The risk of no UK-EU trade deal post-Brexit has not stopped foreign pension fund investment in UK assets, with the second largest Dutch pension asset manager PGGM for example having increased its investments in real assets in the UK as recently as this month.
PGGM, the €252bn pension giant announced a £100m (€109m) investment in residential real estate in Birmingham in a joint venture with Legal & General on 15 December.
The announcement came just weeks after PGGM had announced a similar-sized investment in construction company BAM’s public-private partnership arm, which comprises a large portfolio of infrastructure projects in the UK, including the London Silvertown tunnel.
The pension investor, whose investments in the UK total some €8bn, refused to comment on the possible consequences of a no-deal Brexit on the value of its portfolio. PGGM’s largest single private investment in the UK is student accommodation firm UPP, in which it holds a 60% stake.
The UK investments of PGGM’s larger cousin APG totalled €24bn at the end of 2019, slightly more than 5% of its assets under management.
While a spokesperson for the asset manager told IPE that Brexit risk has been a part of its decision-making process ever since the referendum in 2016, this had not materially affected its allocation to the UK.
The Brexit risk has not led the firm, which manages the investments for the Netherlands’ largest pension fund ABP, to sell any of its UK assets, which include a €258m stake in Heathrow airport, the spokesman confirmed.
Just because pension funds may not have sold UK assets doesn’t mean they haven’t been preparing for the possible negative consequences of a no-deal Brexit. At least some Dutch pension funds have mostly done this by increasing their sterling hedges.
The ABN Amro pension fund, for example, increased its sterling hedge to 100% a couple of years ago because of Brexit. The fund has only hedged half of its exposure to other developed market currencies.
PGGM’s main client, healthcare fund PFZW, also has a 100% hedge on its sterling exposure, though this is not related to Brexit. The fund traditionally hedges all of its foreign currency risk, apart from its exposure to the dollar and yen.
Tactics
In the Nordics, the region’s largest pension funds appear to have decided against tactical positioning of portfolios ahead of any deal or no-deal outcome from the long-lasting post-Brexit trade negotiations – or are unwilling to comment on it.
At Ilmarinen, the largest of Finland’s mutual pension insurance companies, Mikko Mursula, deputy CEO, investments, told IPE that the firm did not comment on tactical positioning.
“Our long-term investment strategy is still valid. We have taken different scenarios into account, including Brexit. When it comes to tactical momentum trades, we don’t generally comment on these,” he said.
At the State Pension Fund of Finland (VER), CEO Timo Löyttyniemi, told IPE that his pension fund – which is a buffer for central government pension liabilities – is not taking any particular position in relation to the talks between the UK and EU in the run up to the end of the transition period on 31 December.
“We have no special tactical Brexit positions for this year-end. Either scenario is as likely,” he said.
A spokesman for Sweden’s AP7, the national pension fund running the default option in the premium pension system, said the fund had no specific comment on Brexit currently and had not done any tactical positioning.
Counterparties
According to APG’s spokesperson, the largest effect of Brexit has not been seen on the investment side, however. “The biggest impact has been on our relations with [UK-based] counterparties,” he noted.
As IPE reported in September, Dutch pension funds have been busy moving derivatives contracts to EU-based counterparties in the last few months as the Brexit deadline drew closer.
At Denmark’s ATP, Jan Ritter, head of treasury at the DKK936bn (€126bn) pension fund, said the fund’s position on the Brexit issue was exactly the same as it had been in October.
Back then, he told IPE that the pension fund did not speculate on the outcome of the Brexit deals but had for some years been moving the majority of its derivatives exposure from counterparties in the UK to counterparties in the EU.
The aim of this had been to be able to continue its business in a hard Brexit scenario, Ritter said in October.
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