SWEDEN - The level of active risk taking among the AP funds is still "considerably lower" when compared to benchmark levels, according to Wassum's government commissioned report.
Wassum, the consultants appointed to evaluate the performance of the funds, said that there is a need for further improvement in areas such as “activity levels” and the ability to take on active risk in operational management.
In a report to the government, the consultants noted that the tactical and strategic decisions taken by the boards of some AP funds are not reflected in the actual returns or performance of the funds.
“In some cases, activity is hidden in changes to the reference portfolio or the benchmark and so the operational activity is still quite low in some cases on a general basis,” Wassum said.
Unlike last year, where the focus of the report was the high correlation among the funds, this year Wassum has examined the “strategic differences” between the portfolios of the funds.
The report noted that AP3 had the lowest risk due to its low equity allocation (at 55% compared to nearly 60% for the others). Wassum also noted that AP3 showed “more skill” than the other AP funds.
AP2 is said to have a Swedish bias, with a higher proportion of its portfolio in domestic assets. The fund also has the lowest foreign exchange risk with its currency exposure mostly in Swedish Kroner. AP2 has a currency risk corresponding to 8% of the portfolio, whereas the other funds had around 20%.
AP4 has the highest equity share and AP1 has the largest holdings of index linked bonds and comparatively more in global equities compared to domestic equities.
Indicative results found that AP2 and AP3 have delivered excess return of 0.2%, while AP1 has delivered a negative active return of 0.1% return annually, with AP4 also posting a negative active return of 0.5%.
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