Sweden’s largest pension fund, Alecta, reported a 24% return on investments for its defined contribution pension product in 2021, thanking in part its own efforts to find good fixed income returns for the strong performance – and sees good credit opportunities emerging from current volatile market environment as time passes.
In the pension fund’s 2021 financial results released this morning, it said its defined benefit scheme had returned 15.2%, and overall assets under management had grown to SEK1.23trn (€11.7bn) at the end of December 2021 from SEK1.04trn a year before.
Magnus Billing, Alecta’s chief executive officer, said: “We have changed our investment strategy and broadened our portfolio with new asset classes to ensure that we continue to deliver the best returns in the industry in the future.”
Alecta said the background for the investment results was rising stock markets both in Sweden and the rest of the world, a strong real estate market “and focused work on finding a return on fixed income investments in a low-interest rate environment”.
Asked for more details about the fixed income work, Tony Persson, head of fixed income and strategy at Alecta, told IPE that the pension fund’s credit insurance investments alongside Dutch pensions investor PGGM, and the insurance-linked securities (ILS) deals it had made recently were part of this work.
“But also asset financing of, for example, private debt, structured credits including CLO equity, aviation finance and infra debt are areas where we try to find attractive returns,” he said, adding that Alecta’s focus was always to manage these investments internally.
All credit segments performed well last year, he said.
“The more volatile environment at the beginning of 2022 will likely create good opportunities going forward,” Persson predicted.
“We always have a need to reinvest and our pensions plan is cashflow positive, so we will most likely add to our credit exposures if we find attractive enough investments,” he said.
Within ILS, Persson said Alecta had committed substantially at the renewals this year and would not add further in 2022 here, but instead use the next few years to evaluate its strategy and investments within ILS.
“Inflation and higher interest rates will create volatility and a lot of carry trades will most likely need to be re-evaluated,” he said.
“We think this process will present some opportunities for a long-term investor as Alecta,” he said.
It had been around 15 years since central banks last talked about hiking rates in any substantial way, he said, adding: “I think that the coming years will be very exciting.”
According to its annual results, Alecta’s group solvency level rose to 201 in 2021 from 167.