The Dutch technology industry scheme PME has chosen Candriam as the manager of a new, concentrated equity portfolio initially worth €1.5bn. This is half of the €57bn fund’s existing allocation to European equities.
The step is part of PME’s switch from index investing to a more concentrated portfolio.
Since January, Candriam has been managing a European equity portfolio of 40-60 companies, giving the asset manager total freedom to pick companies within PME’s investment universe. This universe has recently been reduced from about 1,300 to more than 1,000 companies, 320 of which are in Europe, because PME has further tightened its ESG criteria.
The companies selected include Dutch chip machine manufacturer ASML, whose workers accrue pensions with PME. Other companies included in the portfolio are Siemens and SAP from Germany, the Swiss/Dutch chemicals company DSM and the Finnish lift manufacturer Kone.
“The assignment we have given to Candriam is to manage a portfolio according to a buy-and-maintain approach. Since the start in January, the names in the portfolio have remained unchanged. However, the size of some positions has been adjusted,” said Marcel Andringa, PME’s chief investment officer.
According to Andringa, the tracking error of the new portfolio is approximately 3%, which is comparable to that of an actively managed investment fund.
“We want the positions to be maintained as long as it is appropriate. That is different from a buy-and-hold approach where you strive for a kind of static situation,” he added.
Later this year, €57bn PME plans to select active managers for its emerging markets and US equities portfolios. For US equities, which account for more than 60% of equity holdings, two different managers will be appointed to reduce concentration risk.
Initially, only part of the equity portfolio will be managed via concentrated portfolios. For European equities, it’s 50% and for US stocks it’s only 20% because the latter asset class “accounts for a much larger share of global market capitalisation”, according to Andringa.
The allocation to emerging market equities will be active-only because ESG risks are deemed “much greater” in this asset class, according to Daan Spaargaren, senior strategist responsible investment at PME.
“We deliberately choose to be fully active here, because we want to know better which companies we invest in so that we can better manage these ESG risks,” said Spaargaren.
Amazingly similar
PME, together with its fiduciary manager MN, started its search for a new manager for the European equity portfolio in 2023 with a longlist of 30 asset managers, which was then narrowed down to a shortlist of “three or four” candidates, according to Andringa.
The main reason Candriam was ultimately chosen is that the Belgian asset manager’s view of sustainability is “very similar to our own approach”, Andringa explained.
“Like us, Candriam approaches ESG not only as a financial risk, but also looks at the impact of companies’ activities on the climate and the environment. Sustainability is part of Candriam’s DNA,” he added.
Candriam also turned out to focus on roughly the same sustainability themes that PME puts at the heart of its investment strategy.
Andringa said: “We have identified twenty sustainability themes that we consider important in our investment strategy. Such as the energy transition, the protein transition, circularity and healthcare. Candriam has selected similar themes. What we also have in common is that we want to invest not only in companies that are already sustainable, but also in companies that have plans to become sustainable in the future. I found this resemblance really astonishing. We immediately felt a sense of connection because of this.”
Cost
PME assumed that the costs would be slightly higher than is currently the case for its index portfolio, which is managed by MN, BlackRock and UBS Asset Management. While costs have indeed gone up somewhat, active management turned out to be less expensive than Andringa had expected.
“It was actually not that bad. Costs are now lower than they have been in the past,” he said.
Andringa declined to say exactly how much PME is paying Candriam, other than the contract is “less than 30 basis points”.
This is even below PME’s average asset management costs in 2024 (0.39%). However, this figure also includes more expensive asset classes such as private equity and infrastructure.
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