AP6, the smallest Swedish national pensions buffer fund which invests solely in private equity, reported a positive return of 1.9%, with gains on investments excluding currency hedging having been all but lost as a result of the currency hedging the fund is required by law to do.

The Gothenburg-based investment institution said in its annual results release on Monday: “AP6 delivered positive net earnings for the year of SEK1.3bn (€117m) and a return of 1.9%, despite a strong negative effect from statutory currency hedges.”

Excluding currency hedges, it said, the investment portfolio had delivered a return of 15%.

Katarina Staaf, AP6’s chief executive officer, said: “Our portfolio strategy was put to the test in reality during this turbulent year.”

“By combining fund and co-investments within buyout with a smaller allocation of higher risk assets in venture, as well as a stable return from secondaries, we have an overall portfolio that provides a high return with a good risk balance,” she said.

Staaf said in the annual report that the underlying investment result, without currency hedges, had generated some strong gains, with secondaries returning 25.9%, buyout 16.3% and “even venture showing a cautiously-positive result of 5.2% despite a very challenging year”.

“Certainly, the foreign assets have had a positive value increase measured in Swedish crowns due to the currency effects, but the net result from the hedges is still negative by SEK1.9bn,” Staaf said.

The CEO questioned the rationale for AP6 being required by law to hedge foreign exchange.

“The long investment horizon within this illiquid asset class will go through many currency fluctuations during the lifetime of each investment, which is why it is difficult to see the advantage of mandatory currency hedging,” she wrote in the report.

Looking ahead, she said AP6 was confident its portfolio strategy, “executed by a very competent investment organisation with long experience of fund investments within buyout, secondaries and venture as well as of co-investments”, would still deliver successful long-term returns to the Swedish pension system.

“During 2022 have we worked actively to develop the portfolio by strengthening our management selection, been active in the secondary market as well as having refined our long-term strategy,” she said.

AP6’s total assets rose to SEK68.6bn at the end of December 2022 from SEK67.2bn 12 months before, the fund reported.

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