AP2, one of Sweden’s national buffer funds, returned nearly 13% over 2013 despite the fact its first-ever investment into Mainland China lost 2.7% over the period.
The fund, with SEK265bn (€30bn) in assets, outperformed its annual real rate of return target of 5%.
Over the last five years, the fund’s annual real return has totalled 9.8% and, over the last 10 years, 5.8%.
Operating costs in terms of asset management remain relatively low, it said, totalling 0.07%.
Eva Halvarsson, chief executive at AP2, said: “This year’s result is the second highest recorded since the fund was established.
“But what you see on the bottom line in any given year is not the most important thing. What is important is that we achieve a stable long-term return over time, for all generations.
“The 2013 result means we have exceeded our targeted return for the past five and 10 years by a good margin.”
In 2013, Swedish equity was the best performing asset class, returning 27.2%.
Global equities returned 18.4%.
After Chinese authorities awarded AP2 a Qualified Foreign Institutional Investor licence (QFII-licence), the fund was given permission in 2013 to invest $200m (€147m) in Chinese listed stocks.
AP2 selected APS and Cephei to manage the investments, worth approximately SEK650m each.
The Chinese equities are classed as alternatives due to the “administrative obstacles” involved. The overall alternatives portfolio – including private equity funds, alternative credit, alternative risk premiums and the listed Chinese equities – returned 13.4%.
AP2 has also been increasing its real estate investments in recent years.
In June, it invested in the Gateway Real Estate Fund IV (Gaw), which focuses on Asian real estate, particularly China.
The fund invests 9% of total assets in unlisted real estate, which returned 14.4% in 2013.
The fund has also built its own internally managed global emerging markets portfolio while at the same time establishing a specific emerging markets unit, which has begun investing in government bonds.
The allocation to emerging markets has increased from 6% in 2010 to 13% at the year-end 2013.
Despite reporting a loss for emerging market equities in 2013, AP2 is likely to increase its exposure to the asset class, as the fund wants to reduce the risk of having the majority of its assets in developed markets, Halvarsson said.
Another ongoing change at AP2 has been its ambition to manage more assets in-house.
In 2013, it shifted SEK11bn from emerging markets funds to its quantitative team.
The fund now manages 75% of total assets in-house compared with 55% 10 years ago.