Swedish buffer fund loses €2.2bn in H1
SWEDEN - Andra AP Fonden, the second Swedish national pension fund buffer (AP2), lost SEK20.3bn (€2.2bn) in the first half of 2008, following recent volatility in global markets.
The Swedish buffer fund's half year report revealed it had a negative return of -9.1% on its total portfolio for the first six months, reducing the value of its capital assets to SEK207.2bn at the end of June, compared to SEK227.5bn at the end of December and SEK232.8bn at the halfway point in 2007. (See earlier IPE article: Emerging markets lifts AP2 assets)
Figures showed the return on assets, less commission costs and operating expenses, amounted to -9.2%, leading to a net loss of -SEK21bn, albeit the report noted the decline in global equity markets is the "main driving force" behind the poor results as the fund had "no direct exposure to the US housing market and the complex credit instruments that had sprung up in recent years".
Eva Halvarsson, chief executive of AP2, said: "It's been a tough first half, which has been severely affected by concern over the state of the US financial market and its consequences."
The fund's total exposure to foreign currencies was 9% at the end of June 2008, with a relative negative yield of -0.2%, while real estate exposure also increased by two percentage points in early July, after the reporting period, following the SEK41bn acquisition, by AP Properties, of the former state-owned real estate company Vasakronan. (See earlier IPE article: Sweden sells E4.4bn real estate arm to AP)
In the first half of 2008, AP2 continued with its existing asset allocation - in place since its inception in 2001 - of a strategic portfolio with a high proportion of shares held for the long-term to achieve high returns.
AP2 currently invests 60% in equities - 40% overseas and 20% Swedish -along with 36% in fixed income and interest-bearing assets, 3% in property and 1% in venture capital, although the fund revealed since 2007 it has adopted a new management model using different teams - such as Swedish, global, quantitative, external management and tactical asset allocation (TAA) - to allow respective portfolio managers to invest in several different asset classes.
The report claimed this method highlights the difference between yields to show which are created by exposure to a given market - the beta-return - and the relative return against a benchmark portfolio - the alpha-return.
In particular, the interim report noted quantitative management "plays an increasingly important role in the fund", as it revealed the internal quantitative management team has been successful with portfolios managed against a GDP-weighted MSCI index, and an equally-weighted Swedish OMX index, contributing 0.16% to the fund's overall relative return in the first half.
However, figures revealed the management of Swedish securities over the period resulted in a 0.11% negative return, although the management of global shares, interest rate and currency investments achieved -0.03%.
Overall, the contribution from the management teams returned a relative negative yield of -0.2% below the benchmark portfolio return of -9.8%, despite the TAA team's small "positive contribution" of around 0.01%, and a slightly better performance of 0.09% from the external managers who are responsible for around 20% of the total assets.
Fund officials claimed "most of the negative returns derived from the fund's long-term Swedish portfolio of shares", as the SEK38.9bn investments produced a negative yield of -18.3% in the first half - -0.4% below the benchmark portfolio.
Global equities, valued at SEK80.7bn, performed slightly better with a negative return of -16% and private equity returned -1%, while the alternatives asset class reported the best performance with a yield of 2% overall. The fund's two unlisted real estate companies - Norrporten and AP Properties - also produced a combined return of 2.9%, and fixed income reported a yield of 0.1%.
The full half-year report will be available in English at the end of August and a separate corporate governance report will be published by AP2 in September.
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