PGGM, a Dutch pension asset manager, is in discussions about terminating its services with its non-PFZW clients, who have sought legal advice on the matter.
The decision to focus asset management solely on its largest client Zorg & Welzijn (PFZW) comes shortly after the €277bn healthcare scheme had told PGGM it no longer wants to invest in pooled funds together with PGGM’s other asset management clients.
These include the scheme for the painting sector Schilders, Smurfit Kappa and the fund for general practitioners Huisartsen.
PGGM was founded in 2007 as a pension administration and asset management spin-off of healthcare sector scheme PFZW. It has since acquired additional clients for both pension administration and asset management services, though the bulk of its revenues continue to be linked to PFZW.
“As a result of PFZW’s choice [to opt out from pooled funds], PGGM will no longer be able to provide the benefits of these investment funds to other participants, when it comes to costs and economies of scale. That’s why PGGM has decided to enter into conversations with its clients about the termination of asset management services provision,” said PGGM.
The firm currently runs pooled funds for credit, equity and emerging market debt, as well as for private market investments including real estate and infrastructure.
PFZW wants to get rid of its investments in pooled funds because investing directly makes its easier to implement its sustainable investment policy, a spokesperson told IPE.
“We have noticed agility is becoming ever more important in our investment process. Within the structure of a pooled investment fund, where you always need to coordinate investment decisions with other participants, it’s more difficult to act speedily,” she added.
PGGM is the exclusive asset manager for Schilders and Smurfit Kappa, and also manages money for Huisartsen, Particuliere Beveiliging and Architectenbureaus. It’s not yet clear when and how PGGM will phase out its other asset management clients.
“We will decide on the timeline together with our clients,” PGGM said. A spokesperson added PGGM strives to close the pooled fund for listed investments by the end of this year, and that it is still looking at the options for its private market funds.
PGGM will also terminate its fiduciary management activities for its clients other than PFZW.
Dick Vis, president of the Schilders pension fund, said his fund has “in principle” found a replacement for PGGM, but he declined to reveal the name of the fund’s likely new fiduciary manager.
Meanwhile, Vis expects to continue with its investment in the PGGM Infrastructure Fund. “This is a strategic investment that we cannot easily convert to another manager,” he said.
According to Vis, it’s “quite unique” that PGGM has signalled it wants to terminate its services to Schilders. He said: “Usually the initiative for this kind of thing comes from a pension fund, not from an asset manager.”
PGGM building value decreases
PGGM’s net profits decreased to €20.9m from €29m in 2020 due to a negative adjustment of the value of PGGM’s headquarters to the tune of €12.4m.
The reason was a decrease in (expected) usage due to the rise of hybrid working and because of “developments on the office market”.
PGGM’s headquarters is situated at a peripheral location in a forest near the town of Zeist, and is very hard to reach by public transport.
PGGM is also the fiduciary manager of pension fund Smurfit Kappa. “We are looking frantically for a new partner and are in talks with two candidates now,” said the fund’s director Marco Kiewiet.
Kiewiet noted that Smurfit Kappa would have preferred to stay with PGGM. He said: “Because of economies of scale we benefit from significant cost advantages with them. On the other hand I also understand PGGM’s decision. But for us it’s important we don’t suffer financial damage from this decision if we are forced to exit these investment funds. We need to represent the interests of our members.”
Smurfit Kappa has, together with the other affected pension funds, consulted lawyers at Houthoff Buruma.
“Together you’re stronger and for now our interests in this case also match,” said Kiewiet. He wondered whether it was practically possible to terminate services for the liquid investment funds by the end of 2022.
According to Kiewiet, PGGM has the right to terminate the agreement, but cannot force an exit of any participating pension funds.
Huisartsen’s chief investment officer Pieter de Graaf also said he is happy with his fund’s participation in PGGM’s infrastructure and real estate funds. He said: “It is nice to invest in this way together with like-minded investors.”
The fact that several pension funds consulted lawyers about the issue has damaged the reputation of PGGM, it is concluded in the firm’s annual report.
The same goes for the pension funds that are affected, said Smurfit Kappa’s Kiewiet. “The risks we run in this case include the transition risk and the question whether we will be able to find similar funds. We have shared our risk analysis with [regulator] DNB.”