Hartwig Liersch (pictured), chief investment officer at Pensioenfonds Metaal & Techniek (PMT), tells Tjibbe Hoekstra how the largest private market pension fund in the Netherlands is looking to strengthen its investment policy to address the climate crisis

Hartwig Liersch

Pensioenfonds Metaal & Techniek (PMT) is the largest private sector pension fund in the Netherlands with €97.4bn in assets under management. But it probably is the most diverse scheme in the country when it comes to its membership. The fund’s 34,000 small to medium-sized employers span a large variety of industries ranging from plumbing firms to car dealers. 

This distinguishes PMT from its smaller sister fund, PME, which caters for several large listed technology firms, including chip machine maker ASML and semiconductor producer NXP. PMT co-owns their joint asset manager MN together with PME, which recently made headlines because of its landmark decision to divest from fossil fuels. 

PMT is currently evaluating its sustainability policy, and is yet to decide whether it will follow  PME’s example and divest from fossil fuels, according to Hartwig Liersch, chief investment officer at PMT. 

While a vocal part of PMT’s membership, notably younger workers of ASML and NXP, had been pressuring PME to reconsider its investments in fossil fuels for some time, this has so far not been an issue with PMT’s membership. “The backbone of our membership are small and medium enterprises, and we have never been confronted with activist members criticising our investment policies or anything like that,” says Liersch, who is a German, in his soft, slightly accented Dutch (see panel).

The absence of activism among members notwithstanding, Liersch clearly feels a sense of urgency in addressing the climate crisis in PMT’s investment policy. He says: “We send a survey to our members each year and organise focus groups to speak with members about their preferences when it comes to our investment policy, and so far these surveys haven’t revealed an appetite among them to exclude investments in fossil fuels. 

A career journey that began with the heart

Hartwig Liersch makes a rather striking figure as a non-Dutch pension fund executive, perhaps even the only one around.

So how did Liersch, raised in the German town of Hamm (next to Dortmund), end up as chief investment officer at PMT? The answer is simple: love. Not for pensions, though, but for a Dutch woman. “We met at a Spanish language course in Granada in the 1990s,” he says.

When Liersch was looking for his first job in 1998, it turned out that it was much easier to find work in the Netherlands as a finance graduate than in his native Germany. “It was around the time of the dotcom hype, and Dutch retail investors were frantically ploughing money into stocks,” he explains. “Because of this, all Dutch banks were looking for investment analysts. In Germany, this was much less the case,” 

So Liersch moved to Utrecht where he still lives happily with his wife and two sons. 

After more than a decade in various jobs at ING, the financial crisis triggered his interest in the pensions sector. “I had been involved in balance sheet and liquidity management for a while, and after studying the balance sheets of some of the large pension funds I realised they were not all that different from bank balance sheets,” he says.

Eventually, Liersch found a job as a risk manager at PMT in 2010. He was promoted to chief investment officer in 2017. 

“Most of our members indicate that they, first and foremost, want a good return on their investments, and that they do not want us to exclude entire sectors. One of the things I remember best from the conversations I’ve had with members in recent years, is several people saying ‘I’m opposed to excluding any sectors because every sector has good and bad companies’.”

But members’ attitudes may have changed after a summer filled with devastating natural catastrophes driven by climate change, he adds. “Our investments in fossil fuels will definitely be the main theme of our member survey this year. What’s clear to me is that we need to up our game regardless of the outcome of the survey. We need to do more, but whether that will take the form of more exclusions or more engagement with companies remains to be seen,” Liersch says. “But,” he adds, “PME’s decision to divest from fossil fuels is helpful, because it has shown that divestment is a real threat for these firms and it could stimulate them to take investor concerns more seriously.”

Although Liersch is convinced that PMT should sharpen its sustainability profile further, the pension fund has already come a long way since his promotion to CIO in 2017. 

The fund, which has a largely passive investment style, introduced a bespoke developed equity benchmark based on MSCI’s

ESG ratings in 2018, for example. “We now only select companies that have at least a BBB [ESG] rating,” Liersch says. “This way we exclude almost half the companies in the investable universe.” The pension fund uses a similar approach for its investment-grade bond portfolio.

