Our alternative investments are a strategically important area consisting of unlisted holdings in private equity, real estate, timberland, infrastructure and insurance-linked securities (ILS).
AP3 invests in the built environment and infrastructure
AP3’s real estate investments help build Sweden. AP3’s real estate portfolio includes the holding in Sweden’s largest real estate company, Vasakronan, a majority stake in the community service real estate company, Hemsö, as well as majority stakes in the minor companies Trophi and Regio, with a focus on regional investments. In late 2015 Trenum was founded, a joint venture between AP3 and the real estate company Balder for investments in residential real estate in Sweden. A sizeable equity interest gives AP3 the ability to exert active stewardship and take a proactive part in developing the company’s strategy. Board membership is an effective way to exercise influence and drive sustainability efforts forward. AP3 has also made substantial investments in other real estate and infrastructure endeavours.
Major real estate holdings
Vasakronan – Sweden’s largest real estate company
Vasakronan is Sweden’s largest real estate company and is owned in equal share by AP1, AP2, AP3 and AP4. Vasakronan owns, develops and manages commercial real estate in Stockholm, Uppsala, Gothenburg, Malmö and Lund. Its portfolio comprises more than 170 properties with total floor space of over 2 million square metres, most of which is located in Stockholm.
High ambitions in sustainability
A majority of Vasakronan’s property portfolio is eco-certified. Reflecting its high sustainability ambitions, Vasakronan launched the world’s first green corporate bond.
Hemsö – community service properties
Hemsö is Sweden’s leading private owner of community service buildings. AP3 is the main shareholder, directly and indirectly owning 85% of the equity. The real estate company Sagax holds a minority stake.
Hemsö owns, manages and develops buildings used for nursing homes, education, care facilities and legal establishments. Hemsö aims to be the best provider of community service properties, and its operations are hallmarked by a long-term, sustainable approach in management and development. The company aspires to ”be the preferred property partner for municipalities, regional councils and private operators”, and currently owns more than 300 community service properties in Sweden, Finland and Germany.
Of AP3’s current property portfolio, the Fund has been involved in building up two of the companies: Hemsö and Trophi. The Fund is currently also working on building another two companies: Regio, a joint venture with the real estate company Sveafastigheter, which invests in office and commercial buildings in expansive mid-sized Swedish cities, as well as Trenum, a joint venture with the real estate company Balder for investments in residential real estate in Sweden.
Trophi – grocery retail
Trophi Fastighets AB was founded in late 2012 and is currently the leading Nordic grocery retail property owner, with a portfolio of over 250 outlets in more than 200 locations in Sweden and Finland. The name Trophi comes from the Greek word for food. Trophi is wholly owned by AP3 though the portfolio is managed by Redito.
Regio – regional retail and offices
In 2015, AP3 established Fastighets AB Regio as a joint venture with Sveafastigheter. The company invests in office and retail properties in growing medium-sized Swedish cities and on the outskirts of Sweden’s major urban centres. Sveafastigheter manages the business and AP3 is the majority shareholder.
AP3’s infrastructure investments include investments in both unlisted and listed funds, as well as direct investments. The largest holding consists of the electricity distribution company Ellevio, which was acquired from the Finnish company Fortum in the spring of 2015.
Ellevio is one of Sweden’s largest electricity distributors and supplies electricity to more than 930,000 households across much of the country. This investment is part of the real estate portfolio. In the next few years Ellevio will make substantial investments in providing modern electricity grid services for rural areas and upgrading the existing grids in and around Swedish cities. The company has about 400 employees and is responsible for just over 3,000 jobs nationwide.
In addition to Ellevio, the infrastructure portfolio also includes investments in social infrastructure, water treatment and renewable energy sources.
AP3 began building its portfolio of timberland investments in 2004. This has resulted in a global portfolio with investments in Sweden, Latin America, North America, Africa and Asia. Holdings are concentrated in a group of around 10 timberland funds, though AP3 also has direct investments in forest land and in forest company Gysinge Skog. Investing in different regions and types of tree enables the Fund to diversify risk in the timberland portfolio. Trees grow faster in tropical regions than in Sweden. In many cases, timber from tropical zones is sold into other markets, which promotes risk diversification.
Timberland is well suited to being a longterm investment for AP3. Forests take decades to grow and as they do so they store carbon dioxide. Forest growth is also independent of the business cycle, which helps to stabilize portfolio returns from year to year. Indeed, the portfolio is equipped to deliver returns even if climate scenarios turn negative. Increased atmospheric carbon and higher temperatures due to global warming can be expected to promote faster tree growth in Sweden’s forests.
Forests are the historic source of raw material for the pulp and timber industries and remain so today. At the same time, new segments – such as wood chips, biofuel and alternative materials – are also emerging. By working closely with strategic partners, AP3 can help to provide sustainable wood-based products to the industrial
Private Equity is the name for investments in the share capital of companies that are not listed on a stock market. AP3 invests in private equity through investments in specialised private equity funds that help create sustainable companies through active ownership, whereby both expertise and capital are invested in the companies. AP3 has invested in private equity funds since 2001. The Fund’s objective in making investments in this segment is to achieve returns that exceed those of listed equities.
Today, AP3 has a mature private equity portfolio, meaning that the Fund now annually makes capital gains on investments from previous years.
Insurance, climate and weather-related investments
Investments in assets with low correlations to the traditional financial markets help to make AP3’s returns more stable over time. Since 2008, the Fund has invested in various types of insurance, climate and weather-related securities outside the traditional financial markets.
Among other investments, AP3 was the first actor in Sweden to invest in what are known as catastrophe bonds – Cat bonds – and weather-related derivatives, and has built unique expertise in this field in close cooperation with various universities and research institutes.
The Fund’s investments are strategic and long-term. They have been designed to systematically – year by year – transfer selected insurance, weather and climate risks, including risks associated with events such as hurricanes, earthquakes and flooding. In years with no or few natural disasters, AP3 expects to earn a strong return on these investments. In years where such events cause significant damage, AP3 would expect to make significant losses. These losses are unavoidable and part of the underlying investment strategy. The key point is that, over time, the investments are expected to deliver positive returns.