PGGM team defects to fix ‘broken’ fund market

Ownership Capital to bypass flawed incentive structures

A sustainable journey: Ownership Capital will set up in Amsterdam

An investment team that has defected from PGGM, the Dutch pension scheme, will launch on Monday with a claim it can pioneer “a new way of investing” by bypassing the “broken” incentive structures of the fund industry.

Amsterdam-based Ownership Capital will be run by an eight-strong team that managed a €3bn “responsible” equity portfolio at PGGM, the €128bn healthcare pension scheme.

The team is headed by Alex van der Velden, the founder and former chief executive of FairPensions, a charity that aims to promote responsible investment by encouraging shareholder activism.

Ownership Capital will be chaired by Sir George Buckley, the former chief executive of 3M, the US industrial conglomerate, and currently chairman of private equity house Arle Capital Partners and a director of PepsiCo, Hitachi, Stanley Black & Decker and Archer Daniels Midland.

“There is a pressing need for shareholder engagement and a sustainable approach to business in the current turbulent economic environment,” said Sir George.

“The chance to chase a quick dollar, and the fear of not doing so, has distracted investors in the past, often to the detriment of long-term growth and good returns, and this simply has to change if we’re to get the economy back on track.”

Ownership Capital claims to be the first house to pull together a series of trends that are emerging across the mutual fund industry in an attempt to create more “responsible” longer-term investment.

Environmental, social and governance factors will be built into the stock selection process, alongside traditional financial analysis, and the fund managers will actively engage with all of the portfolio companies “in a close partnership”.

The fund will be highly concentrated, with potentially around 20 stocks, compared to more than 100 in many equity funds. And at a time when annual turnover in mutual funds has risen above 100 per cent, it will aim to hold stocks for several years – with investors having to lock-up their money for five years as well. “If you know your money can be taken away from you at any time then you can’t be a long-term investor,” argued Mr van der Velden.

“Institutional investors are willing to lock-up money for 10 years in private equity. But in public equity, which is much lower risk, they have always wanted to get their money back straight away.”

A number of investment houses, such as Generation Investment Management, chaired by former US vice-president Al Gore, Fundsmith and Governance for Owners have adopted many, but not all, of these elements. This long-term, engaged approach is attuned with the broader political and regulatory zeitgeist as espoused by the UN Principles for Responsible Investment and the Kay Review of UK Equity Markets and Long-Term Decision Making.

However Mr van der Velden said the concept was originally advocated in the 1930s by John Maynard Keynes. “I believe it is a new way of investing [but] to some degree it’s back to basics, it’s how Keynes saw investing. It’s back to a commonsense approach.”

The fund, which will invest in developed market equities, will charge a 1 per cent management fee and 20 per cent of any outperformance, although Ownership Capital said it would scale down the fees as assets rise. The minimum investment is €50m.

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