AP2, one of Sweden’s main four buffer funds backing the state pension, reported a 5.9% total return after costs for 2023 and outlined changes it had made to its own organisation and investment strategy to cut costs and boost returns.

After net payments to the national pension system of SEK4.8bn (€427m), the Gothenburg-based fund said its assets under management had grown to SEK426bn by the end of 2023 from SEK407bn a year before – and that it had outperformed its benchmark by 0.2 percentage points.

Eva Halvarsson, chief executive officer, said last year had been eventful, with inflation and interest rates having peaked in the summer before falling later.

“Our result has been affected both by a positive development of primarily Swedish and foreign developed equity markets, but also by a negative development mainly within our real-estate investments,” she said.

Internally, Halvarsson said 2023 had been characterised by extensive work to reshape the fund’s governance and organisation in order to better cope with a changing world.

“Naturally we have always devoted time and energy to continually improving the organisation, but in 2023 we worked alongside our employees and the board to look at all aspects of operations,” she said, adding: “We reviewed our asset management strategy, with the aim of generating a better return using a more dynamic and efficient approach.”

“One further change that affected 2023 was our efforts to cut costs,” the CEO said.

Before the start of the year, she said, AP2’s board had decided to reduce the total cost budget by 16%, which was a result of its decision to bring most of its externally-managed mandates in-house, and to discontinue management of Chinese A shares.

“We have been able to achieve this without any additions to our internal resources,” Halvarsson said, adding that relocating its office to new, smaller premises had also meant a cost reduction.

Cost efficiency is at the heart of a new Swedish government plan to slash the number of state pension buffer funds.

A month ago, the government announced it was broadening the reform of the system it launched in October to include consolidating AP1, AP3 and AP4 into two funds – on top its intention of merging the smaller private-equity specialist AP6 and AP2.

AP1, AP3 and AP4 are set to report their 2023 results early next week.

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