Alecta has reported investment losses on both the defined contribution (DC) and the larger defined benefit (DB) sides of its portfolio in the third quarter of this year, saying market prices had fallen back due to the expectation that central banks would keep interest rates at high levels for longer than previously envisaged.

Total assets for Sweden’s largest pension fund – whose chair recently quit in the ongoing crisis over big losses on certain large investments – shrank to SEK1.19trn (€102bn) at the end of September from SEK1.21trn at the end of June, according to yesterday’s interim report.

The DC product Alecta Optimal Pension lost 2.8% between July and September, based on the 60%-equities profile, while the DB portfolio lost 2.0%, the new data showed.

For the first nine months of the year, the returns for the two schemes were positive, however, at 3.4% and 2.2%, respectively.

Alecta commented on its investment markets in the third quarter, saying rapidly falling inflation and forecasts of weaker growth had meant that the Fed, ECB and Sweden’s Riksbank had all signaled that the interest-rate peak was close.

“Nevertheless, the central banks believe that inflation risks remain, so we can expect ‘higher for longer’ i.e. the key interest rate will remain high for a long time to come,” it said, adding that this realisation had – above all in the US – led to a sharp rise in long-term interest rates during the quarter.

Rising rates caused negative returns for Alecta’s bond holdings during the quarter, the occupational pension provider said, even though the yield from fixed income holdings has been weakly positive since the start of 2022, it added.

“The real estate sector is still negatively affected by the rising interest rates and, above all, the more indebted real estate companies that suffer from ever higher financing costs,” it said.

“The value development during the third quarter for Alecta’s properties has been marginally positive, but the development since the turn of the year has been negative,” it said.

However, the firm noted that valuations for a large part of its real estate holdings had not been updated for today’s quarterly report.

Read the digital edition of IPE’s latest magazine