SWEDEN – The Second National Swedish Pension Fund/AP2, Andra AP-fonden, has disclosed that it has terminated 16 external equities mandates as part of a decision to bring some management in-house.
“On the equities side, four Swedish and 12 European external mandates have been terminated, to align the portfolio with the fund’s new investment strategy,” the SEK158.1bn (€17.38bn) scheme said in its 2004 year-end report.
Both Swedish and foreign equities underperformed their benchmarks in 2004. Swedish equities returned 19.0%, while the benchmark rose 20.2%. Foreign equities were up 11.5% while the benchmark gained 11.8%.
The shortfall in Sweden was attributed to “the type pf securities selected, mostly Ericsson”. The number of equities mandates has fallen to 53 from 72 at the end of 2003.
“The reasons behind our decisions are a mix between under-performance and a new strategy on management style on the equities side that we have progressively implemented during the second half of 2004,” said spokesman Carl Rosen.
He said the fund would publish the names of the mandates that have been terminated in its annual report in early March.
Gothenburg-based AP2 said in year-end review: “During the second half of 2004, the fund progressively implemented a change in management style on the equities side.
“A key element of this new strategy is the clear definition of mandates, with respect to the relative degree of risk incurred.” More risk utilisation will be transferred to global mandates.
The move means that 37% of the fund’s total assets are now under external management, from 45%. And 59% of equities are with external managers, from 72%.
The portfolio’s overall composition, at 59% equities, 36% fixed income and five percent in alternative investments, was stable though 2004.
But the scheme said its investments in Swedish stocks were “clearly over-represented” at almost a third of the total portfolio.
The scheme also revealed that it has increased its targeted real return on investment to 4.5% from 3.5%. It added it has invested $150m in a private equity fund of funds managed by Pathway Capital.
The fund operates 10 hedge fund mandates worth SEK501m, which generated a 5.1% return.
Overall, AP2 made a return on investments of 11.6%, and a net profit of SEK16.1bn, in 2004. “This good result is primarily attributable to the retention of a high overall allocation of equities, the high ratio of Swedish equities in the portfolio and to the Fund’s limited exposure in foreign currency,” said chief executive Lars Idermark.
“Maintenance of a consistent commitment to our policy of long-term investment has enabled us to report a highly satisfactory result.”
Separately, sister fund AP4, the SEK151.5bn Fjarde AP-fonden, said it generated a total return of 10.6% - against a benchmark return of 10.9%.
“The fund generated a highly satisfactory total return in 2004,” said president Thomas Halvorsen. Swedish equities returned 18.1% against a 20.8% benchmark return.
AP1 and AP3 are set to report 2004 returns on February 17.