How to build your own €8bn portfolio

From hydro to India, APG Europe head Ron Boots takes Matthieu Favas through an 11-year journey of tailored solutions to achieve the kind of scale that befits one of the world’s largest pensions.

Amsterdam is a feat of engineering. Its architectural prowess is not new, as attested by its intricate networks of canals, charming gable facades and ubiquitous cycle paths. A more modern incarnation of the city’s building nous, however, is evident in Zuidas – also known as the “Financial Mile” – a fast expanding business district that takes its inspiration from the steel-and-glass towers of Paris’ La Défense and London’s Canary Wharf.

But it is from the 24th floor of one of them that one grasps the true scale of Zuidas’ ambitions. For the district’s transformational nature does not lie so much in its aesthetics as in the infrastructure that comes attached to it: the area is due to host Amsterdam’s second-largest train station, with high-speed rail links to Schiphol Airport, Rotterdam, Antwerp, Brussels, and Paris; it will soon have improved connections to the rest of the city through new underground lines. A road axis, the ring-A10, might soon be put in a tunnel (a project estimated at €2 billion).

One can only guess how much busier the area will be once all of these projects are complete. But my busy thoughts are soon interrupted by Ron Boots, coming in from a photo shoot even higher up in the building to start our interview. The mild-mannered, affable European infrastructure chief of APG Asset Management pours himself a glass of water, and soon enough takes me through the pension fund administrator’s strategy for navigating today’s turbulent times.

He starts from the very foundations. In the early 2000s, Boots moved from NIBC to the offices of ABP, the pension fund which manages the savings of about one in six Dutch people, as part of the institution’s fixed income team. A few years later, he was asked to make an internal switch to look after a new project: the creation of a dedicated infrastructure unit. “We had to start the supporting research to see what infrastructure would really bring to our clients’ portfolios. And since then we have built a team,” Boots says.

That understatement omits more than a decade of hard work, with APG, an asset manager wholly owned by ABP, expected to count an infrastructure team of 20 by end of this year. The organisation has also become global: Europe only hosts half of the staff, with five based in New York and four in Hong Kong. Crucially, it has become one of the world’s largest infrastructure investors, managing a portfolio of about €8 billion split across Europe, Asia and America (in proportions roughly in line with the regions’ headcounts).

Infrastructure is growing more popular within APG and among its clients. The €428 billion institution, which started off with a 2 percent allocation to the asset class, is now aiming for 3 percent. And here lies APG’s challenge. “Twenty people seems a lot, but it’s relatively small for one of the largest global mandates,” Boots notes, comparing to the dozens employed at fund managers like Brookfield Asset Management or Global Infrastructure Partners. “Bear in mind that we have to grow our infrastructure portfolio by €4-5 billion on a net basis going forward.”

The constraints that creates are obvious: APG simply can’t afford to go around and invest millions bit by bit. A rule of thumb, Boots say, is a minimum €150 million equity cheque, with a preference for commitments of €300-€500 million. In a world where large assets are scarce and heavily competed for – and where successful global managers increasingly raise funds on their own terms – deploying such tickets in one go is no easy feat. How is APG squaring the circle?


Like most of its peers – though earlier than many – APG first built its exposure to infrastructure by investing in funds. The first manager to be entrusted with the pension’s money was Australia’s Macquarie Group, Boots says, through its €1.5 billion inaugural European vehicle. Macquarie European Infrastructure Fund 1 is now close to fully liquidated, with Brussels Airport its sole remaining asset.

APG, however, is not your average limited partner. “Initially we’ve made substantial fund commitments, and commitments where we had an option to stay at a certain level within the fund, so not committing €50 million or €100 million and that’s it. If the fund is full, we also agreed that we would have the possibility to stay above a certain threshold, be it 10 percent or 20 percent of the fund. We also want to be able to govern the fund and be involved in critical decisions. If there were investment criteria breaches or hurdles passed, for instance, we would want to have a seat at the table,” Boots says.

The institution has also made a couple of co-investments – and sizeable ones at that. The first was Thames Water, closed at the end of 2006. “We’ve been a happy holder of the asset for nearly 10 years, and now there’s a process coming up,” says Boots, referring to the 26 percent stake of the UK water utility Macquarie Group is looking to sell. Depending on the valuation the process assigns to the asset, APG might sell its share or hang on to it, he explains. “And if there’s still value on the table, we may expand our stake.”

The rationale for this is simple, he says. “In the current market, there’s more buyers than sellers. It’s challenging to lay your hands on the assets you want. If you’re familiar with an asset and you have the opportunity to top up and grow it, it’s relatively easy. In terms of managing it and governing it, it doesn’t really matter whether you have a position of €100 million or €500 million.”

He suggests, however, that APG’s co-investors in Thames Water “are looking at the same thing”. “If you accept an asset being sold and you get you cash back, you have to find something else”. Cost efficiency is also part of the equation: buying into something you already know does not require you to “do your homework all over again”. What’s more, Boots says, as an asset reaches a certain level of maturity, general partners are more prone to lower their fees.

