AP3 loses e1.1bn & announces new governance policy
SWEDEN- Sweden’s third national pension fund has suffered a 7.4% fall, or equivalent of Sek10.1bn (e1.1bn) loss, during the first half of 2002 due to the sharp drop in equity markets.
At the end of June, the fund reported a market value of SEK 126.6bn, including a net capital inflow of SEK 4.1bn, compared with SEK 132.7bn at the beginning of 2002.
It managed to beat its benchmark, however, by 30 basis points or the equivalent of SEK 300m. Says CEO Tomas Nicolin: “it is always painful to report negative returns but our positive relative performance of 0.3 percentage points is a satisfactory result.
“If we succeed in generating SEK 300m better returns than our benchmark during every half year, both in good and bad times, this will make a sizeable contribution to the pension system. Our outcome during the first half of 2002 must be judged in relation to our long-term mandate over a period of 30–40 years.”
AP3 puts its losses down partly to its relatively high 55% holding in equities. Elsewhere it invests 37% in fixed income and interest-bearing assets and 8% in real estate.
Its half yearly report contains details of a new corporate governance policy that will see the fund step up its shareholder activism. The five page policy document discusses the Fund’s demands for a clearer division of roles between corporate managements and board of directors, as well as its views concerning stock option programmes.
“We recommend a clear link between performance and reward, preferably tied to the company’s relative performance in relation to its competitors.
“We also believe that expensing stock option programmes directly in operating income would be an important step towards ensuring that a company’s reported earnings reflect its real earnings,” says Nicolin.