than many other funds. That shows up in our thought leadership on sustainability in the U.S. market, as well as how we invest."
What are some examples?
"In the private space, we recently took a significant stake in the Gemini Solar and Storage project in Nevada. This comes to mind not only because it is an investment in clean energy, but also because of how much attention the deal team paid to mitigating biodiversity concerns and consulting the Moapa indigenous people whose tribal lands are adjacent to the project’s construction site. On the public side, our work in the U.S. corporate green, social and labeled bond market stands out. Our US Credits and Americas Responsible Investing teams have led the dialogue here on how to increase corporate labeled bond issuance while maintaining the integrity of these new financial instruments. We share our expectations and foster a healthy debate on key topics in this quickly evolving market by bringing peers, underwriters and other stakeholders together annually and share those insights with the broader market. In 2021 that discussion was focused on developing guidelines for Sustainability-linked bonds, which we have subsequently published to share with the wider marketplace.
What role do social and governance aspects of sustainability play in your investments?
"Those are also topics we consistently discuss with the management of our portfolio companies. Obviously Health & Safety has long been an important theme, as well as labor conditions in general. Thankfully we're also progressing there. Diversity and inclusion is now an increasingly important theme – not only in society at large, but it is also something we're emphasizing more and more in our discussions with company management. What are your goals and policies? How have you implemented those and which KPI's do you track to measure progress? What initiatives have you taken to make progress? Do you hold your suppliers to the same standards we hold you accountable to? So in this area again I think we go further and are more critical than other investors."
Again, what would be a good example of a successful engagement in this area?
"There are many, but rather than highlighting a single case I would like to underscore our role as co-founders of the 'ESG Data Convergence Initiative'. We helped to bring together some of the world’s largest private equity firms and investors and reached an agreement on a first set of ESG metrics for private equity funds and underlying companies to report on. The aim is to increase the quality, availability and comparability of ESG data, which should ultimately promote sustainability in the private equity industry. That kind of initiative shows how we are working with the industry to develop good standards that push the investor community at large to embrace sustainability too, and that they can use in their engagements and evaluations of their investments."