APG joins fee transparency push

Another Dutch pension fund has refined its internal guidelines for investments with external money managers, including private equity GPs, in effort to improve fee disclosures.

In the past year, Dutch asset manager APG has refined its internal guidelines for investments with external money managers, including private equity GPs, in an effort to improve transparency and accountability, according to APG spokesperson Harmen Geers.

After selling its stake in fund of funds unit AlpInvest in 2011, APG has been working to build up its in-house private equity portfolio. The pension manager began drawing up its own fee principles, and in the past year has been making an extra effort to become more specific with its guidelines for following those principles, said Geers in a call with pfm.

APG, which manages €416 billion of pension money, currently invests in 250 private equity managers across 400 different mandates.

The fee principles focus on three categories: management fees; performance fees; and fee normalization and transparency. The new guidelines include more specific parameters for each of these categories. For example, when scrutinizing management fees, the guidelines state that the fee should only cover operational costs and should never serve as a profit center for a GP.

APG also uses its own unique model in order to determine the total costs of a potential investment by measuring fees as a percentage of added value. The metric, which it applies across all asset classes, allows it to better compare managers.

The news of APG’s efforts follows plans revealed by another Dutch pension, PGGM, to halt investing with private equity firms that do not fully disclose their fees by 2020. In its new strategy, PGGM requires that: asset managers be transparent regarding their pay and remuneration structures; performance fees only apply in the event of above-average performance that is agreed on in advance; and only basic remuneration be paid for the costs and pay of the management of the asset manager.

Geers noted that APG is “in league” with PGGM on the transparency front. He added that the calls for greater disclosure are part of a larger push throughout the Netherlands, as both public constituents and financial regulators have been pressing pension funds to be more transparent about costs.

APG manages investments for ABP, the largest pension fund in the Netherlands and one of the largest in the world. When it was revealed that ABP had paid €1 billion in fees to external money managers last year, APG received “a lot of flak,” said Geers.

“That goes down really hard with the general public, so we had to get fund managers explain themselves to us,” he said.