Another Swedish Pension Shield Had a Not-Great 2018

Two of the nation’s four retirement system reserves experienced lackluster returns last year.

One of Sweden’s pension fund reserves, AP3, had a barely profitable 2018 amid market volatility, returning a miniscule 0.6% for the year. That’s at least better than the loss logged at another of the funds, AP2.

The slim $235.8 million profit put AP3’s size at $37.9 billion. However, assets fell 1.3% $728.9 million thanks to payments made to the retirement system. The fund, one of four emergency savings vehicles for the nation’s pension system, returned 8.8% the year prior.

Equities were to blame for the barely positive returns, as stocks contributed a 9.8% loss. Fixed income also had hiccups, slipping 1.1%. The fund hedged these bets with inflation-linked assets and credit, which returned 14.8% and 0.7%, respectively.

“Our real estate investments and other unlisted assets, as well as currency positioning, were against [losses] and created the positive result,” said Kerstin Hessius, AP3’s chief executive officer.

The news comes on the heels of its Gothenburg-based sister fund, AP2’s reported 1.3% loss in the same period.

Despite these issues, the AP3 fund has averaged an annual 7.8% for the past five years and 7.4% over the past 10. The fund has also beaten its long-term target of 4% per year since its 2001 inception.

Another silver lining for the fund was increases to its strategic sustainability investments, which stood at $3.05 billion on Dec. 31. The environmental, social, and governance (ESG) class has now doubled in size since it achieved its four sustainability goals implemented in 2014: halving its carbon footprint, tripling its green bond allocation, doubling the section’s size, and keeping Nordic property titan Vasakronan at the forefront of sustainable real estate.

“The result for the year shows the importance of a long-term sustainable portfolio with both listed and unlisted assets,” Hessius said, promoting optimism for the new investment laws that came into effect last month, as they provide the AP funds greater flexibility with their illiquid and alternative investment decisions. The chief added that these new rules “both promote the integration of sustainability and the diversification of the assets in the portfolio.”

AP3’s portfolio allocation was 37.6% equities (26.7% global, 10.9% domestic), 37.5% bonds, 13.4% real estate, 4.5% infrastructure, 3.8% venture capital, and 1.8% absolute return strategies. The last 4.2% was evenly split between forestry and insurance risk.


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