APG Asset Management, the €301bn Dutch pension asset management firm owned by the civil service fund ABP, is to fully implement in the coming months an innovative, strongly ESG orientated internal investment fund worth €2bn. The European Focus Fund Strategy, which was kicked off under wraps in 2011, involves the pensions manager finalising a highly concentrated stock fund of 30 companies where it will take large stakes of between 5-10% of company capital. Steve Lister, Head of Focus Equities at APG Asset Management is running the fund. By the end of 2011, Lister’s team had invested in 10 companies and are currently selecting the remaining companies that will make up the portfolio. APG, which invests 80% of its assets in-house, said the fund’s research starts with a large universe of potential companies and then narrows that down using a series of filters that enable a deep fundamental analysis of the stocks on an ESG basis. Claudia Kruse, Head of Governance & Sustainability at APG, said the aim of the fund was to find financially interesting companies with a strong ESG theme. Kruse said the manager also carried out some “active engagement” with the company before and after the buying of the stock. She noted, however, that the fund was not looking to turn around poor companies or try to improve performance through engagement. The fund also has filters for ethical problems that sees it exclude investment in potential companies. Kruse said it had already eschewed the buying of one company’s shares for labour issues, another for staff turnover and board problems andanother because of concerns over the shareholder structure.
APG’s Dutch pension fund management peer, PGGM, runs a similarly focused ESG fund, its €3bn+ responsible equity portfolio, which has a concentrated portfolio of 15-20 long-term holdings based on sustainability research and active ownership. This week, APG issued its new responsible investment report for 2011 (currently in Dutch only with an English version expected in July). The report looks at ESG integration across asset classes at the firm. In fixed income, the pensions manager said it had hired a new investment specialist to develop a quant strategy for ESG analysis. APG has a policy of not investing in the bonds of countries under an arms embargo. Kruse says the firm is working on an ESG approach for credit that is not the same as for equities and hopes to have a strategy in place by next year. For alternative assets, APG says that all external asset managers hired for mandates must pass an ESG approval hurdle on issues such as corporate governance, alignment of interest, key-man risk, or on meeting International Finance Corporation (IFC) sustainability standards for investment in emerging markets. Kruse said the standards were strategy specific for different hedge fund strategies. The report also lays out APG’s strategy on investor engagement. It includes examples of companies where the manager’s discussion with companies has influenced whether it under-weights or over-weights a stock, notably in the oil sector at companies such as Total, Shell and BP.