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Shares and EM bonds drive AP2’s return to 10.5% in 2016

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Sweden’s AP2 saw its investment returns more than double to 10.5% last year from the 4.1% it produced in 2015.

Releasing its 2016 annual report and financial figures, the fund – the second of four giant ‘buffer’ funds – said its assets under management grew to SEK324.5bn (€34.2bn) over the course of the year, a record high. This is despite AP2 being called on to make its biggest ever payment into the nation’s pension system, of SEK6.6bn.

At the end of 2015, AP2’s assets stood at SEK300.6bn, after an SEK4.9bn disbursement to the state pension system.

Eva Halvarsson, chief executive of the Gothenburg-based pension fund, said: “Profit for the year shows that our globally-diversified portfolio has generated solid results.”

All asset classes made positive returns in 2016, not least shares and bonds in emerging markets, she said.

The net result for 2016 was SEK30bn in absolute terms, almost three times the previous year’s SEK11.7bn.

Halvarsson predicted the fund’s diversified portfolio would continue generating “a good return” for the country’s pensioners, but suggested the high level of bond holdings it is required by law to have could limit potential investment profits.

“We realise that the return levels we have historically had [will] become increasingly difficult to achieve, with such large part in fixed income securities,” she said.

She said the process of internalisation of assets that AP2 has been engaged in over the past few years had achieved its predicted level of cost efficiency gains.

“The fund’s total costs in relation to assets under management are now at the lowest level, except for 2007, and this is despite the fact that the portfolio has become increasingly complex with different asset classes in more and more markets,” Halvarsson said.

Operating expenses amounted to 0.07% of asset management costs in 2016, unchanged from the previous year, the fund reported.

ESG factors had been implemented last year into the quantitative management of AP2’s global shares asset class — which makes up around SEK90bn of the fund’s total capital, Halvarsson said.

Green bonds had also been included as part of the strategic portfolio, as an extra step in the pension fund’s move to make sustainability matters part of its portfolio management, she said.

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