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AP2 shifts €100m out of hedge funds

SWEDEN – Andra AP-fonden, the Second Swedish National Pension Fund, has shifted almost SEK1bn (€100m) into equities following the cancellation of nine hedge fund mandates due to the “cannibalism” of resources.

The SEK173bn (€18.5bn) fund cancelled the hedge funds - including Goldman Sachs Global Opportunities, Zenit, DnB and Nektar – after results for the first half of 2005 were revealed. The funds have been redeployed into mainly equities and private equity.

Low and inconsistent returns during the first half of 2005 – hedge funds scooped a mere 3.2% while combined alternative investment returns stood at 15.4% - were blamed for the cancellation.

AP2’s head of fixed income and alternatives, Ole Petter Langeland, insists that the cancellation was not due to dissatisfaction with the portfolio or the way the investment worked out.

“We only had a small allocation in hedge funds but this consumed lots of internal resources and time. We could not increase the allocation to a level that would have a meaningful impact on the risk and return level of the portfolio,” he told IPE.

The fund traditionally allocated 5% to alternative investments: 1% in hedge funds, 3% in real estate and 1% in private equity.

“In the end it was just too cumbersome and time consuming. It cannibalised our resources,” said Langeland.

This cancellation follows on the heels of the termination of 16 external mandates in February this year due to their underperformance in 2004. Four Swedish and 12 European equities mandates were cancelled in the fund’s bid to enhance asset management.

AP2 will continue a small hedge fund network with Amplus and the €380m Nordic investment fund, Eikos. “This is due to a closer co-operation on the equities side especially,” said Langeland.

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