SWEDEN - Första AP-fonden (AP1), the first Swedish national pension Fund, is making 20 people redundant and changing its asset management model, in response to the credit crunch, to focus on strategic asset allocation.
AP1, one of the four pension buffer funds in the Swedish national pension system, intends to increase its focus on its core activity - strategic asset allocation - in an attempt to boost its total return, as in 2008 it posted an investment result of -21.9%, and a net investment income of -SEK48bn (-€4.56bn) after expenses.
The fund confirmed the value of assets under management also fell from SEK 219bn to just under SEK 172bn over the year, and admitted the "previous organisation for active management will be decreased in size".
AP1 said the change will lead to a simplified management model, will reduce the number of transactions and will therefore create the conditions for a higher total return in the long term. It said a number of employees in this division would be given new duties, but "over 20 of the staff will be made redundant".
Johan Magnusson, managing director of AP1, said: "We want to raise the level of ambition in strategic asset allocation, which has the greatest influence on the fund's ability to deliver long-term returns, and have therefore decided to make this change.
"We deeply regret having to lose skilled and competent people, but the fund has an explicit responsibility to manage the Swedish people's pension assets as efficiently as possible," he added.
Explaining the change, Magnusson said AP1's current investment portfolio contains a range of different assets, primarily equities, but also includes real estate and fixed income, and had previously focused on "creating excess returns within each asset class" by seeking to outperform the benchmark.
However, while the fund has been successful in this, "today we need to do more than that", he said. AP1 will, as a result, become "much more active" in relation to the composition of the portfolio and it will "take a more flexible approach and be more opportunistic with our time horizon".
"The idea is to achieve greater freedom in our reallocation than at present. All investment units will be responsible for the whole and will cooperate in making investment decisions," said Magnusson.
He acknowledged the change has been driven by the current financial crisis and the fund's poor 2008 results, as he pointed out "we have experienced two financial crises in the span of eight years and have been forced to do some rethinking in response to these".
"We want to perform better in the future than we have done so far. To achieve that we need to use the expertise of our highly skilled employees in the areas that have the biggest impact on our total return," continued Magnusson.
AP1 added analysis had shown portfolio composition can affect more than 90% of the total return, while active management "can at most contribute the remaining 10%", so Magnusson said "if we can make better decisions at the strategic level, this will mean more to us than even the outcome of exceptionally successful stock-picking."
"The right portfolio composition will also improve our ability to weather out tough times in the financial markets," he added.
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