AP2 backs more transparent EU hedge rules

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SWEDEN – The head of fixed income and alternative investments at the 140.4 billion-crown (15.3 billion-euro) Andra AP-fonden has welcomed moves to a more transparent hedge fund framework.

“Any development towards a more transparent regulatory framework and growth of EU-domiciled funds is therefore of great importance for AP2 as an investor in hedge funds,” Ole Petter Langeland told a seminar in Stockholm.

AP2 returned 17.7% on total assets in 2003 – but underperformed its benchmark by 0.8%.

Sjunde AP-fonden executive vice president Richard Gröttheim told the meeting that there is a broad range of alternative products available that fulfil institutional needs.

But he also pointed out that institutions need more flexibility. He added: “Issues to deal with are for example listing, liquidity, transparency, SRI and valuation.” Gröttheim and Langeland said there are specific issues concerned for public entities such as special legal constrictions and socially responsible and corporate governance issues.

Gröttheim has said in a recent article that: “One should of course be aware of that there is always a trade off between transparency and performance.” And he said that extra transparency means it is harder for hedge funds to act “in the dark”.

Gröttheim told delegates that AP7 has a full exposure to alternative investments. It can hold up to 10% of its assets in unlisted securities.

He said that the AP7 experience in alternative investments has been a complement to the overall portfolio with a low correlation to other asset classes.

And he added that the AP7 portfolio of hedge fund-of-funds and private equity fund-of-funds in combination has given the expected risk and return since implementation.

Langeland said AP2 had allocated one percent to hedge funds but was not yet fully invested. The fund has more severe restrictions in investing, and has a ceiling of five percent in non-listed securities. Its current allocation to hedge funds is one percent. Real estate is one percent and real estate is three percent.

Langeland also said that because of the time-consuming work involved in hedge fund investing AP2 had chosen the route of hedge fund-of-funds.

Gröttheim saw institutional interest in alternatives rising in the next few years.

Delegates were told that the average allocation to alternative investments in Sweden is two percent. The general opinion was that the allocation towards alternative investments should be in the region of 10%.

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