SWEDEN - Tredje AP-fonden, the third Swedish national pension fund (AP3), has pulled assets from Merrill Lynch Investment Managers to fund a new specialist US equities portfolio.
The mandates are a part of the fund's long term strategy to increase its share of active management.
AP3 has appointed Axa Rosenberg Investment Management and Batterymarch Financial Management to oversee US$380m in active US small and midcap equities. The mandate will be divided equally between both managers.
AP3 said that Axa and Batterymarch had complementing investment styles, contributing to the risk diversification of the portfolio.
The reference index for the two mandates, which will be managed locally in the US, is the Russell 2500 (ex-REITs) .
AP3 portfolio manager, Lena Djurberg, said that the decision to fund the mandates using Merrill’s assets did not stem from performance concerns.
“We wanted to keep the (16.8%) weighting in the US in tact,” she said.
At the end of December 2002, Merrill handled SEK12.4bn in passive North American equities and SEK5.4bn in semi-passive or enhanced North American equities.
Both portfolios returned -35.2% and -10.4% respectively last year.
AP3 said: “Until now, all of [our] holdings of US equities have been allocated to passive or enhanced indexing mandates.
“The US small and midcap equity market is widely believed to be a market where active management can add value.”
In addition, agreements have been signed with five other managers who remain on a reserve list. They are Dimensional Fund Advisors; Harris Investment Management; Mazama Capital Management; New Amsterdam Partners; Times Square Capital Management.
On a separate note, all six AP funds recently came under fire in a report commissioned by the Swedish Finance Ministry.
The report, compiled by Hewitt Wassum Investment Partners (HWIP), showed that the funds lost a total of SEK85.6bn last year. AP3 alone saw SEK12.5bn (e1.4bn) wiped off its capital value by dismal stock markets, bringing its assets to SEK120.2bn.
But co-author of the report at Stockholm-based HWIP, Nicklas Fahlstrom, confirmed that AP3 was commended on its diversification and risk management, including its benchmark selection and investment strategy.
AP3 recently restated its long-term asset allocation as 54.5% equities; 37% bonds (7.5% index-linked) and 8.5% real estate.
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