investment risk management at apg asset management · 2019. 9. 26. · prepare investment proposal...
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INVESTMENT RISK MANAGEMENT
AT APG ASSET MANAGEMENT
Daniel Notermans, MD Global Investment Risk Management
Dirk-Jan Funken, CFA, Senior Risk Manager
Maria Weitzer, CFA, Senior Risk Manager
September 25, 2019
TABLE OF CONTENTS
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1. APG Asset Management
2. Risk Management Function within APG AM
3. Risk Management for Alternative Investments
at APG AM
1. APG ASSET MANAGEMENT
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Snapshot of APG Asset Management
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Leading global, long-term, responsible investor.
AUM per April 2019
€505 BN
GLOBAL
750 investment
professionals
worldwide
(Amsterdam,
Heerlen, Hong
Kong, New
York)
ESG
Leader in
responsible
investment
practices for
more than a
decade.
SCALE
Part of largest
pension
administrator
in the
Netherlands
and Europe
Clients: Dutch pension funds
Investing for our clients for 25+ years
5
1993-2005 2005-2010 2010-2015 2015-present
• In-house active investor
• Multi-asset
• Global investment strategy
• New York and Amsterdam offices
• Equity platform growth
• Corporate Governance policy
• ‘Ont-zaffing’, Multi-Client
• Reorganized COO, Allocation & Research, Equities platform
• Innovation committee
• Hong Kong office
• Pension fund investing (smart beta)
• Start Transformation
• Implementation Multi Client
• Treasury Center
• Controlled simplicity/ internalized investing
• Structured Quant investing
• ESG focus
• Restructured fiduciary model
• Growth in-house Private-Equity
• Client focused, result driven
• Growth Hong Kong office / LOI E-Fund
Profile: long term, active, in-house investor
Responsible investment policy
6
ESG is an integral part of the processes at APG.
Our investment belief: sustainable investments will outperform in the long-term.
Responsible Investment Policies
Improve risk-adjusted
financial return
Demonstrate
social responsibility
Contribute to the integrity
of financial markets
ESG is an integral part of all
investment cases. ESG compliance is
assessed by both First line and
Second line functions.
Strengthening governance and
oversight at portfolio companies by
exercising our shareholder rights.
Measuring and improving the ESG
performance of our portfolio.
APG actively uses its shareholder
rights (engagement) and enters into
dialogues with companies.
ESG focus is in alignment with our clients: In October 2018 the Dutch Association of Investors for Sustainable
Development (VBDO) awarded our largest fund (ABP) and our second-largest fund (bpfBOUW) the highest
possible five-star rating.
Asset classes in APG portfoliosPortfolios are diversified across a variety of asset classes to generate good, stable
returns in various market environments. Each asset class exhibits a unique level of
complexity that needs to be managed.
Developed
Market
Equities
Commo-
dities
Emerging
Markets
Debt
Inflation-
linked
Bonds
Treasuries
Credits
Emerging
Markets
Equities
Capital Markets
Alternative Investments
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Hedging
Tactical
Asset
Allocation
Strategic
Asset
Allocation
APG AMCLIENTS
Real EstateInfra-
structure
Hedge
Funds
Private
Equity
2. RISK MANAGEMENT FUNCTION
WITHIN APG AM
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Positioning of risk management CFRO/IRM
Gathering & customization of and
reporting on information deliverables
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Strategic Portfolio
Construction
Asset & Liability
Management
1st LINE 2nd LINE
Strategic & Tactical
Overlay
Asset Classes
Treasury and
Trading
Investment
Committee
Information exchange to internal and
external stakeholders via reports,
meetings and Q&A
InformationDeliverables
InformationDeliverables
CFRO/IRM
CFRO/IRM
CFRO/IRM
CFRO/IRM
CFRO/IRM
CFRO/IRM
CFRO/IRM
(R)evolution of risk management
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PAST PRESENT FUTURE
Compliance &
control function
Active &
independent
risk management
function
Further
enhancement of
risk management
framework
Based on CRFO vision, IRM acts as strategic business partner to PM and FM, providing
a “helicopter view”, expert opinion and countervailing voice.
