Dutch asset manager APG is building its own centralised data hub so its investment teams can steer the direction of how data science influences investment decisions.
APG Asset Management, the investment arm of several Dutch pension funds, including ABP and bpfBOUW, is building an internal data hub that will allow its investment team access to information and data science tools in one central place in the system.
The asset manager has three objectives in mind in relation to building this hub: to increase efficiency across the €620 billion (A$916 billion) fund, enhance investment returns and obtain an information advantage in responsible investment.
This latter objective is the focus of the fund’s main pilot program, currently underway.
“The key priority is to get a responsible investment hub in place that forms a golden copy of all the data that is related to sustainability at the fund,” Gerben de Zwart, Head of Investment Solutions at APG Asset Management, tells [i3] Insights in a video call.
“Responsibility and sustainability have evolved over time for pension funds and we are going to do a full digital refresh and will have a golden copy in place that is the central truth for all the teams at APG, not only the investment teams, but also for the reporting and risk management department.”
In addition, APG runs three other pilot programs in relation to data: fixed income, alternative data and risk.
“It is a five-year program that started in 2021. In 2021, we did a lot of the groundwork, which included building the data shop, data availability, but also [drawing] blueprints. The investment teams already are involved in the pilots and for this year we would like to scale up those pilots to a mature level,” de Zwart says.
“So for fixed income, for example, we went from zero users to about 20 portfolio managers, or 50 per cent of the portfolio managers, working with this database. But it is all in the pilot phase.
“What we are looking for is to start a pilot in one year, scale it up in the next year and then move on. So we have a very long list of new pilot ideas. Every time there will be several pilots and in parallel we will have several scale-ups from the previous year.”
He points out the goal is not simply the digitalisation of information, but the value this brings to the overall fund.
“Digitalisation is not the goal; it is the business value that comes from this digitalisation. So it is either about efficiency, sustainable investing or investment returns and each pilot will be assessed on these dimensions,” he says.
“Only if the business value is sufficient, we will commence scale-up and otherwise we will stop the pilot and look for a better way to use our resources.”
De Zwart says it is important APG’s data efforts are owned by the investment teams and not simply delegated to the IT department. He wants each investment team to develop a digital mindset so that the portfolio managers are in charge of their own digital direction.
This doesn’t mean every investment professional has to become proficient in the computer languages used in data science, such as Python or R, but he does expect portfolio managers to understand how various tools can be applied to leverage the data hub APG is building.
“We think investment skills are very important and, yes, technology skills will be important, but it doesn’t mean that all portfolio managers need to be Python programmers,” de Zwart says.
“There will be Python programmers working in the teams and some portfolio managers might have Python skills, but it doesn’t have to be all individuals. The investment skills are the heart of our industry and something like Python is supporting that.”
He says it is about giving investment professionals access to proprietary, high-quality data quickly and efficiently so that it can inform their investment decisions.
“So if I look towards 2025, data will be at the fingertips of portfolio managers. It is reliable, it is fast and it is available,” he says.
“It means they can focus the majority of their time on generating sustainable investment insights. And they will use advanced analytics, language processing or machine learning.
“They don’t have to know how it works, but they know that if they want to apply a tool or an app to get unique investment insights that they are actionable.”
Protection of the central data hub will be a top priority and that is why the fund has taken a slow but steady approach to laying the foundations of its technology infrastructure. It will make use of cloud technology as it is an efficient way of scaling up the systems across the fund.
For good reason, local Dutch regulations are very strict around the use of the cloud by pension funds, de Zwart says.
“For every new usage case of the cloud, we need to file a request. Obviously, the system will be cloud based because of the scale and speed of the cloud, but before you enter the cloud, you should have a proper security vision of how to do that,” he says.
Luckily for APG, the fund has an internal data science team to lead the way.
In 2018, APG acquired a 13-strong data science team from Deloitte, which now runs as a separate unit under the name of ENTIS. This team focuses predominantly on sustainable investment data, which makes this data set the most logical starting point for the digitalisation program.
For example, ENTIS implements the sustainable development investment definitions, a platform developed in partnership with AustralianSuper, PGGM and British Columbia that aims to translate the United Nations-backed sustainable development goals into workable investment theses.
But ultimately, the digitalisation effort at APG is much broader than responsible investing and spans the full investment function.
That is where de Zwart comes in.
Until 2019, de Zwart was in charge of APG Asset Management’s quantitative investment team. But when he was asked to lead the effort on digitalisation, he saw the opportunity to create a coherent philosophy across the entire investment function.
“For me, it is really about the synergy across the investment teams, instead of each team building its own solution, which would have resulted in not achieving any best practices or codes of conduct across any of the teams,” he says.
“Digitalisation is one of the three pillars under our strategic ambitions, with the others being sustainable investing and investment solutions for clients. So, digitalisation is at the heart of our 2025 strategy.
“I love to work on new initiatives, I like to be a pioneer in some dimensions, so I was very pleased that the Chief Investment Officer asked me to pick up this new role and become the Head of Investment Solutions, with the aim to provide digital solutions across all investment teams.”
[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.