PGGM, the Dutch pension fund asset manager, has created a monster €4 billion property ‘fund of funds’ seeded by around 70 global fund interests owned by its biggest client, Pensioenfonds Zorg en Welzijn (PFZW).
The property vehicle is one of a number of funds that PGGM has created out of the pooled alternative investments of PFZW, for which PGGM manages about €85 billion of assets.
The different funds have been created in the expectation that small stakes will be sold to smaller pension fund clients of PGGM as part of its broader role as asset manager.
PGGM has decided to pool PFZW’s investments to become more efficient, take advantage of economies of scale and get better deals for clients, according to Guido Verhoef, head of private real estate. It was not, he said, a means of decreasing PFZW’s exposure to asset classes.
Verhoef said about 70 property fund interests had been wholly-transferred to the real estate pool, a process itself which presented huge challenges, not least in terms of gaining consent from all the fund managers involved. The process also involved talks with the other LPs in the underlying property funds, resulting in the transfer taking approximately one year to complete.
The rationale to allow smaller pension fund clients to take part in the fund of fund was clear, according to Verhoef, giving them instant exposure to a globally diversified property portfolio. He also said many pension funds were too small to deal with the challenges of the last 18 months or capture opportunities in the future, and that this product offered a solution.
According to market participants, PGGM is not the only large Dutch fund manager that has been working hard to pool the interests of a large client. APG is another firm to take advantage of the structure, with its APG Strategic Real Estate Pool.
Ate Veenstra, a partner in the Netherlands office of law firm Clifford Chance, which has been advising PGGM, said: “What is happening in this market – and PGGM is a leader in this – is that pension funds increasingly are not simply investing on a standalone basis through a discretionary management agreement.
Instead they are trying to achieve economies of scale, and cost and administrative efficiency, so they are investing on a pooled basis instead of buying interests in property funds for each of them separately.”
He added that investing jointly was a particular benefit to smaller pension funds and that the idea of pooling assets was about asset managers being able to serve more than just their main client.
In more recent times PGGM has been winning investment advisory mandates from other pensions, including a reported €2 billion in assets for Aena, the €20 million occupational pension fund for independent artists, sculptors, writers, actors, translators, dancers, music authors, composers and poets.