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AP7 to seek new tenders as Carnegie wins equity deal

SWEDEN - AP7, the Swedish national fund for the PPM first pillar pension system, has appointed Stockholm-based Carnegie for a second pure alpha equity overlay mandate and will soon seek additional managers in the Asian and passive sectors.

This latest contract award follows the appointment of Danske Capital in April to manage a first mandate from its Stockholm office.

Peter Norman, executive director at AP7 also said the fund now has verbal agreements with two international investment managers for a third and fourth such mandate and these agreements, together with Carnegie’s, are expected to commence in the third quarter of this year.

The fund will also tender this year for a second Far East equity and a second Japanese equity manager, as well as for index managers to manage US, European and Swedish equities.

The current incumbents - who will retain business with AP7 - are Schroders and Nomura for the Far East and Japan respectively, and State Street Global Advisors for indexation across the three regions.

Carnegie’s appointment follows the recent appointment of two currency overlay managers - Lee Overlay Partners and First Quadrant through its Stockholm representative Informed Portfolio Management.

Norman believes  these pure alpha equity mandates are the first of their type in the industry.

“It is difficult to get the market to provide this kind of product,” Norman told IPE today.

“The pure alpha concept is about transparency and managers are not that fond of transparency. They cannot hide behind the beta.”

Although Danske Capital’s philosophy has the Swedish market as its base, the portfolio managers are not restricted to local securities.

“The pure alpha concept means that you can, of course, implement other assets as well. The point is that you should be beta neutral and cash neutral,” Norman said.

AP7 sets up stock borrowing agreements for the pure alpha equity managers and trading is conducted by the managers in the fund’s name.

Although the appointments so far have involved traditional long-only managers, Norman did not rule out the prospect of inviting hedge funds to tender for future pure alpha mandates.

AP7 currently runs two portfolios: the Premium Savings default fund, which had SEK78.8bn (€8.4bn) at the end of 2006, and the optional Premium Choice fund, which had SEK2.27bn (€243m).

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