Swedish pension AP1 reported an 8.6%, or SEK39.9 billion ($3.81 billion), investment loss in 2022, as its fixed-income and equity investments weighed down the portfolio to lower its asset value to SEK421.2 billion from SEK465.8 billion at the end of 2021.
The pension fund blamed the fixed-income and equity losses on Russia’s invasion of Ukraine, lingering effects of the COVID-19 pandemic, high inflation and rising interest rates.
“2022 marked a dramatic end to the market environment of low inflation, record-low interest rates and growth that have boosted returns on financial assets since the global financial crisis of 2008,” AP1 CEO Kristin Magnusson Bernard said in a release. “Instead, simultaneous drops in equity and fixed income returns occurred through most of the year.”
Despite the overall negative returns, AP1’s alternative investments portfolio, which includes real estate, infrastructure and private equity funds, reported a positive return in 2022.
Bernard said that amid the current economic environment, the pension fund has taken short- and long-term moves to protect its investments. These moves include pro-actively changing its positions based on prevailing market conditions, such as by lowering equity exposure and reducing the duration of its fixed-income portfolio.
She also said that AP1 conducted its active ownership activities in 2022 with an increased focus on environmental, social and governance strategies.
“We have also kept our focus on sustainability to promote sustainable development, and we have implemented the new ESG strategy adopted by the board in 2021,” she said in a statement. “We also took further steps toward our goal of a carbon-neutral portfolio by the end of 2050, with a further reduction in the carbon footprint of our listed equity portfolio.”
Bernard said that part of the new ESG strategy includes directing more capital to investments that support sustainable development, while also meeting the pension fund’s risk-return requirements. She added that, since 2019, AP1 has reduced the carbon footprint of its listed equity portfolio by 57%.