Angelien Kemna has taught finance and corporate governance at universities in the Netherlands, but she's never locked herself inside an ivory tower and thrown away the key. Instead, Ms. Kemna has mixed her forays on the theoretical side with a lot of practice in asset management, holding leadership positions over the past two decades in the Robeco Group and ING Investment Management. Her latest return from academia, in November 2009, was to APG Asset Management, where she took the post of chief investment officer. The firm moved to bolster its standing as a “fiduciary manager” of outsourced portfolios with its purchase of Cordares Holding NV two years ago.
After the market fireworks of 2008, however, Ms. Kemna says she's looking to play defense before turning to offense in that outsourced marketplace. APG has been focused on strengthening its organizational framework for dealing with volatility, in areas such as liquidity and tail risk, she says.
You've continued to mix asset management and academics. When I retired from ING, I picked up some part-time professorships in Rotterdam, and ... I have two Ph.D. students, and the necessity for them to reach Ph.D. status is that I remain a professor. So, we agreed that in the evening hours, I read part of their theses, but during the day I'm very busy with APG.
You took the helm at APG less than a year ago. Is this a time of continuity or change there? Both. It's continuity of strategy, in the sense that we have good fiduciary investment strategies, with excellent people. My predecessor should get compliments.
But we have to realize that the outside world has changed quite a bit. (In particular,) regulatory pressures after the crisis have increased — the focus on transparency, compliance. You have to be more explicit about your processes (in dealings with regulators.)
For example? For example, we hire external managers. Up until quite recently, we were more interested in finding niche players — boutique types, a couple of people spun off from larger firms. We (used to say), “these guys are good, they generate a lot of alpha, and we're happy.” Now we're saying, “yes, we're happy, but can you also show that you have your operational controls in order, that I can rely on your compliance?”
Another obvious lesson learned, which was new in this crisis, was the liquidity squeeze. We have quite a formal process now about our liquidity management, with weekly meetings, with risk management around it, making it very transparent why we take decisions. We have a log book. We created that — a very specific change — to have more procedures and be more careful about the processes we have.
Have you added a liquidity sleeve to your asset allocation? We have not put a percentage in place per se, (but) at times when the red flags are up — like when Greek debt was downgraded — we gather extra cash. We do not want to have (an expensive) fixed allocation to cash. Because those liquidity drains can be vicious, but concentrated in a short period of time, we have to be more on top of it, every day almost, certainly every week.
Would that system have protected you in late 2008, early 2009? At that point in time, I was a professor, and not the CIO of APG. The liquidity squeeze, and the fact that nobody wanted to trade with each other any more, was, I think, totally unexpected. In hindsight, it's always easy. In hindsight, I would be living in the Bahamas, in a big castle.
But again, we learned from that crisis, too, and we applied that to the most recent (European debt) crisis. So we did not have any liquidity issues recently, while the market was still quite vicious, and at one point in time, almost as vicious as we saw with the Lehman default. We were very close.
Any other changes in approach over the past year? Aside from liquidity management, the biggest risk is tail risk or event risk ... (that) something in the market will blow up in your face. There, we have a credit committee, we have a crash committee ... designed (to see whether) market price movements in certain areas (are) an indicator for potential orange or red flags. Then we come together and decide whether this is something to hedge our risks or not.
We have had real-life situations (where we have) come together at least once a day, if not twice, to determine should we do something. Should we hedge a risk? How much? Can we afford to hold on to it? (Such risks) have become top of our mind, unfortunately rather short term oriented; but hey, that's what it is right now. We have highly volatile, very nervous markets. (With recent regulatory changes) we're no longer lenders of last resort, as we used to be years ago, but have become as pro-cyclical as any other investor. I think it's there to stay.
So regulatory reforms are adding to the problem? The 2001 crisis was deepened by the fact that some insurers and pension asset managers were forced to sell off equities. I was part of an insurance company that, by facing downgrades from the U.S. ratings agencies, was (among those) forced to sell equities at a time when equities had already come down, deepening the crisis. Regulatory authorities also forced pension funds to sell off part of their risk. In 2008 and 2009, it became only more clear that by setting up the rules of the game that we see, some financial institutions that used to be lenders of last resort now, for a second and a third time, are actually moving together with the market. My investors worry about regulatory models that force us to derisk (over) the short term.
Any reason to hope for a change for the better? The crisis of 2008 was so vicious, (it's understandable that people felt that) the pensions of beneficiaries needed to be protected, but you can take measures which, in the next crisis, have unexpected effects. That forces people to go back to the drawing table for a rethink. That's the stage we're in now.
In acquiring Cordares Holding NV two years ago, APG strengthened its focus on the “fiduciary management” business of assuming oversight of a pension client's portfolio. Have you had success growing that business? Lesson No. 1, before having any ambition, is to make sure existing clients are happy. With Cordares, we brought along a number of clients. We had to convince them. (They have a) duty to look at whether you are a fiduciary asset manager with whom (they) can trust (their) money. That's what we're doing this year. As of the beginning of this year, we included two of their clients, and subsequently through the year, we'll take careful steps to include a majority of the clients of Cordares. Adding additional clients has not been my top focus; getting our existing clients happy has been.
So, still a consolidation phase? Taking the right measures operationally with clients needs to be done carefully. If you make a transition of close to e20 billion in assets under management, you have to prepare that carefully, and we did, with zero mistakes, which we owe to beneficiaries. It's taken the organization more time than planned. Nevertheless, I'd rather be careful with the money than go too quick.
When do you expect to be in a position to pursue new business? Not this year. Maybe we'll pursue one or two clients, if (they) fit into the legal and fund structure that we've set up. I'm a careful person. Every euro, every dollar from a beneficiary is something to be careful about. That's other people's food, shelter.