SWEDEN - Sweden's third national pension fund, AP3, posted a SEK5.8bn drop in assets, days after AP2 also announced its second successive slump in 2001.
AP3 cited the sharp downturn in the stock market during 2001 for the drop, which amounted to a –4.2% net return.
At the end of December, the value of the fund’s portfolio amounted to SEK132.8bn, including an inflow of pension contributions totalling SEK4.5bn. At the beginning of the year, the portfolio stood at SEK134bn.
For the liquid part of the portfolio, which excludes real estate, the return amounted to –4.4%, only marginally better than the fund’s benchmark index, which declined by 4.6%.
Commenting on the results, AP3 chief executive officer, Tomas Nicolin said: “In light of the turbulent market developments and the fact that the fund’s operations during the first half of 2001 focused on the extensive task of adjusting the portfolio to our new asset management mandate, I believe that this performance is satisfactory.”
More than 75% of AP3’s assets are managed actively by the fund’s own portfolio managers. The rest is in index management by undisclosed external asset managers.
In the internally managed portion of AP3’s assets, both the equities portfolio and the fixed income portfolio outperformed their benchmarks during 2001. The Swedish equities portfolio showed the best performance, outperforming its index by 3.4%. Management expenses amounted to SEK110m, which was equivalent to 0.08% of managed assets. Nearly half these expenses consisted of staff expenses. During the year, the number of employees rose from 29 to 38.
Last year, the fund updated its asset liability modelling study and approved certain adjustments in the reference portfolio for 2002. The proportion of equities in the reference portfolio increased by 5.5%; real estate by 1% and index-linked bonds by 0.5%. The proportion of interest-bearing assets was reduced by 7%.
At year-end 2001 the share of the AP3’s assets exposed to foreign currency risk amounted to 8.1%, compared to the legal upper limit of 15%. For 2002 this limit has been raised to 20%. However, the fund has decided to apply unchanged currency hedge ratios in the reference portfolio - the long-term benchmark for the fund’s investments - of 80% on foreign equities and 100% on foreign bonds. But the increased proportion of foreign equities in the reference portfolio implies, however, that the proportion of this portfolio exposed to currency risk will increase from 8.5 to 9.6%, said AP3.
The complete annual report for 2001 will be published on March 4.
By Madhu Kalia
The Pensions and Lifetime Savings Association (PLSA) has announced it will shrink its board by more than one-third as part of a governance overhaul to make it "agile and more appropriate".
Smaller FTSE 350 defined benefit (DB) schemes were nearly 15 percentage points less well-funded than larger schemes in 2017, according to a Goldman Sachs Asset Management (GSAM) analysis.
The advent of collective pension systems could help the UK avoid demographic challenges which will make it "impossible" for society to help savers in retirement, experts say.