Measuring up to the best

Our best-in-class status

One of the goals of PGGM Investments is to be ‘best in class’. This means that PGGM Investments operates in the same league as the best external asset managers worldwide. Our investment teams drew up a strategic multiyear plan in 2019. This plan describes what is necessary until 2022 in order to be and remain best in class.

The idea behind this goal is quite simple: A large asset owner like PFZW has access to all asset managers around the globe. As such, PFZW has the obligation to its stakeholders to hire the best (mix of) managers to manage their portfolio with the aim of achieving the highest risk-adjusted return. For PGGM Investments to be a credible manager of (parts of) the assets, they need to maintain their BiC position. 

To make this goal more measurable, all our investment teams are reviewed by an external consultant. The external consultants are asked to review the PGGM Investments product and assess whether they would consider it a short list candidate in a manager selection process. Three to four products are screened each year in this quality assessment using desk research on PGGM Investments process documents, interviews with the teams involved and peer group comparisons. The final review report gives an independent judgement on the PGGM Investments products and states which PGGM Investments products are considered best in class by the consultant review, and which need improvement. This report, together with a management response written by PGGM Investments, is discussed in the Investment Commission (in Dutch commissie Beleggen) of PFZW. PGGM Investments will then use the review report for their BiC plans and work on the necessary improvements. After three years, the external consultants are asked to reassess the given PGGM Investments products, including the improvements made, and evaluate whether the PGGM Investments product is now BiC or not.

Over the past couple of years, these so-called quality assurance BiC reviews were conducted for all internally managed portfolios at PGGM Investments. Some teams were found to be best in class, whereas for others the evaluation committee found opportunities to improve. 

In 2021, the efforts to achieve the best-in-class ambition have progressed according to plan. It is our expectation that in 2022 all investment teams will have achieved best-in-class status. 

Excellent execution in practice
Within public markets, ‘Responsibly passive’ is the core product. We have a long and successful track record with benchmark-aware implementation. Our strength does not lie in blindly implementing the purchased indices. We build better portfolios that remain close to the index, but mitigates the risk of undesirable exposure and integrates ESG factors. For instance, Public Markets is strongly positioned to mitigate climate risks for clients in the portfolios with a low active risk budget.  

This proposition has been expanded to include systematic investing. PGGM Investments’ distinctiveness lies in providing clients with comprehensible and manageable access to those factor exposures elaborated in their expectations towards PGGM. In addition, over several years, long-term and impact investing has developed into a core product of Public Markets. PGGM Investments has a head start on its peers in the area of impact investing in shares and thereby also makes PFZW a recognized front runner among the large asset owners.

Over the past several years, we have set the standard in responsible investment, internationally as well. We provide our clients with a platform to achieve the desired scope in SDG investments and to realise further development of impact investment and measurement.

We also put emphasis on internal investing within public allocations. This safeguards in-house knowledge building about financial markets, so that PGGM Investments is always a fully-fledged knowledge partner for its clients.

Credit markets already have a market capitalisation that is roughly double that of listed shares. The credit market is expected to grow further in the coming years and become an even larger part of the global capital markets. We are well-positioned to control this expected further growth of credit markets for our clients. We feel it is important to do this partly via an internal proposition. After all, internal credit knowledge is necessary in order to responsibly manage clients’ large exposure in the financial sector. PGGM Investments also has a long and successful track record in Investment Grade Credit and Emerging Market Credit, which we want to reinforce in the coming period.

Another area in which we made a difference over the past several years is our investments in private markets. This involves, areas like risk-sharing transactions with banks and insurers and direct investments in businesses, property and infrastructure outside of the public markets. Where possible, we have cut out intermediaries to lower costs, being able to make better decisions on the portfolio level and enable our clients to contribute to the decision making for very large investments.

Being BiC also means understanding our boundaries and limitations. There were we are not BiC we search the world for the best parties in order to procure their services. Passive investing, for instance, involves simply following a particular market index. Other parties can replicate the market index more cost efficient than we can. We work worldwide with external managers who offer that added value, for private real estate, private equity and the insurance linked-market, for instance. The choice between internal or external management depends on the mandates from our client and on how PGGM Investments can realise the optimal implementation efficiently.