APG’s Asian strategy

As part of an increasing focus on emerging markets, APG Asset Management, has an increasing interest in emerging markets. As part of that strategy an office in Hong Kong employs 28 staff to cover the Asian region. Amanda White spoke to the president of APG Asset Management Asia, Fer Amkreutz, about the perils and profits of a life in Asia.

The Hong Kong office of APG Asset Management, one of only two offices outside of The Netherlands, is part of a wider strategy to manage the move away from developed market equities.

Over the past six years, APG which manages assets for Dutch pension funds, including the giant €208 billion ($274 billion) Dutch pension fund ABP, has decreased the allocation to developed market equities by nearly 8 per cent, while the emerging markets exposure has increased to the current level of 7 per cent in the recently completed 2010-2012 strategic plan.

The office was set up in 2007, well after there was a significant allocation in the region, with assets in Japan, India, Australia and wider Asia.

“We already had investments here but realised if you don’t have your feet on the ground you won’t fully understand the region. You need to speak the language and be part of the network,” President of APG Asset Management Asia, Fer Amkreutz says.

Amkreutz, who has only been in the Hong Kong office for the past nine months, can’t emphasise enough the role that relationships play in doing investment management business in Asia.

“It goes back to Confucius, it is absolutely important, and if you’re new it’s harder,” he says.

But Mike Friedlander, COO/CFO of the APG Hong Kong subsidiary, says it is not unlike any other emerging market.

“It’s identical to other parts of emerging markets, being on the ground permits you entry into transactions you wouldn’t be part of if you were sitting in New York or Amsterdam,” he says.

Similarly Brett Gordon, a Brit who has worked in Asia for the past 17 years and now heads up the listed real estate business for APG in Asia, says business partnerships in Asia are very much a two way street.

“From a western view we are coming in and selecting partners, but really it is also about them selecting us as well.”

Unlike other parts of the world, where money talks, Gordon says investing in Asia can often be as much about a transfer of skills or knowledge as capital.

“There is no shortage of capital in Asia, so if someone needs your capital then you should think twice about investing,” he says.

“It’s about bringing an additional benefit, not just about the money, for example in a real estate context if we are able to bring a certain skill or green technology, we become a much more attractive partner.”

“But who you invest in is often more important than the opportunity itself.”

Like any emerging market, there are unique country risks and Friedlander warns investors to fully understand the risks with the opportunities.

“Due diligence is a must, it must be calculated and that includes due diligence of asset consultants. There must be a very tangible alignment of your strategic interest,” he says.

“There is a great “soft” factor in due diligence that – next to financial/economic factors – needs to be reviewed thoroughly.”

APG’s asset liability management study looks at the determinants of investing according to sectors, but also regions, and there is about 10 per cent invested in Asia (about €20 billion) across listed and non-listed real estate, infrastructure and emerging markets equities.

APG has more than 600 investment staff globally and there are 28 people in the Hong Kong office, 16 are investment professionals and 12 of those are local, with an increasing focus on bringing assets in house.

“Without localisation being on the ground it is not getting you there,” Amkreutz says. “We choose the people that work here but they choose us too. We have a responsibility as an employer as well as an investor. We take a bit of a European approach as well, in the development of skill and balance of life, but that doesn’t necessarily apply easily.”

Trust is a big part of doing business in Asia, the APG executives concur, with the Dutch proverb roughly translated that “trust comes on foot and goes on horseback” a close ally.

“We send the local staff to Holland to help them understand what a pension fund is and is not. It’s a mixed cultural office, but it is also an Asian office and we are cognisant of feng shui. And keep in mind that what you where used to “as a westerner”, or thought to be true, might not work out well in an Asian context.”

The balance between east and west business cultures as well as managing misconceptions are enduring aspects of conducting business in Asia.

Friedlander says there is a popular misconception about the management of environmental, social and governance issues in China.

“People get it here and are moving in that direction, it’s a complete misconception that they are not,” he says.

For example APG recently had engagement with a South East Asia company over a governance issue, and that company responded positively.

“They said no one has ever discussed this with us. They said we understand and will change. So they are willing to change. There is a sense that there is a lot of first generation money that has been made and they understand to hand it on to the second generation they have to make changes.”

There is an element of protecting reputation and the transfer of wealth.

While APG invests in all asset classes, there is a focus on real estate and infrastructure-type projects, which are constantly being assessed. Opportunities such as energy efficiency in China are of particular interest.

“The Chinese Government is completely committed as an economic imperative and have energy efficiency goals, we see this as a good opportunity,” Friedlander says.

And Gordon stresses economic impact is assessed alongside social and environmental impact.

“But it needs to stack up against other business opportunities,” he says.

One of the big lessons from three years in the region, is scale and patience.

“The trend to emerging markets is strong and will continue, but it is a gradual process. There is a strategic shift but it is not quick. It is estimated by 2040 India and China will be 50 per cent of GDP, so you need to be here,” Amkreutz says.

ABP strategic investment portfolio

Investment mix	2009	2010-2012
Government bonds	10%	10%
Price indexed bonds	9%	12%
Corporate bonds	21%	16%
Alternative inflation	7%	7%
Global TAA	2%	3%
Equities, developed markets	24%	20%
Equities, emerging markets	5%	7%
Private equity	5%	5%
Real estate	8%	9%
Infrastructure	1%	2%
Commodities	0%	1%
Opportunity fund	4%	4%
Hedge funds	4%	4%

Note: APG Asset Management client’s have discretion over their asset allocation