After reporting 9.1% investment returns in 2017 totaling 28.8 billion SEK ($3.5 billion), the Second Swedish National Pension Fund’s (AP2) assets have grown to 345.9 billion SEK ($42.1 billion).
While 2017 returns are slightly less than 2016’s 10.5%, the results—albeit a mixed bag in terms of comparisons—continue to exceed the fund’s long-term targets in both the long and short terms.
“Our return has continued to develop positively after yet another year with good results at a low cost. We are following our long-term strategy and have worked intensively in the area of sustainability,” AP2 CEO Eva Halvarsson said in a statement. “The average annual real return for the last five and10 years amounts to 9.0% and 5.0%,respectively. This exceeds our long-term goal and shows that over time, we have the ability to create value for Sweden’s pensioners, even in periods characterised by a turbulent world around us with financial crises.”
Domestic equities returned 11.3%, with developed markets equities returning 10.7% for the year. These were mixed, as domestic equities produced slightly more than 2016 (9.1%), whereas developed markets equities raked in less than the year prior (16.9%).
In emerging markets, equities performed better (20.6%) when compared to the previous year, where they garnered 18.9%, while debt (3.5%) and green bonds (-0.6%) saw better days in 2016, where they returned 17.8% and 5.6%, respectively.
Fixed income was also wishy washy, with Swedish debt, overseas government debt, and overseas debt returning 0.6%, -2.3%, and -1.7% in 2017 versus 2.2%, 8.3%, and 12.3% gains in the previous year.
The rest of the portfolio, allocated to real estate, venture capital, alternative risk premiums and credit, and Chinese government bonds and equities also returned positive for 2017 (9.5%), but also less than 2016, where it returned 13.5%
While pleased with the returns, Halvarsson plans to continue the fund’s mission of developing its portfolio to include sustainability in all of its management. In 2017, the fund created two multi-faceted indices, where the majority of the weighting was determined by ESG (environmental, social, and governance).
“We aim to develop our portfolio in line with the two-degree target and our vision has long been to integrate sustainability in all our management,” she said. “An important step in integrating sustainability as part of the investment decisions is that we have continued to implement ESG in the global equities asset class in our internal quantitative management. It is approximately 29% of the total portfolio and amounted to SEK 99 billion at year-end.”