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AP3 hails cost efficiencies fuelling 10% annual gains

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Sweden’s AP3 incurred costs of around a third less than the average for its international peers over five years, according to the state pension buffer fund’s interim report.

In that period the SEK353.1bn (€33.6bn) fund posted an annual average return of more than 10%.

AP3’s chief executive Kerstin Hessius said that, according to data from CEM Benchmarking, the fund had delivered this return “with a cost base 35% below the international average for funds with a similar investment profile”.

Its annual average return over the past 10 years was 7.3%.

In the first half of 2018, the fund’s investments gained 3.3% after expenses, driven mostly by its exposure to currency and inflation. The fund outperformed its benchmark by 1.1 percentage points.

Hessius said the total return was “buoyed by a continued upswing in our real estate investments and a strong dollar”, and noted that AP3 had scaled back portfolio risk during the first half of the year in light of its outlook for investment markets.

The fund highlighted a $100m (€86m) commitment to an external unlisted insurance fund, saying that this “broadens AP3’s strategy to include insurance instruments in run-off and adds stability and balance to the portfolio”.

AP3 also said it was on track to meet sustainability goals it set itself four years ago.

The goals were to be achieved by the end of 2018 and included halving the carbon footprint of AP3’s listed equity and credit portfolio compared with 2014, more than tripling the value of its green bond holdings, and doubling its “strategic sustainability investments”.

Another goal it set itself was to work to ensure that Vasakronan, the real estate investor in which AP3 has a 25% equity stake, would “continue to lead the way in sustainability in the real estate sector in Sweden”.

CEO Hessius said the fund was expected to have achieved the four goals by the end of the year.

At the end of June, AP3’s green bond holdings totalled SEK15.3bn, just above its SEK15bn target for the end of 2018. The holdings accounted for 16% of the fund’s fixed income portfolio.

At the end of 2017, the buffer fund’s strategic sustainability investments totalled SEK25bn, SEK5bn above the target for the end of 2018.

The carbon intensity of its listed equity and credit holdings, meanwhile, fell by 45% in 2017, said AP3.

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