Almost 8,000 miles separate GPIF’s headquarters in Tokyo’s Toranomon district from APG’s head office at the Buitenweg in Amsterdam. Yet in April, the two pension giants—the ¥225 trillion ($1.4 trillion) Japanese Government Pension Investment Fund (GPIF) and APG Asset Management, the €569 billion ($615.4 billion) manager for the Dutch public sector fund ABP—announced a joint investment programme in infrastructure. What has brought these two funds together, and how might their collaboration impact their net zero targets?
While GPIF and APG seem miles apart, the geographical distance is not as wide as it might seem. APG opened a Hong Kong office in the late 2000s, and it currently hosts more than 20 different nationalities.
Historically, both investors have had close links to their respective states. ABP, the Dutch public sector fund and main contributor to APG, was originally a government-controlled entity that was privatised in the 1990s. Similarly, GPIF also holds a close connection to the Japanese state, having been established as an administrative agency by the Japanese government.
However, APG now operates fully independently of the Dutch government and is keen on taking on more international clients, as Genio van der Schaft, chief operating officer of APG Investments Asia, stresses: “Collaboration is in our DNA.”
Indeed, examples of APG’s collaborative efforts range from a joint infrastructure investment in Westfield Stratford City with the Canadian pension giant CPPIB in 2010, to investments in Portuguese motorways alongside the Korean pension fund NPS. It has also entered an asset owner partnership with New Zealand Super and is in the process of onboarding another European pension fund. These partnerships span infrastructure to private real estate, and APG is also considering extending the collaboration to private equity deals. Yet the new partnership with GPIF is potentially the largest in size.
Portfolio differences
A key difference between the two investors lies in their fundamentally different approaches to asset allocation and investment management. Despite being the largest asset owner in the world, GPIF has a strong focus on outsourcing investment management and maintains a relatively small investment team.
GPIF has so far had very limited exposure to alternatives, maintaining instead a balanced portfolio of stocks and bonds. At the time of its last Annual Report, only 1.5% of its assets were invested in alternatives, which is below the fund’s target allocation of 5% for alternatives. However, given GPIF’s size, investing in line with its target allocation would still amount to a $70bn allocation in private markets, a significant increase from its current commitments.
This strong focus on outsourcing has so far dominated GPIF’s approach to stewardship. In 2018, GPIF backed the Task Force on Climate-related Financial Disclosures (TCFD) and has since filed TCFD reports annually. However, the responsibility for putting these pledges into action has so far been firmly in the hands of a handful of external managers, particularly Asset Management One, who have been tasked with exercising GPIF’s stewardship.
This approach may need to be altered as GPIF turns its attention to private markets. Masataka Miyazono, president of GPIF, announced in April, “GPIF has been increasing its exposure to alternative investments (infrastructure, private equity, and real estate) in expectation of greater portfolio diversification, seeking to improve investment efficiency and further ensure the stability of pension finance.”
GPIF’s approach contrasts sharply with APG, which, as the manager for several Dutch pension funds, holds a significant in-house team and has been actively investing in private markets for decades. APG’s main client, ABP, prominently divested from fossil fuels in 2021, and APG has pledged to halve its carbon footprint by 2030.
Another difference is the level of disclosure about private markets positions. APG is usually very public about new commitments, but as part of the deal with GPIF, both parties have committed not to reveal the specific assets held within their portfolio nor disclose the amounts of transactions, van der Schaft acknowledges this, hinting instead that deals will be “sizeable.”
Both parties have agreed not to disclose the exact size of the collaboration nor reveal the specific assets held within their portfolio. This policy is new to APG, which is usually transparent about its transactions. However, APG hints that the deals will be “sizeable.” Indeed, with APG managing €569 billion ($615.4 billion) in assets on behalf of multiple pension funds and GPIF managing ¥225 trillion ($1.4 trillion), their combined assets exceed $2 trillion.
Moving the needle
The key factor that brought both investors together might come as a surprise: it was the need to gain scale, says van der Schaft. “If you really want to move the needle, it is not always possible to do it on your own; collaboration with like-minded peers really helps.”
Being a large-scale investor in infrastructure allows APG to leverage the strengths of different markets. “Because of our size, we are able to have in-house teams on the ground, we can find our own niches and investments where we want to be. We can then find operating partners and co-investors. We think that is where the value is, where we can make a return, but also where we can make an impact,” he stresses. It is worth noting that the collaboration extends beyond Asia, with GPIF benefiting from APG’s presence in the US and Europe.
There is an unusual twist to the agreement: it is exclusively driven by demands from APG’s Dutch clients, with GPIF absorbing the excess, Van der Schaft explains. “The partnership is only focusing on transactions we will do for our existing Dutch clients. Only if those transactions are larger than the amount our clients can invest—obviously, they need to diversify—will we offer the excess to partners. We will not conduct any transactions exclusively for a partner,” van der Schaft emphasises.
Size will also play a key role in exercising stewardship on the ground, as Debanik Basu, head of responsible investment for the Asia Pacific region at APG, adds. “The larger size gives us more leverage and influence in driving some of the sustainability expectations, which in turn will benefit our clients and our partners.
“We have closer access to the management and the people on the ground, which allows us to craft the sustainability journey with them. That is the advantage of having a larger ticket size,” he says.
Another factor that should become decisive in driving stewardship success is having a local presence and the ability to speak local languages, Basu believes. “The cultural context and the ability to speak the native language always comes in handy, whether it is in Asia, Europe or the US. That is how you can get access to deals which will not be available to someone who is only located in one part of the world”
“What really gives us a lot of bandwidth and credibility is that we are able to nuance our expectations according to the local market, our partners really appreciate that” he says.
Net zero in Asia: new red lines?
A critical reader may now wonder: with no details of the transactions being disclosed, how is one to know whether the money from this infrastructure collaboration is really being deployed to meet both parties’ net zero targets? What is to stop them from investing in coal mines?
With investments being driven by demands from Dutch clients, there are clear red lines, van der Schaft says. Coalmines, for example would not be considered. This is in large part because APG has set itself bold net zero targets. While the 2030 target predominantly focusses on listed assets, in infrastructure and real estate, APG has mapped out concrete expectations around CRREM pathways, GRESB ratings, and impact investing.
In practice, that means the investor tries to focus on assets that meet these criteria. “It is not necessary that every singl deal contributes to either impact or transition but the overall portfolio needs to gradually move in that direction” van der Schaft acknowledges.
“What has been really exciting for the last 18 months or so is that our clients want us to do a lot of impact investing. They have set clear targets around this. ABP, our largest client has earmarked €30bn for a pure play impact investment, €10bn of which will be dedicated to the climate and energy transition. This means that we expect a lot of capital to be deployed” he predicts.
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