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AP1 seeks hedge fund managers for diversification

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SWEDEN - Första AP-Fonden, the First Swedish National Pension fund (AP1), is seeking as many as three strategic partners to run hedge fund portfolios valued up to $1.5bn (€1.2bn).

The pension buffer fund, which had assets of SEK202bn at the end of 2009, is aiming to diversify its investment portfolio, which consists primarily of traditional assets such as equities and bonds.

AP1 highlighted its intention to increase its alternative allocation in April in its annual report, despite the current allocation to hedge funds, real estate, private equity and opportunity investments losing 3.4% in 2009. (See earlier IPE article: Alternatives to play a greater role in AP1 strategy)

In the official tender notice, AP1 confirmed it was now searching for one to three strategic partners to implement hedge funds portfolios.

It said it would consider different structures and solutions for the mandates, "covering the full investible universe or a subset of the market".

The target allocation for the hedge fund portfolios is $1.1bn-1.5bn.

AP1 added the aim of the mandate was to "diversify the overall investment portfolio", with partners delivering "proven and consistent" high risk-adjusted returns and low correlation to equity and bond markets.

Although the pension fund suggested it did not have a "firm preference" for the legal structure of the investment solutions, it has highlighted a number of key objectives, including segregated vehicles for each strategic partner, tax transparency and the right for AP1 to veto any investments in the hedge funds "due to overall portfolio considerations or material adverse effects related to the strategic partner".

The closing date for tender submissions is 29 August. Further information can be obtained from AP1's procurement department.

Meanwhile, AP1 and the three other pension buffer funds - AP2, AP3 and AP4 - are searching for a provider of company and sector analysis on environmental, social and ethical (ESG) issues and advisory services.

AP1 has issued the tender on behalf of the four pension funds' joint ethical council, with the aim of providing the council with "qualified information and analysis" regarding company behaviour and strategy to ensure the "limited resources of the Ethical Council are used efficiently and address the most important issues".

The areas of work covered by the mandate include:

Systematic screening of company-related incidents that can associate a company to violations of international conventions or violations of the UN Global Compact Company-related analysis regarding environmental, social and ethical issues, focusing on aspects such as quality of policy, management systems, implementation, reporting and verification Sector and theme analysis regarding ESG issues Advice and support regarding dialogue with companies related to those issues

The tender is for a three-year contract, and although the four buffer funds do not share a common view on how to integrate ESG issues into their respective investment strategies, the joint information provided to the council can be used by the funds on an individual basis.

The closing date for submissions is 9 August.

Each application will be jointly evaluated by the four pension funds, but each of them will make an independent decision regarding the procurement.

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