SWEDEN - Andra AP-fonden (AP2), the Second Swedish National Pension Fund has reported a loss of -24%, or SEK55.1bn (€5.2bn), on its net assets in 2008.

AP2 blamed the decline on the global market turmoil experienced in 2008 at the same time as its annual figures showed the value of its assets fell from SEK 227.5bn to SEK 173.3bn - an actual loss of SEK54.2bn, although the net result was -SEK55.1bn as the fund reported net inflows of SEK900m.

Figures showed the annual return on the total portfolio was -24%, although AP2 said the relative return on market-quoted assets was -1.8%, excluding commission fees and operating expenses.

It admitted the weak return was a result of "a number of the fund's different equity mandates and some OTC (over the counter) products that were poorly positioned in the period of extreme turbulence experienced by the financial market during the autumn".

In addition the scheme, one of the Swedish pension buffer funds, said because of the financial crisis "almost all active investment mandates, in-house and external, underperformed simultaneously".

AP2 confirmed the decline in market value of its equity portfolio "is the factor that has had the greatest impact on the net result", although it pointed out in the context of the Swedish pension system as a whole "the significance of the fund's equity holdings is limited".

Other figures showed the return on unquoted holdings over the year was -1.9%, which comprised -9.1% yield on private equity which was slightly offset by a positive 0.7% on real estate assets.

AP2 owns a 25% interest in AP-Fastigheter, the property arm of the first four pension buffer funds AP1-4, and the acquisition of Vasakronen in autumn 2008 increased AP2's real estate exposure by two percentage points - a move which is said to have represented "an important part of the long-term development of the Second AP Fund's portfolio of unquoted real-estate assets". (See earlier IPE article:  Sweden sells E4.4bn real estate arm to AP)

Eva Halvarsson, chief executive of AP2, said: "In spite of deciding to reduce risk in the equity portfolios under in-house management, to reduce the scale of our positions in fixed-income and exchange-market securities and to cancel a number of investment strategies completely, the decline in market worth was still substantial."

However as the pension fund "accounts for only 3% of the Swedish pension system's total capital assets, of which equities comprises a mere 7%" Halvarssen claimed AP2 could adopt a long-term strategic approach and retain a "high proportion" of equities.

"This ensures that we are well-positioned to benefit when the market stages a recovery. It is important to remember that our mission as a fund manager extends over a very long period," she added.

The full annual report for 2008 will be published in English at the end of February 2009.

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