LP Profile: Pensioenfonds PGB

Founded in 1953, Pensioenfonds PGB began life as the pension fund for employees in the graphic arts industry. Over the years, a number of other schemes came under the same umbrella, and today its total assets under management stand at €29.6bn.

When Dick Tol joined PGB's asset management team in September 2014, one of his responsibilities was to write a proposal for the pension board introducing private equity as an asset class to the investment strategy.

Fast forward to 2019, and the Amsterdam-based LP announced in February that it had selected Aberdeen Standard Investments (ASI) as a partner to invest a total of €500m in private equity funds targeting European SMEs.

The partnership between PGB and ASI is as a fund-of-funds of one, meaning that the Dutch scheme is the only LP in the fund and ASI participates in the fund-of-one via a GP share. As a partner, ASI has the discretionary task of selecting fund investments, as well as managing the fund, though PGB is actively involved.

"We are very much involved in the [investment] selection process," says Tol. "We join ASI on its onsite due diligence, we read and discuss all its investment committee memos and we are also on the advisory board of PGB's fund-of-one. Thus, we can have our say in what we think about every investment we make."

PGB decided on a target allocation of 2.5% to private equity, with the aim of making four €25m commitments to small-cap and mid-market European buyout funds each year, resulting in €100m's worth of annual commitments for 2019 to 2024. The fund recently made its first two private equity investments, to DACH-focused EMH Growth Fund II and French buy-out vehicle Latour Capital III, through the ASI managed fund.

As soon as we gain comfort and confidence in investing in private equity, we may also explore expanding our strategies and regions" – Dick Tol, Pensioenfonds PGB

For now, PGB will solely target the smaller end of the European market and has little intention of investing in large-cap funds, though it may consider other strategies and regions in the future, says Tol.

"As soon as we gain comfort and confidence in investing in private equity, we may also explore expanding our strategies and regions. However, this is something that has to be discussed extensively with the board to establish if it aligns with the investment strategy of the board," he says.

Brexit worries
PGB focuses on what it sees as the top five European markets: Germany, France, the Netherlands, the UK and the Nordic region – though currently there is reluctance to invest with UK managers due to the potential consequences of Brexit. "Brexit is unchartered territory for everyone. We would like to see some clarity on the implications of Brexit upon the investment environment before committing to a UK manager," says Tol.

What's more, PGB is keen to keep a diversified portfolio: "You never know where the economic developments may go in the next 10 years, so you should build in diversification throughout Europe, with managers who are up to speed in operational and reporting standards," he says.

PGB aims to invest in accordance with the United Nation's Global Compact Principles, and is keen to push environmental, social and governance (ESG) criteria. "You can have a positive ESG effect with the smaller managers – they are really contributing to the local communities and environment in which they operate. In order to prove that these positive effects are happening, we have created a reporting sheet, which needs to be filled by all the managers who receive a commitment. It is difficult to do that with historical investments, but now managers know upfront that these pension funds want to invest their funds responsibly, and have requirements and questions related to ESG," says Tol.

On the horizon is a programme for private equity investments in North America, with plans to invest an additional €500m over a five-year period in the region. The programme aims to make four commitments of €25m each per year. PGB has already selected a partner for the strategy, equivalent to ASI in Europe, due to be unveiled soon.

The pension fund may look at investments in first-time funds, as well as co-investments, though it will be the partner firms that would be responsible for such decisions, as part of the discretionary mandates in Europe and the US.

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