Yield Hunt Sees $475 Billion Pension Manager Bet on Quants

  • APG develops quantitative strategies to help cushion low rates
  • Simply focusing on cutting costs such as fees won’t be enough

Dutch pension-fund manager APG Asset Management NV is developing quantitative strategies with a group of hedge funds and aims to manage more assets on its own to save fees and help cushion the impact of low rates.

“There are a lot of hedge-fund strategies out there and some really make sense to us, especially if they are uncorrelated to capital markets,” Gert Dijkstra, the head of strategy at APG, said in an interview at a conference in Frankfurt on Thursday. The firm invests “in quantitative and factor-based strategies, most of them we will develop internally, but we’re also using a group of hedge funds for that,” he said.

APG is using New Holland Capital in New York as an adviser to help it pick managers from the $3 trillion hedge funds industry, he said, adding that the pension-fund manager aims to reduce the business it hands out to third-party asset managers to help it save fees. Quant funds use computer algorithms to make money.

“We invest in developing software and intellectual capabilities in-house to use more quantitative strategies,” Dijkstra said. “As a side effect, they are also cost effective.”

In-House Team

The company overseas 444 billion euros ($475 billion) of assets. About 25 percent of those are managed externally and APG aims to bring that down to help it save on fees, Dijkstra said. It has already built an in-house private-equity team.

APG’s hedge-fund portfolio was set up on January 1, 2010. Since then, the fund has achieved an average annual return of 11 percent in euros, according to the company’s website. Relative value/arbitrage accounts for 46 percent of the assets in its fund, while equity-driven strategies make up 20 percent.

APG’s clients include its owner ABP, the largest Dutch pension fund. Retirement funds in the Netherlands are the euro area’s biggest pension industry. Quantitative easing and ultra-low bond yields as well as increasing life expectations have left pension managers from Europe to Japan facing a growing shortfall in funds to cover payouts to future retirees. 

“We are looking towards all kinds of uncorrelated investments, such as insurance portfolios, as a way to come out of the tremendous low interest-rate area that we are in,” Dijkstra said. APG has invested in catastrophe bonds, which insurers sell to investors to spread some of their biggest risks, for a while. Other examples of uncorrelated insurance portfolios are closed books of non-life and life insurance.

To narrow the gap between liabilities for future payments and funds, pension fund managers can either seek to boost returns by buying less liquid or riskier assets, delaying or cutting payouts, or tapping their sponsoring companies or institutions for additional funding.

“A lot of pensions funds are fully focusing on costs at the moment,” Dijkstra said. “I’m not a believer in cost-efficiency as the sole core of your long-term investing program.”

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