“Our investments in fossil fuels will definitely be the main theme of our member survey this year.  We need to do more, but whether that will take the form of more exclusions or more engagement with companies remains to be seen”

Since the beginning of this year, PMT also uses MSCI’s ESG rating filter for emerging market (EM) equities, although Liersch acknowledges that the ratings of EM companies tend to be less reliable because of a general lack of ESG reporting in the asset class. “Taking into account that state-owned enterprises [SOEs] tend to score less well on ESG, and striving for consistency throughout the portfolio, we have decided to exclude state-owned enterprises in 27 countries that do not meet our minimum criteria. We consider an enterprise as an SOE where a government has more than 10% of voting rights.”

Liersch says he was “really happy” with this innovation at the start, although he feels the goal posts have been moved since. “Now we want to do more. Ten years ago, investing was all about the trade-off between risk and return. Right now, it’s more about how you want to achieve the return you want. I find that much more interesting, because there are so many different ways to achieve that return, especially for passive investors like us.”

This year, PMT added an another filter to its equity portfolio to reduce carbon emissions. “We removed the 20% of companies with the worst MSCI Carbon Transition Score,” Liersch says.

But he doesn’t want it to stop there: “We are currently investigating how we can emphasise certain priorities, and possibly concentrate on certain themes while remaining a passive, rule-based investor.” To be able to do this, Liersch would like to have a more granular set of company-level ESG data. “In our current arrangement with MSCI,  certain bad aspects of a company’s performance can be compensated with good performance in another ESG-related area. It would be better if we could break up the MSCI ESG score in parts.”  

Pensioenfonds Metaal & Techniek (PMT) at a glance

While PMT wants to make further strides in creating a more sustainable equity portfolio, it is a frontrunner in an asset class where  most investors find it hard to invest according to ESG criteria – emerging market debt (EMD). Two years ago, PMT implemented a bespoke index for EMD government bonds, which it had developed in co-operation with its asset manager MN. The index excludes 40% of the regular JP Morgan EMBI index. While PMT has eliminated a few countries because it finds their bond yields too low to achieve the required return in the long term, the bulk of the 27 EM countries that are not part of the index get an insufficient score on one or more of three criteria: corruption; vulnerability to climate change; and competitiveness. According to PMT, the risk profile of the bespoke index is significantly lower than that of the original index.

According to Liersch, however, PMT’s ESG-adjusted equity and bond indices do not necessarily produce better returns than regular, asset-weighted indices. “Right now, we still compare our returns with those of regular benchmarks, but now that we have seen that returns are similar, the question is how long we need to continue doing that. After all, we have made these choices for principal reasons, not because we thought returns would improve.”

“Ten years ago, investing was all about the trade-off between risk and return. Right now it’s more about how you want to achieve the return you want. I find that much more interesting”

Internationally, how to green their portfolios is the most urgent question pension funds are facing. In the Netherlands, though, this issue is perhaps being overshadowed by the upcoming transition to a DC-based pension system. Partly in anticipation of the pension reform, PMT has made some major changes to its strategic asset allocation this year. 

“We have increased our interest rate hedge from 50% to 60%, because we want to keep our funding ratio around 100% in order to be able to make a smooth transition to the new pension system,” explains Liersch. “On the other hand, the return portfolio has a more prominent place in the new system, so we’ve increased the weighting of our return portfolio from 50% to 57.5% by adding to our positions in real estate and infrastructure debt while reducing our exposure to government bonds.” 

The CIO says that he is comfortable with increasing the allocation to illiquid assets, as PMT has instructed its asset manager MN to concentrate on investments in brownfield assets with stable cashflows that are relatively low-risk. 

“We don’t want our returns in infrastructure and real estate to come from valuation increases,” notes Liersch. “We did own that kind of [real estate] investment in the US, but we’ve sold our underlying managers there and will build our US portfolio anew. In Europe and the Netherlands we already invest mostly in residential assets, but also in offices and retail. “So here, the profile of our portfolio will not change but we are eyeing incremental increases.” 

What will change, though, is that PMT will also introduce ESG criteria in its real estate portfolio. “We will formulate goals for CO2 reduction of our real estate assets and we want new investments to meet certain minimum criteria on ESG. But this process is still in the works.”