But financial factors are not the only ones that have driven APG from fund commitments to co-investments, and then from co-investments to direct equity injections. “Our objective here is to really be in control – of our investments, of where our capital goes and of the way the asset is governed. Once we go direct, we generally take a board seat ourselves.”

For all this, APG still relies on fund managers for an important part of its investment remit: public-private partnerships. “The segment is stable, sometimes regulated, and if you have a good manager then it runs forever. But we can’t do it equity ticket by equity ticket, gathering bits of a couple of millions here and there. So we need someone on our behalf to go out, screen the market and build exposure.” That’s what APG’s relationship with Aberdeen Asset Management, structured through two separate accounts worth a few hundred million euros, is meant to achieve.

“They come to us, say, with a PPP portfolio in Spain, tell us the specifics, the expected returns and the amount of equity required. If that fits our mandate, then we tell them to go ahead,” Boots says.


But again, APG has shown it can be creative. In 2014, Aberdeen, on behalf of the institution, acquired the first vehicle of Dutch fund manager DIF wholesale – laying its hands on a mature bundle of 16 assets operating in the education, healthcare, leisure, transport and government accommodation sectors across Europe. “It was a bit of work to review the portfolio, but we knew DIF well and had visibility on the underlying assets. It was a fantastic opportunity.” With DIF II now for sale, APG may well do it again, “depending on what we can handle”, says Boots.

Still, APG has made it a priority to move away from funds. Two years ago, Boots explained, the institution had 80 percent of its capital in blind-pool vehicles, with 20 percent committed to direct investments. It’s now working on reversing the ratio. “It will take a while, but the direction is clear.”

Another structure APG helped pioneer are sector-specific platforms, where the institution partners with a specialised fund manager to build on a set of seed assets through add-on acquisitions and organic growth. A concrete example of this strategy is APG’s two-year-old tie-up with Germany’s Aquila Capital, through which the two co-investors aim to deploy €500 million into operational and greenfield hydro plants.

“This mandate is filling more rapidly than expected. Once it is full, we might top it up and make it bigger,” Boots says. The platform meets the demands of some of APG’s clients, which amid rising climate change awareness are keen to back renewable projects. “There is a minimum set for ourselves in terms of doing new things. One hundred and fifty million euros is a rule of thumb, but we prefer doing things closer to the €500 million mark. As far as our hydro mandate is concerned, a similar size could work, if the opportunities are still there.”

APG has formed another alliance with US pension CalSTRS and investment office Crow Holdings targeting the mid-market energy segment, entrusting Argo Infrastructure Partners with more than €500 million to scout for suitable deals. “We have a mandate that has room to grow. For us it’s really pinning down a sector we like and coming up with a creative, proactive way to capture that segment.”

AIA Energy North America, as the platform is called, has already made a couple of investments, purchasing the Cross-Sound Cable transmission project in Massachusetts from Brookfield Infrastructure Partners in August 2015 and a 49.9 percent stake in Black Hills Colorado IPP, the owner of a 200MW gas-fired power plant in Colorado.


But platforms are not limited to the sectors APG does not quite have the manpower to explore – they are also being used by the institution to target new geographies. Such is the case of India, a market APG has been targeting through a tie-up with Mumbai-based conglomerate Piramal Enterprises since 2014.

“We don’t want to miss the boat in terms of demographics and future growth, being there from an early stage when an economy is developing. We see a role for ourselves, but we can’t cover these markets with just small teams in Hong Kong or Amsterdam. So we really need to find the right partners who have the capacity, the capability, the network and the quality to execute.”

The APG-Piramal platform invests in rupee-denominated mezzanine instruments issued by infrastructure companies in India, with an ambition to invest $1 billion over the next three years. “We can steer the joint venture in a direction we would like to see. In India there are sizeable renewables opportunities, which we have reviewed and executed on,” Boots says, hinting at the $132 million the partners committed to growing Essel Infrastructure’s solar business in March.

In the Philippines APG caters to the needs of local governments, acting as a co-investor alongside PINAI, a $625 million vehicle managed by Macquarie Infrastructure and Real Assets. The pension is also an investor in the fund alongside the Government Service Insurance System, the largest pension fund in the country, and the Asian Development Bank.

In other areas, APG is looking to break ground by going direct. Having said for some time that offshore wind was too far up the risk curve, the pension is growing more interested in the sector: last year it said it was contemplating an equity injection in the Netherland’s 700MW Borssele wind farm. “We are not the ones joining tenders, so we’re not committing capital from day one. But hopefully at a later stage we will have a serious look at it.”

Boots says APG expects to be speaking to DONG, the Danish developer currently developing the project’s first two sites, “to see how we can work together”. “Once it’s up and running, there may be a bigger role for us to play. And maybe others as well, because it’s quite a skilled asset.” Here’s another boat that like-minded investors will not want to miss.