Peter Branner, chief investment officer of the giant APG, is always looking to develop and implement technology that supports the firm’s investment goals. Since his school days, he has been interested in information technology and now as APG Asset Management CIO, he is hands-on involved with the firm’s multi-million investment programme in new technology.
Investment that is enabling APG to extract information from big data, share it efficiently among the investment teams and remain at the forefront of responsible investing. The programme also aims to develop digital talent, automate the most labour intensive parts of the investment process and allow further client-led segregated mandates.
“We are looking at the investment philosophy/process evolution with a balanced respect for the past while also leaning into the future where our clients are most likely to benefit from scale, information advantage and, not least, our truly long-term perspective,” says Branner in an interview in Amsterdam with Top1000funds.com that was complete with canal views.
“We never jump on new trends without doing serious evidence-based research first. We evaluate the mega trends around us very carefully and make sure that investments are linked to those mega trends.”
The focus includes demographics, climate change, the technology revolution and the ageing population, among others.
“Others look at many of these themes too, that is no surprise. But we try to translate how these play out, so the mega trends are not playing against us, in particular in less rosy scenarios,” Branner says.
When Top1000funds.com interviewed Branner in the summer of 2021, the planning around digitalisation was taking place. This included investment in the large-scale use of (unstructured) data, workflow automation and digital analytical platforms. Now the firm is in the middle of the execution phase, with the strategy deliveries getting more tangible.
“We want to make the investor base ready and flexible for the future. Training is needed around digital tools that we are rolling out as well as for digital leadership,” he says. “We aim to educate our people to be digital investors and to identify where there’s an obvious spot to digitalise. From an HR perspective this is an enabler – that you have people that can do the job themselves.”
To deliver on client’s responsible investment ambitions, the investment teams utilize various types of ESG data, often unstructured. “This is difficult data to extract useful information from, and alongside implementing the technology required we have had to learn techniques such as Machine Learning (ML) and Natural Language Processing (NLP),” he says.
For Branner, digital leadership is about inspiring the organisation to move forward and talk about technology in a meaningful way such that it ultimately enables the value adding investment solutions to clients.
The shift started with digitalising some simple processes. For example, data previously presented to the investment committee was based on a high number of word documents and excel spreadsheets, but is now gradually available in a digital more robust form.
“It forces our people to be more structured and it ultimately frees up time to focus more on analysing the data and preparing quality investments rather than producing “use and forget” data,” he says.
The shift, for now, is culminating with the technology to enable ML and NLP and work on big unstructured data. Increasingly APG processes this in the Cloud making use of the horizontal computation scalability and the ease of data access. “The investment in our data science subsidiary Entis, has been a success story. Entis turns raw text documents into usable data networks. Obviously our quant investment teams feel most at ease using these new technologies.”
Meeting client demand with bespoke tools
But some of the other investment teams have introduced AI as well. One of those is the addition of a fully digital portfolio manager, “Samuel”, which points to anomalies, questioning where the logic isn’t consistent in analytic assumptions.
“That’s what these machines do, they question where the logic does not fit and they say here’s an investment that looks abnormal because it lags pattern recognition,” Branner says.
APG is the asset manager for ABP, the biggest pension fund in the Netherlands, and has a number of other clients as well and client demand for bespoke and tailored solutions is driving the need to use technology.
“We are implementing new tools in the front office, linked to this is our proliferation of client requests for more mandates and tailored solutions so we need technology to provide an increasing number of model portfolios as well as client specific mandates,” Branner says. “We are also creating data warehouse technology, a data lake type of set up, which people can access and use depending on the area they are working for.”
Branner is instinctively comfortable with technology, unusually so for an asset manager investment head. He grew up programming (completing his first course age 14) and has applied technology throughout his career.
“I rebuilt a small insurance company’s digital tools from scratch when I worked in London back in the mid 90s. I took all the tech and workflows, and plugged into an MS database,” he reminisces.
Later, in Luxembourg, he built a prototype multimanager technology toolbox at an asset manager, going on to hire developers to move it to a more robust platform.
And as CEO and CIO of €100 billion Swedish asset manager SEB Investment Management in Sweden, he was part of a front page story threatening that robots were taking over. He’s comfortable working with both quant and fundamental approaches. “I always thought it was silly to say one over the other. I’ve always seen technology as an enabler, never the end solution,” he says.
“Machines are very good at forcing structure, seeing historical patterns and using data in an environment that doesn’t change. As soon as there is an unusual situation or a new paradigm shift then you need smart people. And increasingly so,” he says.
Branner believes techniques such as ML and NLP, though regularly used in quant investing, can be important additional tools for fundamental investors too. “AI is an important additional tool for experts in many walks of life, and that goes for traditional asset management too.”
Technology and sustainability
Sustainability, or RI, is an area where APG has been leading the use of technology to extract information from big (unstructured) data and where the Entis subsidiary has played a key role.
Together with PGGM, and later BCI and AustralianSuper, APG developed the Sustainable Development Investment Asset Owner Platform.
Technology is used to sift through reams of structured and unstructured data to gauge the extent to which companies’ products and activities meet the SDGs.
“From a data perspective, APG developed the SDIs with an intuitive set up linked to the SDGs. The next step is to convert the SDI taxonomy towards Impact Investing and start to say what does it mean for the planet when you invest in an SDI,” he says.
The easiest and most obvious example is carbon emissions with a direct link to the 1.5 degree target under the Paris Agreement. Other SDGs are less intuitive for calculating true impact.
“In measuring zero hunger you could intuitively look at the production of say, milk powder and its use in Africa. What you want to achieve is zero hunger, but how much less hunger is specifically happening due to the use of milk powder is tricky to measure in a scientific, waterproof way,” Branner says.
Nonetheless RI investing will shift towards Impact Investing, it’s the next level of the investment evolution, he predicts.
“To make that transition, we have to be crisp and clear about how to justify the investments in impact,” he says. “It’s interesting to see how it will evolve as well as the intellectual curiosity around technology and how it is being used. Machines can’t work alone, we need to feed it with a framework, it is where people with ESG expertise will matter.”
The investment environment
As a large investor, Branner is occupied with interpreting the policies of central banks, especially interest rates, and how governments are managing their debt levels.
“In the past, central banks have been able to actively control the interest rate levels, and now when we see governments providing debt left and right it has become more difficult for central banks to operate alone. That’s a development I don’t see changing soon.”
In more recent times debt has been issued due to the COVID economic crisis, and now the war in Ukraine and the associated energy crisis.
“That puts more pressure on governments and the EU, I follow that intensely and with some worry for the more dark scenarios,” he concludes.