ABP, the world’s second largest pension fund - manager of the e150bn assets of Holland’s civil service and education sectors - has entered into a strategic alliance with State Street Global Advisors (SSgA) to invest seed capital in fledgling specialist asset management firms.
The deals sees ABP take a third stake in State Street Global Alliance LLC, an operating unit of SSgA.
Jean Frijns, chief investment officer of ABP Investments, comments: “ This is an exciting alliance that gives us direct access to a number of top-performing, highly focused players in pension fund management.”
Frijns adds that the venture also has the aim of fuelling innovation:
“Successful asset management requires constant innovation and we are not so sure that the large institutionalised asset managers are the best breeding grounds for this.
“ We were keen to join this alliance to get successful active asset management – not that we see this as the first sign for becoming an asset manager - because in the first place we are a manager of the assets of our pension funds.”
SSgA set up its Global Alliance unit in 1997 and to date has eight participating companies.
Of these, four investment managers: Advanced Investment Technology (AIT ) – a US quant house, Boston Capital Management – a holding company for Pallada Asset Management – a Russian securities specialist, Rexiter Capital Management – a London based active emerging markets outfit, and The Tuckerman Group – a US real estate firm, will join the ABP/State Street venture.
ABP has also selected the four managers for investment mandates to the fund’s assets – a process it says followed normal due diligence procedure.
The venture capital slant for ABP comes as part of a stronger focus on active investment, under which the fund says it will expand private equity from the present one per cent level to four per cent in the next two to three years.
ABP’s current asset mix of 40% equities, 52% fixed-income and 8% real estate (conservative against the Dutch average) will also shift this year in the hunt for higher investment returns - with equities to rise to 52% and an accent put on structured finance, private equity and credits for the rest of the portfolio.
The fund says it also exploring the possibility of long-term investment into illiquid investments and alternative products through the partnership.
Frijns notes that the investments will be made with their strategic value in mind, but adds:
“ The structure of the alliance allows for visibility on returns and evaluation of liquidity.
“ I expect a return similar to other PE investments."
John Snow, chairman of State Street Global Alliance, says the partnership will be open-ended in terms of capital allocation – investing as and when opportunities arise, but
adds that average strategic capital input in a firm will be in the order of US$5-10m.
State Street, he says, will also benefit from the alliance by using ABP as a sounding board for its own product development for European institutional clients.
Frijns says ABP decided to do the private equity outside of the NIB capital private equity joint venture with PGGM, due to its strategic nature.
“ We briefly discussed this with PGGM but they were busy with other issues so we decided to press ahead with this as soon as we could.”
While there are no plans as yet to expand the partnership, Frijns says he will discuss the issue with other pension funds in Holland.
“ We will certainly bring this to the attention of our colleagues in Holland and I hope they will be interested.”
Suzanne Brenna and Jay Cromarty, senior members of the SSgA Global Alliance team, will join the new venture’s management team.
Jelle Mensonides, member of the board of directors of ABP Investments will also join the non-executive board of the alliance.