Who is or was your biggest mentor in pensions and investments and why?
Lots of different people can teach. I’d like to name three, if I may. First, Dick de Beus, who used to run PGGM and as chief executive officer hired me in 1997 to run PGGM investments and join the board. He gave me my introduction to the pensions industry, and it is an industry that I like. On the one hand, you are investing to make people secure in old age and on the other, you are dealing with the dynamics and intensity of capital markets. I like the dual focus.
The second is [former CIO of ABP] Jean Frijns with whom I spent lots of time on various matters such as a joint corporate governance strategy for ABP and PGGM and the sale of Nationale Investeringsbank (NIB), a Dutch investment bank that specialises in raising capital and structured financing. My job is to build on his shoulders, then move onto the next phase of development for ABP Investments.
The third person would be Aad Jacobs, who used to be chairman of ING and before that ran ING Asset Management. From him I learned to take the long-term view and not to be afraid of risk or concentrated investments.
Who do you most admire in the industry and why?
Warren Buffett for his fundamental approach and long-term views. He puts his money where his mouth is and the results are great, although it is more how he has achieved them than the figures per se.
ABP and Berkshire Hathaway are both very big in terms of assets and both take the long view. They are both heavily invested in insurance companies and catastrophe bonds. But I wouldn’t like to go up against Buffett.
What event, good or bad, has influenced how you approach your present role?
Crises in general. Why? Because they are a chance to learn and they also present opportunities from which to benefit. In the current liquidity crisis, for instance, the banks don’t seem to know what risks the others have. We’ll find out more when the third-quarter figures come out. How credit markets are bearing up and how you cope with that teaches you a lot about
yourself. I’ve been in this field for 20 years now. I’ve seen crises before - Russia, Asia - but some of the younger guys in our dealing-room have not. They have only known bull markets.
We’re now deploying some market strategies that were on idle. Perhaps there is a bit more pain; we don’t like markets going down. But we do like the rise in risk premiums. We also have real money assets rather than leverage, which we like. So after the rain, there is always sunshine for long-term investors.
Which writers’ or economists’ books have influenced you the most?
David Swensen’s Pioneering Portfolio Management and Peter Bernstein’s Against the Gods: The Remarkable Story of Risk. The former is still a worthwhile guide on how to set and maintain an investment strategy. I think it would be dangerous for pension funds to just copy and paste Swensen’s writing. After all, he focused on what his fund’s purpose was. But it is useful to consider how he did what he did.
Against the Gods is a nice concise history of risk though the ages. I like the way Bernstein relates it to chance. Too many people in financial markets nowadays are trained to see risk as merely volatility, ie price movements. Risk is also about fat tails; and risk can be beneficial. Generally I think there is too much risk avoidance right now throughout society. People want to be certain but if you run no risk, you are lowering expectations. People should be looking to manage risk rather than shy away from it. The behavioural trends we see in the markets are investors herding together. Perhaps ABP’s
behaviour can balance that out a bit.
is a nice concise history of risk though the ages. I like the way Bernstein relates it to chance. Too many people in financial markets nowadays are trained to see risk as merely volatility, ie price movements. Risk is also about fat tails; and risk can be beneficial. Generally I think there is too much risk avoidance right now throughout society. People want to be certain but if you run no risk, you are lowering expectations. People should be looking to manage risk rather than shy away from it. The behavioural trends we see in the markets are investors herding together. Perhaps ABP’s behaviour can balance that out a bit.
What is your investment philosophy?
Make yours a clear purpose. At ABP our reason for investment is to provide our participants with an attractive and affordable pension. We take our liabilities as inflation over the long run, which means we are looking for long-term real returns. This is not the same as outperforming MSCI Global Equities. I sometimes have difficulties getting that difference across to people.
ABP Investments’ purpose is not to outperform public benchmarks. Nor it is to buy inflation-linked bonds, which are not attractive right now. Prospects like infrastructure, however, may very well be. We are building a portfolio that fits our liabilities.
We can leverage our size, we can leverage the knowledge of our in-house team and because we have offices worldwide, we don’t have to fix on just Europe or just the US. I guess that’s a philosophy for the Norwegian State Fund or CalPERS too, but not for every fund.
What are the most important challenges facing the industry?
Short-termism. Too many people are trying to beat their quarterly benchmarks. We are very long term.
We can very well live with the new Dutch pension regulations, the FTK since the recovery period has been extended from 12 months to three years. There is an abundance of rules in financial services, however, and the threat is always around the corner that business will get stifled and both investment and economic growth may be hampered.
I’m glad that in the Netherlands we’ve retained a principles-based code for investments rather than a prescriptive book or rules. We Dutch have a good process, which is not always there in Anglo-Saxon countries, where we look to debate and reach a consensus on issues. That’s why I’m positive on the Dutch investment industry. Of course, ABP is a major player in that industry and you are speaking to a proud man at the helm.