The decision of €470bn Dutch civil service scheme ABP to switch to index investing will not immediately lead to a reorganisation at its asset manager APG. Most investment mandates with ABP still run for several years, APG said.
“Every three to five years, all mandates for specific asset classes are reviewed and a different approach may be decided upon, obviously in line with any updated investment beliefs of our clients,” a spokesman for APG told IPE.
Any move to passive investing would therefore be “a gradual process,” he noted.
Active index investing
According to APG, should ABP decide to switch to index investing for certain investments, this does not necessarily mean that it will no longer invest actively in these asset classes.
The spokesperson said: “Implementing sustainable and responsible investment policies, which is the express wish of ABP and other pension fund clients, also requires an active investment approach. In that sense, the job content of many of our portfolio managers will evolve, with a greater focus on responsible investing.”
For the time being, APG has no plans to make any job cuts in its asset management organisation, which employs some 1,200 people 0– out of a total of 3,400 employees – after growing its workforce steadily over the past few years.
For “competitive reasons,” APG declined to say how many of those employees are engaged in asset management for its portfolios with listed assets, the asset classes affected by ABP’s policy change.
What is clear though, is that APG gets the lion’s share of its fee income from managing illiquid investments. ABP paid a total of €1.7bn in fixed management fees last year, of which €254bn was for listed equities and €210bn for listed bonds.
Low fees?
In its annual report, ABP stated cost savings as its main reason for switching to index investing. APG, however, considers the costs it charges for liquid investments to be in line with the market. Various benchmark studies indicate that, but “ABP wants to pay a reasonable price and that is what APG charges,” said the spokesman.
Last year, ABP paid a fee of 0.13% (€148m) on its developed market equity portfolio to APG, and it was charged 0.3% (€105m) for its emerging market equity portfolio.
That doesn’t seem a lot, but a pension fund such as health care scheme PFZW has much lower costs. In 2021, the health care fund paid just 0.03% in management fees for developed market equities and 0.12% for emerging markets.
Management costs for PFZW’s fixed income portfolio are also significantly lower. PFZW, which is less than half the size of ABP with €222bn in assets under management, is the only pension fund in the Netherlands with a scale somewhat comparable to ABP.
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