Dutch pension fund PGGM plans to halt investing in external money managers, including private equity firms, that do not fully disclose their fees, according to a statement by chief investment officer for private markets Ruulke Bagijn.
PGGM will gradually introduce rules laid out in a new set of guidelines, the “PGGM executive guideline for compensation of financial services providers.” By 2020, PGGM intends to stop investing in funds that do not disclose all fees, and will also stop investing in funds whose fees are deemed to be “considerably higher than costs,” according to a report from the Wall Street Journal.
“We are on the side of pension funds and we no longer want to turn a blind eye on difficult subjects like fees and compensation,” Bagijn told the Journal in an interview.
PGGM, which invests on behalf of five pension funds, currently allocates approximately €12 billion of its €200 billion portfolio to private equity, according to data from PEI’s Research and Analytics division.
The Dutch pension has invested between €50 million and €100 million to Black River Food Fund 2, which is managed by the private equity subsidiary of US agribusiness giant Cargill, and was the cornerstone investor in Black River’s first food fund.
When PGGM invested in Fund 2, spokesman Maurice Wilbrink said Black River’s environment, social and governance principles had been a key reason for its investment. “They have the highest standards on ESG policy, practice and reporting, which matches the team’s culture.”
In its new strategy, PGGM requires that: asset managers be transparent regarding their pay and remuneration structures; performance fees only apply in the event of above-average performance that is agreed on in advance; and only basic remuneration be paid for the costs and pay of the management of the asset manager.
“This is not something that can be achieved in the short term, and we realize that we also need this market in the meantime in order to generate returns for a decent pension,” Bagijn noted in the statement. “It is a journey that requires stamina, in which we will focus on undesirable practices and denounce these to the financial services providers and publicly as well.”
PGGM seeks to work with like-minded pensions to “act collectively against unacceptable practices” and plans to expand its own team to internalise investment management activities and thereby reduce costs.
Bagijn’s statement echoes a letter released by a group of 13 US state treasurers and elected city officials late last month, which urged the US Securities and Exchange Commission to require standardised private equity fee disclosures from GPs.
Reporting by Arshiya Khullar.