A flippant, fearless, and fundamental countdown of big money investing.

48 46
Art by Michael Cho

#47 Experience

The Sustainability Preacher

In December 2006, Sweden’s AP4 had SEK 180 billion ($22 billion) under management, the smallest of the four main AP funds that back Sweden’s state pension system. It was a perennial underperformer compared to its benchmark and sister funds.

Enter Mats Andersson as CEO, a former Deutsche Bank investment banker and AP3 portfolio manager.

As he prepares to step down after a decade at the helm, Andersson is as active as ever. He is now a leading international voice on sustainable long-term investing thanks in part to a unique long-term mandate granted by AP4’s board.

CIO: What do you remember from your first days on the pension side?

Mats Andersson: I joined AP3 in 2002, and many things were different. Moving from the sell side to the buy side, it was a totally different atmosphere.

I still remember how scary it was to actually take on a portfolio and manage other people’s money. Not only that, it was other people’s pension capital that I had to look after. On the other hand it’s such a meaningful job, and an important one. It was also fantastic to get access to all the people out there. It was challenging—and still is.

CIO: How has the industry changed since then?

Andersson: I think it has become more shortsighted—mainly driven by regulation and different forces in the market. At that time there were hedge funds, but they were not that present. I think they have increased the tempo and it’s become far more complex than it was 15 years ago. The job is also more global: We’ve never been more global than we are today.

There’s also an information overload. I probably receive 200 emails a day, and it’s impossible to sort that out. The industry lacks the long-term approach that was more common 15 years ago.

CIO: In addition to your role at AP4, you’ve also been very involved with various international projects on sustainability and climate change. What prompted you to get involved with these projects?

Andersson: It started some five years ago. My mentor László Szombatfalvy, who was an equity investor, made a fortune, then decided to set up the Global Challenges Foundation. He kept asking me, “As a long-term investor running a pension fund, how do you tackle the risk of climate?” I didn’t even know climate change was a risk.

When I met with pension funds in Europe and the US, they all measured risk as volatility. I asked them what their exposure to climate risk was, and no one had
an answer.

I also met Patrick Bolton at Columbia Business School and Frédéric Samama at Amundi who held a conference discussing long-term investing, long-term capital, and how investors should engage with sustainability. I understood sustainable investing comes down to the individuals: László, Patrick, and Frédéric convinced me.

It says by law in Sweden that we are supposed to take environmental, social, and governance issues into account without giving up returns, which at that time I thought was impossible. We found a way by decarbonizing.

CIO: What do you think was the most important investment-related decision you’ve made?

Andersson: Three or four years ago I convinced the board to give us a strategic mandate to invest with a horizon of between five and 15 years. I still haven’t come across a pension fund that has the same luxury. It’s absolutely key to our success at AP4 that we’ve been able to do that.

When you can tell managers that they will get this money for 10 years and we’ll stick with them, we don’t face competition. Nobody else is doing that. We can find good, smart people who are all thrilled to have such a mandate. It has delivered some 200 basis points per annum for the past three years in excess return above our benchmark.

CIO: What advice do you have for a young asset owner who’s just starting out?

Andersson: Understand the long-term mandate and the possibilities it can give you. Secondly, understand that sustainability is a driver of good returns. There is no conflict there. Thirdly, be different. Try to do right, instead of being afraid of doing wrong.

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