ABP, the €356bn pension fund for Dutch civil servants, has broken ranks with other large pension funds in the Netherlands after suggesting it has accepted the relatively high fees associated with private equity.
Eduard van Gelderen, CIO at ABP asset manager APG, said the pension fund had resigned itself to paying higher fees for exposure to the asset class.
“A small number of successful private equity managers are in a position to demand high fees,” he told Dutch financial news daily Het Financieele Dagblad (FD).
“If we don’t pay those fees, they don’t invest our assets. So, either we must fully withdraw from the asset class – and miss out on the returns as a consequence – or we must accept the cost level.”
The larger pension funds in the Netherlands have come under pressure from the public to rein in costs for investments in non-listed companies, while the high bonuses received by private equity managers have also drawn fire.
PFZW, the €166bn pension fund for the healthcare sector, and its asset manager PGGM have made clear their aim to cut private equity fees at all costs.
PGGM has even established a 15-strong private equity team for this purpose.
Last year, ABP paid more than €500m in bonuses to private equity managers.
Erik van Houwelingen, a board member at ABP, conceded that the issue of bonuses was “difficult” for the pension fund as well.
“But, as long the fees are linked to pension-enhancing performance, I can justify these costs,” he told the FD.
Over the course of 2014, ABP’s 5.1% private equity allocation returned 23.3%.
Over the last 10 years, the asset class has returned 14.9% on average for the scheme, while equity has returned 7.3% on average.
Van Gelderen stressed that APG was not thinking to manage private equity investments on its own, “as this would require expertise we don’t have”.
He added, however, that the asset manager took pains to reduce private equity costs through manager selection and co-investments.
In other news, ABP has divested from Netherlands-based Mylan after engagement with the pharmaceutical company – over the use of Rocuronium Bromide for capital punishment in the US – proved “unsuccessful”.
Van Houwelingen said Mylan refused to take steps to prevent its muscle relaxant from being used in executions.
In a statement, Mylan said its products were meant to be used “in compliance with approved labelling and applicable care standards”.
It said it did not directly supply the drug to prisons and that it had “no knowledge of its use for lethal injections”.
The Dutch Ministry of Foreign Affairs, however, said it had shown Mylan pictures – obtained by UK human rights organisation Reprieve – from the Virginia Department of Corrections showing that the department was stocking the disputed drug.
The US state still carries out the death penalty.