Global team
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Global presence of the risk team matches the global investment mandates of APG AM
• Risk processes and tasks
structured and standardized
taking a global perspective
• Management and collaboration
across borders
• Coordination of asset classes
• Data assurance, quality checks,
and performance management
• Roles: supervising, investigating,
advising / opining, administrating /
reporting
Fiduciary framework
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APG AM
• strategic advisor
and single point of
contact for clients
• independent of
portfolio
management and
risk function
• equally positioned
as portfolio
management and
risk function
• independent,
countervailing and visible
risk function, responsible for
checks & balances towards
the fiduciary and portfolio
management function
• equally positioned as the
fiduciary and portfolio
managment function
• acts within mandate of
fiduciary function
• equally positioned as
fiduciary and risk
function
• responsible for 1st line
risk management
Portfolio management, 2nd line risk and fiduciary function working together respecting each others’ roles
Board + Committees
Executive Office
Fiduciary Management
Client
Risk Management Portfolio Management
IRM current scope of responsibilities
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• Set risk policies and framework
• Review and assess new investment proposals by providing risk advice
• Play active roles in risk committees and committee on investment proposals
• Develop and maintain ongoing risk management and monitoring tools for all asset
classes
• Conduct performance measurement and monitoring
• Conduct operational due diligence on all investment proposals
• Perform investment mandate compliance monitoring
• Conduct risk modeling, model validation and data visualization
• Perform risk management and monitoring on ALM, strategic portfolio construction,
investment decision plan and client risk management
• Conduct risk management and monitoring of ESG and RI related matters
IRM key deliverables
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Process Deliverable
CIP Process Independent risk assessment resulting in
advice report on any new investment proposal
Client Asset Risk opinion on status of an asset class in terms of
Class Review risk, return, costs, investment strategy,
investment pace, client portfolio fit
New Product Independent risk assessment resulting in
Approval Process advice or opinion on new investment
instruments, products or (sub)strategies
Fiduciary Management Risk opinion on fiduciary management advice
Advice Requests
Risk management reporting
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IRM produces regular, comprehensive client and asset class reporting for all
stakeholders involved: Management Board, Portfolio Management, Fiduciary
Management and clients.
Semi-annual asset-class
report
Top-down portfolioanalytics
Manager scoring heat
maps
HFMonthly
Performance(%)
S&P 500TR:
Equity
BarclaysUS Baa
overTreas(%):
Credit
5Y StripReturn(%):
Rates
-4 -2 0 2
-20
-10
0
10
-20 -10 0 10
-10
-5
0
5
10
-10 -5 0 5 10
-4
-2
0
2
4
Data source: APG, NHC, Bloomberg
HF Portfolio & Systematic Factors
3. RISK MANAGEMENT FOR
ALTERNATIVE INVESTMENTS AT
APG AM
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Committee for Investment Proposals (CIP) process
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Identify potential investment and
prepare investment proposal
Portfolio
Management
Risk
Management Legal ESG
Evaluate investment proposal
and provide unconditional,
conditional or negative opinions
Committee on
Investment ProposalsReview proposal and opinions and make
decision about making the investment
1
2
3
Risk management for alternatives
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Some uniform challenges
• Relative complexity and uniqueness of investments and structures
– Need for extensive risk due diligence to understand investment, operational and enterprise risks
– Specialized skills required to analyze certain asset classes
• Portfolio and mandate fit
– Understanding the role of alternatives in the overall portfolio and clients’ appetite for alternatives
• Valuation
– Understanding of manager’s internal valuation policies and procedures
– Independent oversight and reviews
• Liquidity
– Changes in liquidity in normal market conditions vs. times of distress
• Leverage
– Understanding impact of leverage in different asset classes
• Hedging aspects (FX, interest rates)
• ESG and reputational risks
Risk management for alternatives
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Real Assets
• Investing in real assets
Real assets exhibit characteristics that make them a great fit for a pension fund
portfolio:
– Attractive historical returns
– Low correlations to capital markets asset classes
– Longevity of assets
– Income generation in addition to capital gains
• Risk management areas of focus
– Risk profiles of real assets are very diverse
– Market place is highly competitive
– Deal structuring is critical
– Financing and leverage utilization are deal-specific
– ESG and RI
Areas of ongoing development
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• Further development and implementation of second line client risk management and monitoring
framework
• Progressing from performance measurement towards performance analysis
• Implementation and improvement of treasury and trading risk management and monitoring
(best execution, market risk, liquidity risk, counter party credit risk)
• Enhancement of a model validation framework and process
• Further utilisation of risk management and monitoring tools
• Standardisation and calibration of risk identification process
• Further development and implementation of a RI risk monitoring framework
• Maintaining production of high quality deliverables
• Retaining and recruiting the right talent to match the complexities of APG’s risk management
approach
Risk management adding value
• Partner to other business units within APG
– Provide an independent view
– Contribute additional insights due to our unique oversight role
– Bring a “big picture” perspective to discussions
– Serve as an additional advisor to the board of directors
• Benefits to our clients
– Review client and portfolio fit at an early stage
– Review underwriting assumptions on new deals
– Ensure ongoing compliance with mandate and investment guidelines
– Provide an additional level of assurance that the firm acts in clients’ best
interests
– Pension fund clients having more control
• Industry collaboration
– Sharing our views and practices
– ESG leadership
– Deal partnership21
IRM offers a holistic approach and combines high level “helicopter” view with bottoms up
understanding of strategies and asset classes .
THANK YOU!
QUESTIONS?
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General disclaimer
This presentation is for informational purposes only, is current as of the date noted and should not be used or taken as business,
financial, tax, accounting, legal or other advice, or relied upon in substitution for the exercise of your independent judgment. For your
specific situation or where otherwise required, expert advice should be sought. The views expressed above are not necessarily the
views of APG US or any of its affiliates and should not be deemed as a recommendation to purchase or sell any securities or
investments mentioned. Although APG US believes that the information contained above has been obtained from and is based upon
sources APG US believes to be reliable, APG US does not guarantee its accuracy and it may be incomplete or condensed. APG US
makes no representation or warranties of any kind whatsoever in respect of such information. APG US accepts no liability of any kind
for loss arising from the use of the material presented in this publication. Past performance is not indicative of future results.
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