APG real assets head favors RE allocation increase to 15% – Exclusive

In an interview with PERE in celebration of his Lifetime Achievement Award win, Patrick Kanters recommended the Dutch pension manager increase its exposure to bricks and mortar from its current range of 10-12%.

The global head of real assets at one of the world’s largest real estate investors has suggested it raise its allocation to real estate to 15 percent, adding weight to mounting views that institutional allocations to bricks and mortar have some way to grow.

Most institutional investors have targeted or realized allocations to property of around 10 percent – although many remain under-allocated – but the strong performance of real estate relative to other asset classes, as well as the growing sophistication of the sector, have led to rising support of even larger allocations to real estate.

Patrick Kanters recently sat down with PERE for an exclusive interview that was conducted in celebration of his winning of PERE’s Lifetime Achievement Award, the one category within PERE’s annual Global Awards chosen at the discretion of the PERE editorial team. Kanters, who leads the real assets division of APG Asset Management, the pension manager responsible for investing the contributions of approximately 2.6 million beneficiaries working for around 40,000 employers, told PERE there would be grounds for the increase from the manager’s current allocation, a range of 10-12 percent. He noted that such an increase should lead to higher absolute returns for pensioners.

Kanters, who joined APG in 2005 and today presides over a team of about 40 real estate professionals responsible for an asset base of about $45 billion, was instrumental in increasing the manager’s allocation once before – an increase from 8-9 percent before the global financial crisis.

Over Kanters’ 30-year career so far, he has led APG to the number two spot on PERE’s Investor 50 ranking of institutional investors by capital invested in private real estate markets, behind only the Abu Dhabi Investment Authority, an investor which has invested large quantities of equity in the market for considerably longer. ADIA’s total capital committed stood at approximately $47 billion, according to the ranking.

Kanters said: “Being in the top two or three in the rankings is not a goal in itself. But being in the top five or 10 does allow us access to opportunities that would not be available to everybody.”

Under Kanters’ watch, APG, like ADIA, has switched its investing model to favor larger, often direct commitments made via joint ventures or club deals over blind pool commitments, although the latter do still figure into APG’s investments where appropriate. At the height of its blind pool investment activity, APG managed a portfolio of about 150 investments, reflecting capital commitments as small as €50 million. Today, the manager has fewer than 50 investments ranging from €200 million to €1 billion in size.

These investments have performed well, too. Between 2009 and 2015, as the market was coming out of the global financial crisis, APG averaged a 19.4 percent return, outperforming the industry benchmark by almost 10 percent for the period. Subsequently, Kanters was asked to oversee the manager’s infrastructure investments too, which today extend to around €11 billion in value.

However, Kanters did warn that such a high performance should not be expected in the near to medium term. “Going forward, we definitely expect lower returns in real estate. That does not make it less attractive as an asset class, but we have to manage expectations because we have been in an unusual environment where interest rates have declined for 20 or 30 years.”

Click here to read the interview in full.