Dutch pension giant ABP opens HK office

The Ç190 billion institution needs a local presence to handle Asia-oriented investments.
The NetherlandsÆ ABP investments, the largest pension fund in Europe with approximately Ç190 billion ($238 billion) of invested capital (and the worldÆs second largest after the California Public Employees Retirement Scheme), plans to open an investment office in Hong Kong by January.

Robbert Coomans, advisor to the board and head of alternative investments, announced the decision this week at the Macquarie Asian Infrastructure Forum in Hong Kong, organised by AsianInvestor and FinanceAsia magazines.

ABP has already identified the key executives to run the Hong Kong office: Jeroen Schreur will serve as managing director for ABP Investments Asia, while Daan van Aert will serve as senior portfolio manager for real estate.

Coomans says the office will have three functions. The main one is to invest in Asian property assets or exposures. Second is to find opportunities in Asian infrastructure. Third is to select and supervise fund managers for Asian equities.

Coomans participated in a panel discussion of investors and multilateral organisations on Asian infrastructure deals and assets, moderated by Gavin Kerr, incoming CEO for the Macquarie International Infrastructure Fund.

He explained that ABP has invested in infrastructure for the past three years but has yet to participate in funds or projects in Asia. The Hong Kong office will allow it to become more active, and participate in more consortia, but the institution still faces considerable risks by going outside of Europe and North America.

ABP likes infrastructure as a complement to real estate because its cash flows are more stable and projects are resilient during economic downturns. The fund has targeted Ç4 billion for infrastructure worldwide over the next three years.

ôWe want pure infrastructure with no commercial risk,ö Coomans says. He believes projects that face competitors are more appropriately considered as private-equity deals.

One risk in Asia is lack of information or reliable government statistics. In real estate and other fields, ABP is used to 30-year historic data, which it needs given its average liability duration of 18 years. But in some cases, information access is improving, or investors can mine their own data.

Coomans says the biggest risks concern foreign exchange, interest rates and sovereign stability, all of which differ from the US and Europe.

In currency terms, the introduction of the euro eliminated most FX risk in Europe, and sterling and the Scandinavian units are stable. The dollar-euro swap market is well developed and cheap. ôCan you get a 30-year hedge on an Asian currency?ö Coomans asks. The high costs would wipe out expected returns on investment.

The problem is similar for interest-rate risk: there isnÆt a 30-year swap curve for Asian interest rates, at least not one thatÆs affordable. This could be structured against an index, or broken into smaller swaps and rolled over. ôWe mark our liabilities to the market based on interest-rate risk,ö Coomans explains. ôWe need long-term assets.ö

Finally the issue of sovereign risk looms larger in Asia than in Europe and America, as the recent Thai coup and the North Korean nuclear test have demonstrated. ABP already invests in Asian equities but real estate and infrastructure are illiquid and long-term, so sovereign risk will play a role in the firmÆs analysis.

Despite these challenges, the Dutch fund sees huge opportunities in the region. It will act on an opportunistic basis but its new office shows how important the Asian growth story has become to the biggest institutional investors in the West.
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