SWEDEN - In a major revamp of its portfolio the SEK80bn (€8.8bn) Swedish buffer fund AP7, Sjunde AP-fonden, shows more appetite for risk but not for hedge funds.
Following the first complete review of its portfolio structure since its inception in 2000, the fund will invest more in Swedish and emerging market equities as well as private equity which will rise from 4% to 6%.
"We have outperformed the benchmark by 5% on average since inception but we feel that we can maybe do a little bit better," Christian Ragnartz, chief analyst at AP7 told IPE. "So we suggested to the board that we will take a little bit more risk in the portfolio."
As default fund for the Swedish Premium Pension System, AP7 will still take less risk than the average fund among the almost 200 alternatives in the system, Ragnartz pointed out.
Its exposure to Swedish equities will increase from 17% to 20% of the total portfolio.
AP7 will also choose a structured solution for a separate passive emerging markets mandate worth around SEK8bn.
Ragnartz explained the fund already has exposure to emerging markets via other equity mandates but this was the first separate mandate for that region.
Furthermore, the all-Swedish index-linked bond portfolio will be diversified to include UK and US nominal bonds.
"When we entered the Swedish index-linked bond market there were some premiums to be had but now it has become more efficient and so it is time to move into other fixed income products," Ragnartz said.
Following the implementation of a unique "pure alpha" strategy the fund will halve its exposure to hedge funds from 4% to 2%.
"The search for pure alpha was very successful and we think that we can get hedge fund like returns from the alpha/beta separation," Ragnartz explained.
AP7 awarded Danske Capital, Irish currency manager Lee Overlay Partners and Stockholm-based currency specialist Informed Portfolio Management (IPM) with pure alpha mandates. The managers do not receive any capital but an underlying nominal amount from the risk budget.