ZEIST, The Netherlands -- Pensioenfonds PGGM, the giant Dutch health-care workers' pension fund, has virtually completed its global private equity investment program.
During the past two years, the fund officials have boosted their total commitment to private equity to 4% of the fund's 77 billion guilders ($38 billion) from 1%. In U.S. dollar terms, that represents a $1.5 billion commitment to the asset class.
Limited partnerships to which the fund recently has committed include: Advest International Global Private Equity Fund III; AIG Global Emerging Markets Fund; and Prudential Asia Private Equity II Fund. (PGGM officials declined to give the size of commitments to individual funds.)
Private equities will offer greater returns than comparable public securities, explained Ad J.C. van den Ouweland, senior investment manager-equity investments. Net net target returns, in guilders, are 15% a year, compared with the historical 8.5% annual return for Dutch equities since 1955.
What's more, PGGM officials hope to get ahead of the crowd. While U.S. pension funds have been showering attention on the asset class, European institutions largely have neglected private equity. PGGM officials have "a strong preference to be ahead of the others," Mr. van den Ouweland said.
Nor are fund officials worried that too much money is chasing too few deals, given the huge amounts committed in the past two years.
There is a double-tiering of the private equity market, with a lot of new players raising money, explained Marinus Keijzer, PGGM's chief economist and strategist. "If you stick to quality, the problem of finding the deals is not there."
PGGM also can handle the long-term nature of private equity investments. The fund has more than seven times as many active participants as retirees, and nearly twice as many active as deferred vested participants.
Private equity will provide "a nice cash flow back to PGGM," Mr. van dan Ouweland said.
The fund's maturity profile also enables it to maintain a 57% total exposure to equities, including private equity, which is near the high end of the spectrum for Dutch pension funds.
In late 1995, PGGM officials decided on a strategic allocation to private equity, with ranges for each geographic area. Exposures to Europe range 15% to 40%; to the United States, 20% to 40%; the Far East, 10% to 30%; and emerging markets, 5% to 25%.
All of the assets are being outsourced. The fund now has virtually completed its program, making commitments to nearly two dozen limited partnerships. The largest commitments are to global funds sponsored by Advent and HarbourVest, the latter being a fund-of-funds program.
PGGM's regional approach is aimed at taking advantage of differing types of opportunities around the world. For example, in Europe, the fund believes economic and monetary union will further encourage restructurings of companies and many private companies eventually will go public as new markets for small companies develop, such as Germany's Neuer Markt.
"The advent of the euro is going to have a major positive effect on private equity financing," Mr. Keijzer said.
In the Far East and other emerging markets, the story is based on the need for infrastructure investments. And now, there are potentially sound companies available at fire-sale prices, he added.
Aside from regional approaches, PGGM also has invested in biotechnology/information technology funds sponsored by Atlas Investment Group. It also owns shares in Alpinvest, a publicly quoted Dutch buyout group.
In addition, the Dutch fund has committed to Knightsbridge Integrated Holdings Fund. Despite its name, the fund is based in Bartlesville, Okla., and has an unusual two-tiered structure. The first portion invests in venture capital limited partnerships, while the second buys directly into post-venture companies -- those that have gone public but still offer substantial upside appreciation.
"Why sell off companies that will become successful small caps?" Mr. van den Ouweland said.
