Stable financial returns

A stable financial result is a material topic for us. The pension assets of our clients’ participants are invested in various asset classes, such as property, shares and bonds. The pension assets are managed on the basis of mandates issued to us by our clients.

Key figures

The assets we managed in 2021 rose by € 25.5 billion compared to 2020, bringing this to € 293.5 billion. The return on the investments was positive and came to 8.4% (€ 22.7 billion) in 2021 (2020: 5.6%). Over the past five years, we achieved an annual return of 7.3% (2020: 8.0%).

In table 1.1 the annualized returns of PGGM Investments funds after deduction of external management fees and performance fees are presented. The spread of investments by region is shown in the diagram below.

Table 1.2 shows the assets under management and performance per investment category. Also, the contribution to the SDG’s is presented per asset class. Read more about this in chapter 2.1 How our clients’ investments contribute to the SDG’s.

PGGM Investments invests in both public and private markets. Investments in public markets, that are performed by in-house teams or by delegating portfolio management activity to other asset managers, account for the majority of our client portfolios. On the public markets platform, we invest our clients’ assets in several asset classes such as listed shares, government bonds and corporate bonds.

A benchmark is selected for every mandate that we received from our clients. This is an objective measure against which the investment portfolio’s performance is evaluated. We seek to achieve even better results for our clients over the longer term, i.e. returns exceeding the benchmark.

In 2021, we achieved an additional return of 64 basis points. Measured in euros, this is approximately 1.9 billion euro’s. Most of our investments in private markets achieved returns above their benchmarks. Within public markets we also had some outstanding portfolios. A few highlights:

In 2021, listed real estate achieved a return of 36.8%, thanks to stimulating monetary and fiscal policies, vaccine rollout, rapid resumption of economic growth and better than expected results of real estate companies.
Our private equity portfolio outperformed the benchmark with 1.2%, meaning that we selected managers that on average did better than their peers in the market.
Our credit risk sharing portfolio outperformed its benchmark by 4.6%, mainly due to stable coupon income.
Our investments in infrastructure returned 11.9%; 1.8% above the target return of 5% over inflation. Investments in the communications sector drove this strong performance with an internal rate of return of 28% over the year.
Within corporate bonds, our emerging market credit portfolio returned over 2% above the benchmark. Being underweight to China, and especially the real estate sector, contributed heavily to this outperformance.

Our Treasury & Trading (T&T) team provides liquidity and collateral management for our clients. In addition, T&T is responsible for determining and implementing the currency hedge. Both activities were carried out in accordance with the mandate in 2021, ensuring that the currency risk remained within the agreed frameworks. T&T ensured that there was always sufficient liquidity available to make the rebalancing possible and that at all times there was sufficient cash to meet the collateral obligations (arising from the currency hedge). As in previous years, our trading strategy produced a positive result in 2021. This result (approximately € 10 million in 2021) is for the benefit of our clients.

Client Portfolio Management is responsible for the rebalancing of our fiduciary clients’ investment portfolios, and initiates rebalancing flows on a regular basis to keep the portfolios in line with the desired risk/return profile. Early 2021 PGGM implemented a new rebalancing strategy, aimed at reducing transaction flows and costs while staying within target risk levels. The new strategy and implementation performed very well in the trending market, as a result of the strategy portfolios were generally overweight equities which performed exceptionally well. By concentrating transactions in the most liquid asset categories, realized transaction costs were much lower than projected. The larger part of the added value of the implementation was due to exposure to the attention trend captured by the strategy and would lead to underperformance in a market exhibiting more mean-reversion. Read more details about our investments here.

Market developments

The year 2021 was the second year in a row that was entirely dominated by COVID-19. New virus waves led to alternating periods of tightening and relaxation of mobility-restricting measures. However, aided by the rollout of vaccines, restrictions were clearly relaxed over the year as a whole. This brought the services sector back to life and marked 2021 as a year of ongoing global economic recovery.

The eurozone initially still struggled with a COVID-19 wave and fell further behind compared to the US and China in its recovery. From the second quarter, the eurozone picked up steam and caught up some of the lost terrain vis-à-vis the US and China. The third quarter saw a slowdown in growth in the US and China. The former faced a revival of the coronavirus as a result of the delta-variant and the rapidly rising inflation hurt consumer confidence. The latter, meanwhile, suffered from problems in its property sector, power outages and local virus outbreaks. The fourth quarter has seen a slowdown of growth in the eurozone, due to a (limited) retightening of mobility-restricting measures, whereas growth picked up again in the US and China. The virus wave in the US had weakened considerably by the start of the fourth quarter. In China, power outages had largely been dealt with and authorities had taken a first step towards a more accommodative monetary and fiscal policy.

During 2021, inflation received increasing attention. Supply in the economy was unable to keep up with the sharp recovery in demand, which led to disruptions in global supply chains and energy markets. This created upward pressure on prices. Combined with base effects (i.e. the comparison with relatively low price levels of a year earlier), this resulted in high inflation. Inflation continued to rise in the fourth quarter, with eurozone price growth amounting to 4.9% year-on-year in November; the highest level since the start of the currency union. In the US, inflation rose to 6.8% year-on-year in November, the strongest price growth since the 1980s.

COVID-19: emerging and developed economies
Tapering central banks

COVID-19 developments also dominated the news in 2021. The year turned for economies into a race between national vaccination campaigns and the local spread of extra contagious variants; initially delta, but later in the year also omicron emerged. Developed economies led the way in vaccinating their own population this year thanks to better access to corona vaccines. This provided them room to phase out mobility-restricting measures. Emerging economies followed a little later, but there too except in the least developed countries vaccination campaigns gained momentum.

While emerging economies were still in the process of providing first and second shots in the second half of the year, the 'boosting' of already vaccinated people was taking off in developed economies, shortly before the omicron-variant would spread across the world. Again, the US moved ahead of the eurozone in this regard. China, meanwhile, stuck to its zero-COVID policy, which ensured that local outbreaks remained limited. For India, the national vaccination campaign initially came too late. The local spread of the delta-variant, combined with a low vaccination rate, led to a dramatic second wave in the second quarter.

In 2020, when the COVID-19 crisis broke out, central banks lowered interest rates when possible. As the economic recovery has become increasingly sustainable, central banks have slowly phased out their packages of crisis measures. The US central bank (the Fed) has announced that the pace of monthly bond purchases will be reduced by $ 30 billion each month. It is, therefore, expected that no new purchases will be made from the second quarter of 2022 onwards.

There is now a real chance that the first-rate hikes will take place in the first half of this year. While the Fed took steps towards phasing out the measures in place, the European Central Bank (the ECB) was more cautious. In mid-2021, it initially decided to buy bonds even more aggressively. In the fourth quarter of 2021, however, the ECB also slightly reduced its bond purchases. In December, a number of adjustments were made to the purchase programs. No new purchases will take place after March 2022 under the Pandemic Emergency Purchase Program (PEPP), but the current amount of € 20 billion in monthly (net) purchases will be temporarily increased under the regular Asset Purchase Program (APP).