SWEDEN – AP1, one of the Swedish national buffer funds, returned 11.4% for the full year 2012, with farmland in Australia and New Zealand boosting its fortunes.
The fund's 'new investment' portfolio also includes exposure to subordinated and mezzanine debt, as well as agricultural land.
Despite its name, the strategy has been in place for four years and returned 20.7% for the 12 months to end of December 2012.
The farmland holdings – 15 in Australia and 10 in New Zealand, worth SEK627m (€73m) – are managed by AAG Investment Management and Southern Pasture Management and aim to gain the fund access to a diversifying source of returns, complementary to the remainder of the portfolio.
The Australian farms are diversified, producing grains, meat, wool and milk, whereas the New Zealand holdings are focused on milk production.
The fund, with assets of SEK233.7bn, said it prided itself on keeping costs low, amounting to 0.15% of total assets under management in 2012.
Over a 10-year period, the fund has returned 7%, compared with an internal target of 5.5% – on par with AP2, which last week announced average returns over the decade of 7.3%.
AP1 invested nearly SEK10bn in hedge funds over the course of the year, citing its wish to reduce equity risk exposure but retain high returns.
The fund has invested in a number of strategies, but is focused on commodity trading advisors (CTAs or managed futures) and macro hedge funds.
The fund said it cut its equity and bond exposure in favour of hedge funds and real estate, which returned 6.1% and 12%, respectively.
Equities at the end of the year made up 46.6% of the fund's portfolio, down from 49% at the end of 2011, and fixed income fell similarly from 40.9% to 36.4%.
Hedge funds, meanwhile, claimed 4.3% of all assets, up by 4.1 percentage points, and real estate rose from 5.6% to 7.7% of total assets.
AP1 said its strategic allocation was approximately 50% equities, 30% fixed income and 20% hedge funds, real estate, private equity and the 'new investments' portfolio.
The past year also saw debate surrounding the future of the country's buffer funds, triggered by the government enquiry chaired by Mats Langensjö.
Johan Magnusson, chief executive of the fund, said he believed the buffer funds needed greater freedom and independence in its investment management operation to achieve the best results.
He also said it was vital the issue be dealt with rapidly, as a lengthy process would create uncertainty for staff and make it difficult for the funds to recruit new professionals.