Ahead of its liquidation at the end of this year, Swedish national pensions buffer fund AP1 reported a range of tactics its investment team took between January and June to protect its assets and maximise returns in harsh market conditions.
The big-four funds in the buffer system, which is facing its biggest organisational shake up in a quarter of a century, posted six-month returns in a narrow range.
AP4 led the pack, according to interim reports released at the end of last week, with a 2.2% investment return. Its total assets rose to SEK557.7bn (€50.6bn) by the end of June from SEK548.2bn at the beginning of the year — making AP4 the largest of the funds by a narrow margin over AP3.
AP3, meanwhile, reported a 0.7% return for the first half, with total assets creeping up to SEK550.6bn from SEK549.0bn.
Gothenburg-based AP2, the only one of the four to be based outside Stockholm, posted a six-month investment gain of 0.4%, with fund capital coming to SEK458bn at the end of June.
AP1, whose assets are set to be divided up between AP3 and AP4 at the end of 2025 under the reform of the national pensions buffer funds system passed by Parliament on 20 May, reported a 0.6% net investment return, with its assets amounting to SEK497.2bn at the end of June.
AP1 said all its asset classes had contributed positively to the return, and that it had increased currency hedging during the period in order to protect the return on foreign assets as the Swedish krona strengthened during the period.
“This measure proved effective and helped offset an otherwise negative impact on net investment income,” the fund said.
“The exposure to North American equities was reduced in favour of European equities, and holdings in US treasury bonds with longer maturities were adjusted downward,” it said.
Kristin Magnusson Bernard, AP1’s chief executive officer, referred to the upcoming liquidation of the fund, saying the implementation of an orderly transfer to AP3 and AP4 was proceeding according to plan.
“I am grateful for the commitment, competence and responsibility invested by our employees, not least in connection with the important and complex handover work that is currently ongoing,” she said.
Niklas Ekvall, AP4’s CEO, said the economic situation remained difficult to interpret, and his fund was dealing with the uncertainty by keeping a strong focus on enhancing the diversification and robustness of the portfolio in relation to the different economic scenarios identified in its long-term economic analysis.
“One example is the work done to strengthen the portfolio for a more volatile inflation scenario. Another example is our growing focus on identifying and adjusting the portfolio to the increased concentration risks we see in financial markets,” he said.
AP3 said that during the first half of this year, it had continued to work closely with AP4 on the implementation of a new, cloud-based portfolio system, which it said would go live in the autumn.
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