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Sweden’s AP6 doubles returns after portfolio revamp, AP3 tackles costs

Swedish national pension fund AP6 — which invests solely in private equity — reported a 12.3% overall return in 2017, almost twice the investment profit it had made the year before.

The Gothenburg-based state pension buffer fund said the return on capital actually invested in private equity funds and unlisted companies reached a record high of 20.3% for 2017, up from 9.5% the year before.

Karl Swartling, chief executive of the Sixth AP Fund, said: “The return for the year is a result of a deliberate effort to restructure the portfolio and a high investment rate over the past five years.”

He said a good flow of attractive investment opportunities from existing and new partners had resulted in many new investments in 2017.

“Our striving to be selective in terms of partners and holdings is an important reason for the year’s good results,” Swartling said.

Smaller than Sweden’s other four buffer funds, AP6’s total capital grew to SEK 31.6bn (€3.16bn) by the end of 2017 from SEK 28.1bn a year before.

AP6 is a closed fund, neither receiving new resources from the Swedish state nor disbursing money into the pension system, and holds assets both in the form of deployed capital and liquidity.

The pension fund says the balance between the latter two can vary widely from year to year, being affected, for example, by large divestments.

In 2017, the investment rate was still high and a large number of new fund commitments were completed, the fund said, with 10 new direct investments implemented.

The fund reported that it finished the year with 36% of its assets in direct investments, 34% in funds and 30% in liquid instruments. This revealed a decrease in liquidity from the previous year, when these proportions had been 28%, 31% and 41% respectively.

Over the last five years, AP6’s annual return on capital employed has been 11.6%, it said.

AP3 scales back on hedge funds

Sweden’s AP3 pension fund posted an 8.9% return for 2017 and said it had worked on cost-saving measures during the year — partly by cutting the proportion of hedge funds held in its portfolio.

Releasing its annual report, AP3, which is based in Stockholm, said total fund capital increased to SEK345.2bn by the end of 2017 from SEK324bn a year before.

Kerstin Hessius, the pension fund’s chief executive, said: “Over the year, we worked to contain costs by moving into smaller premises and by reducing the share of hedge funds in the portfolio.”

AP3 had also intensified the cooperation among the AP funds in 2017, she said.

The pension fund’s return before costs of 8.9% is broadly in line with the 9.1% and 9.2% returns before costs reported by AP2 and AP4 respectively earlier this month.

AP1 has yet to report full-year figures.

AP3 said it had outperformed its benchmark portfolio by 2.1 percentage points after costs in 2017.

During the year, the pension fund paid SEK7.37m into the Swedish pension system, up from the SEK6.64m outflow of 2016.

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