Total return of –4.2 percent.
Due to the sharp downturn in the stock market during 2001, the Third Swedish National Pension Fund (Tredje AP-fonden, AP3) reported a negative asset management income amounting to SEK –5.8 billion. This was equivalent to a total return of –4.2 per cent (after expenses).
On 31 December 2001, the value of the Fund’s portfolio amounted to SEK 132.8 billion, including an inflow of pension contributions totalling SEK 4.5 billion. At the beginning of the year, the portfolio stood at SEK 134 billion.
For the liquid part of the portfolio, which excludes real estate, the return amounted to –4.4 per cent. This was 0.2 percentage point better than the Fund’s benchmark index, which declined by 4.6 per cent.
“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,” says Tomas Nicolin, CEO of AP3, in a commentary.
More than three fourths of AP3’s assets are managed actively by the Fund’s own portfolio managers. The rest is in index management by 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 percentage points.
The Fund’s management expenses amounted to SEK 110 M, which was equivalent to 0.08 per cent of managed assets. Nearly half these expenses consisted of staff expenses. During the year, the number of employees rose from 29 to 38.
New reference portfolio for 2002
During the autumn of 2001, the Fund updated and deepened its Asset/Liability modelling study, which is an analysis of the Swedish national pension system’s long-term development and what portfolio mix will create the greatest benefit in relation to the Fund’s commitments. This analysis was based on the latest forecasts from Statistics Sweden, which point towards a population trend more favourable to the development of the pension system than earlier projections.
As a result of this study, the Fund’s Board of Directors has approved certain adjustments in the reference portfolio for 2002. The proportion of equities in the reference portfolio is increased by 5.5 percentage points, real estate by 1 percentage point and index-linked bonds by 0.5 percentage points. The proportion of interest-bearing assets is reduced by 7 percentage points.
At year-end 2001 the share of the Fund’s assets exposed to foreign currency risk amounted to 8.1 per cent, compared to the upper limit of 15 per cent prescribed by law. For 2002 this limit is raised to 20 per cent. 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 per cent on foreign equities and 100 per cent on foreign bonds. 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 per cent.
The complete Annual Report for 2001 will be published in its official Swedish version on 4 March 2002. It will be available in an English translation a few weeks later.