SWEDEN – Tredje AP-fonden, the roughly €20bn Third National Pension Fund/AP3, is currently brainstorming about portable alpha – although there is no guarantee it will be implemented.
AP3 risk management head Erik Valtonen told IPE that it was an ongoing process. “I think it’s important for us to keep informed about what’s happening in the industry.
“It’s part of the parcel, and it might be that we do some things this year. It might be that we never do it,” he said on the sidelines of the Risk Budgeting for Asset Allocation conference in London.
“We have to make the calculations and decide.”
Valtonen told the conference that portable alpha was one of the “hot buzzwords” in the investment community. However, he also warned about transfer costs.
“Portable alpha is not cheap,” he said.
According to his presentation, cost can be considerable - at least in those asset classes that one would like to port, like emerging market equities or small cap stocks.
The strategy and choice of reference index of AP3’s Swedish equity portfolio is under review.
According to Valtonen, roughly 16% of total assets were invested in Swedish equities last year.
“The allocation in Swedish equities is not really performance related. It’s an ALM decision, and whether you believe in Swedish markets,” amongst others, said Valtonen.
“In general, I’d say most Swedish big equities managers had a bad year last year,” he continued. “There are a couple of exceptions, though. But quite a few had performance that was not along expectations.”
Yesterday, AP3 unveiled a new strategic portfolio for 2006.
The move follows a benchmark busting 17.9% investment return in 2005.