SWEDEN - Dan Bergman, head of risk allocation at Sweden's SEK225bn (€24bn) AP3 fund, said he is sceptical about so-called hedge fund replicating strategies as a tool for diversification.

Speaking at the PensionSummit 2008 last week, Bergman said AP3 has considered the replicators, which mimic high-risk portfolios, in its drive for a broader diversification, as the tools are better priced than hedge funds.

Bergman commented however: "Regarding these replicators we are a bit sceptical, probably because much of the alternative betas that we would like to pick up in hedge funds are take on liquidity risk, for example."

He added: "When they take on liquidity risks, you are trading in liquid paper - and how can you replicate that?" though not ruling out other interesting opportunities with the investments.

AP3 currently tries to identify new sources of alternative beta as a way of diversifying its investment mix, trying to build an absolute return type of portfolio.

"We are looking for systematic exposure, we are expecting to take on risk, so we want to understand what kind of risk we are taking on and if we are appropriately awarded for that," explained Bergman.

AP3 has already implemented a GTAA hedge fund portfolio during the last year, "which we feel is an important addition to our strategy", said Bergman.

The fund is looking at commodities, in which it is currently not yet allowed to invest. (See earlier IPE story: ‘Sweden to relax alternatives regulation')

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