Private equity powers PGGM above benchmark

Demography was the catalyst for investment policy rethink.

PGGM, a big Dutch pension fund, beat the WM Company’s weighted average benchmark as a result of its investments in private equity.

PGGM returned 3.4 per cent, 0.8 per cent more than the median Dutch fund return of 2.6 per cent. Ellen Habermehl, a spokeswoman for PGGM, said that private equity had helped boost these returns.

“We decided to put more into private equity as a result of an asset liability management (ALM) study in 2000,” said Habermehl. “And it has given us large profits.”

The ALM study showed PGGM that private equity investment suited the structure of its fund. “We have lots of people still working and not many taking pensions,” said Habermehl. “So the demography fits with this kind of investing.”

PGGM found that it had roughly 10 years before it would have to start paying out lot of pensions, a window of opportunity ideally suited to investment in private companies. The pension fund has increased the amount it invests in the alternative asset class to 7.5 per cent, and could go as high as 10 per cent.

But PGGM’s results may not encourage other pension funds to follow it into private equity. “It really depends on the individual fund structure – how much they are paying out in pensions,” said Habermehl. “If 10 different funds were to do the same ALM study, they would get 10 different sets of results.” However, funds are facing bigger payouts in the long run as the European population ages. “It’s the same across Europe,” said Habermehl. “Pensions are a big issue in the EU.”

PGGM has about E50bn of assets. It invests in private equity through NIB Capital, a daughter company it set up alongside ABP, another Dutch pension fund. NIB Capital has committed assets of E13.5bn and invested assets of E5bn. It is considering whether to invest in JP Morgan Chase’s planned E13.9bn private equity fund, which, if successful, would be the world’s biggest.