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Swedish buffer fund AP1 produces 'decent' 4% return for 2015

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Första AP-Fonden, the First Swedish National Pension Fund (AP1), has announced a 4% investment return after expenses for the 2015 calendar year, down from 14.6% the year before.

At 31 December 2015, the fund’s net assets had increased to SEK290.2bn (€31bn), from SEK283.8bn the previous year.

Johan Magnusson, chief executive, said: “The return of 4% after expenses in 2015 is a decent one, considering the great market turbulence during the year, and is in line with the fund’s target.”

The fund’s long-term goal is a real return of 4% after expenses over rolling 10-year periods.

The real return after expenses for the latest 10-year period is 4.4%.

Over 2015, equities as a whole returned -1.1%, but Swedish equities returned 7.3%, developed countries -3.5% and emerging markets -7.7% (all figures before expenses).

Equities made up 32.9% of the portfolio as at end-December 2015.

Fixed income, which includes government debt, credit and high yield, and which forms 27.9% of the portfolio, returned -0.4%.

The best performing asset class was real estate (11.1% of the portfolio), which returned 23.6%.

The fund’s real estate assets are long-term investments, mainly held for rental income, and less for their expected increase in value.

Private equity – 5% of the portfolio – made 13.3%.

Ossian Ekdahl, head of communications and ESG at AP1, said: “There are two main reasons for us to invest in private equity. The first is that we expect higher long-term returns, and secondly, it will diversify our total portfolio.”

Meanwhile, infrastructure – a new asset class for the fund, and which now makes up 2.9% of the portfolio – returned 5.9%.

Last year, AP1 – as part of a consortium – purchased electricity distribution company Ellevio from Fortum, the Finnish energy company.

Ellevio has already embarked on major investments to enhance delivery performance to customers.

AP1 also formed a real estate company, Secore Fastigheter, together with ICA, the Swedish retail chain.

“The ambition is to allow Secore to grow further by acquiring further properties in which ICA stores are the main tenant,” said Magnusson.

Overall, a chief objective is to create long-term sustainable value.

“As a long-term investor, it is natural to incorporate non-financial sustainability aspects into the investment analysis,” said Magnusson.

“Last year, we decided on a new overall sustainability strategy, in which we focus on resource efficiency. We expect the use of natural resources, human capital and financial capital to take place responsibly.”

AP1 has also continued to strengthen its in-house investment management, believing it will produce better conditions for higher returns.

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