SWEDEN – Sweden's AP3 has bought more than 70 local retail properties from Axa Real Estate for SEK1bn (€118m) the day after announcing returns of 14.8% on its real estate portfolio.
According to the buffer fund's annual results for 2012, assets under management rose to an all-time high of SEK233bn over the past year, aided mainly by a 17.4% return on its equity holdings, which resulted in a 10.7% overall return.
Fund chief executive Kerstin Hessius said the investment team continued to consider new investment approaches, including the launch of a new risk class – volatility.
"Our volatility strategies yielded excellent returns and helped to diversify the portfolio," she said.
Hessius also addressed the review of the AP Fund system, chaired by Mats Langensjö, saying that the debate following the report's August publication saw a number of questions "not fully ironed out".
She said questions about why the four main buffer funds – AP1, AP2, AP3 and AP4 – pursued different investment targets despite sharing the same goal were based on a misunderstanding of the system's purpose.
"We have different targets because our boards take different approaches to return and risk," she said. "This is entirely consistent with the philosophy of achieving risk diversification through multiple fund managers."
She also stressed that the report came at a time when there was a misconception about the future size of the buffer fund system, noting that a forecast published in 2011 by the Swedish Pensions Agency – one that predicted the system would have assets under management of SEK700bn in 2038 – had been revised upwards only a year later.
"The new forecast projected that the AP funds would in 2038 be managing pension assets of close to SEK1.6trn," she said, noting that this was three times the amount invested when the buffer system was launched in its current form in 2001.
"We can merely note that such forecasts are very long term and thus highly speculative," she said. "We should be very careful about drawing conclusions over potential changes to the pension system based on these projections."
In the annual report, the fund contrasted strong equity performance, comprising 8.8 percentage points of its total investment return, with a loss of 10.3% in the same asset class over 2011, and said that the second-strongest returns were posted by its real estate holdings.
However, the 14.8% return from property was 0.2 percentage points down compared with 2011 and followed a year when AP3 allocated heavily to property and other real assets – including infrastructure and timberland, as well as buying out joint venture partner Kungsleden's stake in social infrastructure company Hemsö.
The fund also confirmed that its 25% stake in a €1.3bn portfolio of German residential real estate bought by Patrizia early last year cost SEK1.3bn.
It added that SEK7.5bn of investment in domestic real estate had last year seen it become the largest net investor in Swedish property – a trend set to continue as the fund acquired a portfolio of 72 retail units from French manager Axa for SEK1bn.
Axa said the portfolio of largely food retail units was spread out across the country, offering AP3 "geographic diversification benefits as well as direct exposure to the well-performing food retail sector".
It added that around 80% of the space was let to large local retailers, offering the fund tenants "excellent" covenants.
Henrik Bastman, Axa Real Estate's head of asset management for the Nordics, said: "This comes at a time where state and private pension funds in Sweden, and across Europe as a whole, are increasingly looking towards the secure and stable cash flows provided by defensive real estate assets in order to meet their liability-matching needs."
Bengt Hellstrom, head of alternatives at AP3, said the investment would provide "good stable returns" and act as a diversifier for its real estate holdings.