Angelien Kemna will effectively be responsible for the pensions savings of a quarter of all Dutch employees. FTfm’s Face to Face interview looks at the task ahead of APG’s new chief investment officer.
Angelien Kemna has been hailed by the Dutch national press as the country’s most powerful woman in finance. Three months ago, Ms Kemna started as chief investment officer of investment company APG, which looks after €205bn of assets, primarily on behalf of national civil pension fund ABP.
With €200bn under management, this is one of the three largest pension funds in the world. Ms Kemna will effectively be responsible for the pension savings of a quarter of all Dutch employees.
She is evangelical about the benefits of the Dutch approach to pensions, having lived in Atlanta recently for a few years and seen at first hand how a reliance on individual defined contribution schemes can ruin lives. “The consequences of a far-reaching individualisation are agonising and numerous,” she says.
“People of all walks of life have seen their retirement pensions halved and their jobs disappear because of the credit crunch. In the States the bitter reality is: don’t you have any family to look after you? Then your next home is a tent camp. I would dread ending up like that.”
The fight to keep the Dutch pension system going strong has consequently become her big incentive to return to the limelight after two years of relative silence. However, she acknowledges that even the Dutch scheme has its limitations and suffers from a fragile relationship between generations.
“Discussing the need for modernisation in certain areas can only be encouraged. But that doesn’t mean you should throw out the baby with the bath water by blindly staring at the critical points in the system alone.
“Even the UK, where they have changed from a collective to individual system, looks with envy to our system. Which is why I want to emphasise to the pension players in the Netherlands to please be careful with what we’ve got.”
Her mission is not an easy one, considering the fact that global confidence in the financial sector has never been lower: Ms Kemna aims to repair this breach in trust without losing sight of prevailing sentiments.
“Pension funds and their managers have a task on their hands in explaining to society that you’ll only build up a scant pension if you don’t take any risks. There seems to be a widespread belief that we’d be better off if we had simply put our money in a bank.
“Even without all that has happened in the recent past, that wouldn’t have been an option. You cannot exclude risk. The challenge is to find the correct balance between your pension commitments and the space and willingness you have to take certain chances.”
According to Ms Kemna, this vision is shared by the wider sector. “The general notion is that the chase for return was too excessive. But risk and return are two sides to the same coin.
“Mastering risk has always been interconnected with the pension industry, but maybe there was too much focus on the wrong side of the coin. I’m turning it, to see which return befits which particular risk.”
This does not mean she intends to disregard attractive opportunities. “It will be fine to start taking more risk again once the economic tide turns – as long as you make sure your portfolio contains a well composed and diversified set of building blocks that collectively mitigate risks. I wouldn’t be a good keeper of my clients’ pennies if I pass up on the good yields.”
For that reason the APG boss says she takes little account of the current debate on active versus passive management. “It’s a topic that flares up after every crisis, but I’ve been on the scene long enough to know that it will go away again.”
APG is principally an active house. “We would only deal with passive investments in highly efficient markets, but these are extremely scarce. Most markets are far less efficient than they seem.”
Ms Kemna prefers to make use of enhanced indexing, also known as index plus. “This entails following the benchmark with very little risk. It’s a quantitative process in which you rigorously try to abrogate the inefficiencies of the index. This is often a lot more beneficial than what we’d call passive.”
The credit crunch has revealed plenty of other issues that pension funds need to concentrate on, she says. She is critical of those who disparage this need. “There are still those who make remarks like: ‘We couldn’t help it when all correlations went in the same direction.’ That is total nonsense!”
The same happened in previous crises, she says. “What did make it atypical was that no bank wanted to do business any more and the total lack of liquidity – you couldn’t for the life of you get rid of your Italian government bonds. Pension funds will have to take this liquidity risk into account in their future asset liability management studies.”
She stresses another thing that “no one should forget”: “When in a crisis you just get plucked and drawn. There are no two ways about it. The last thing you should do is sell. That is investment lesson number one. Still, that is what many Dutch pension funds chose to do, bar a few large ones.”
Ms Kemna deems it worrying that the last crisis severely affected the real economy. “Up until this point we have always come out of a crisis a lot stronger. Is that going to happen again? That remains to be seen.” It is why she praises the fact that a lot more attention is paid to the excesses in financial product innovation.
“As an academic I embrace any innovation. There is no need to put a stop to that yet, but it has got to be controlled.”
One area where she sees the need for more innovation is environmental, social and governance investing. “The crisis has uncovered that we don’t really like what has become of the world around us.” She wants to put her skills to work on the issue and build on the steps taken by her predecessor Roderick Munsters. “It is possible to make a difference with a name like APG behind you. I am keen to extend the vision that Munsters initiated.”
Anke Claassen is editor of npn, a Financial Times publication