Cost effective asset management
Responsible management that delivers high-cost effectiveness and stability over time is key for AP3. Cost efficiency is always in the spotlight and the Fund carefully monitors expenditures in multiple ways.
Low costs and resource-efficient management
AP3s strives for resource-efficient management where costs are low in relation to average fund capital. Naturally, there is a certain increase in costs over the years as a result of the capital the fund manages growing and as a result of inflation. Therefore, it is important to also measure the costs in relation to the size of the assets under management, the so-called management cost share. At the same time, it facilitates comparison with other funds.
Lower costs than international peers
As part of efforts to ensure that AP3’s asset management is cost-effective by international standards, since 2005 AP3 has participated in an annual survey performed by Canadian consultancy CEM Benchmarking. A large number of funds from all over the world participate in the survey, which benchmarks AP3 against funds of a similar size and profile, as well as against European funds. The study also compares returns, portfolio structure, management style, risk and other parameters. CEM’s analysis shows that AP3 generates high returns at a low cost. The most recent CEM study, from 2020, showed AP3’s expenses to be 28% lower than the benchmark group average over the previous five years.
Asset management and commision expenses
An annual budget provides oversight and control of asset management costs. Asset management costs comprise operating expenses, which are the Fund’s internal costs, and commission expenses, which are the costs of external management and for managing securities and collateral. Analysing any deviations that arise between budget and actual outcomes provides valuable information that is used to guide management of the Fund.
Changes from year to year are a source of insight for management and the board of directors on the Fund’s cost base.
Naturally, costs tend to rise over time due to inflation and the growth of the Fund’s capital. This makes it important to measure costs in relation to fund capital using a metric known as the asset management cost ratio. This also facilitates benchmarking against other funds.
Fund capital and asset management costs
|Fondkapital 468,4 mdkr||468.4|
|Rörelsekostnader 0,252 mdkr||0.252|
|Provisionskostnader 0,119 mdkr||0.119|
Breakdown of expenses
Operating expenses, comprising the internal costs of running the Fund, totalled SEK 234 million (222). This is 0.05% (0.06) in relation to fund capital. Operating expenses arise from asset management, administration and operational management and are divided into staff costs and other administrative expenses. Staff costs include employee salaries, social insurance fees, pension contributions, along with other expenses such as training and recruitment of personnel. Staff costs account for the major share of operating expenses and in 2021 totalled SEK 147 million (138). The average number of employees in 2021 was 60 (60).
Other administrative expenses consist of costs for office space, IT and market data services. See Notes 6 and 7 in the annual report for further information on operating expenses.
Commission expenses totalled SEK 142 million (126) and relate to costs directly attributable to the external management of fund capital. They are recognised separately in income. In 2021 they stood at 0.03% (0.03) of fund capital. AP3 uses external management when it is more cost-effective than internal management or when, for various reasons, internal management is difficult. External management fees are charged as a percentage of each portfolio’s value, meaning that they are directly related to the size of the underlying capital. At year-end, 31% (29) of fund capital was externally managed. Commission expenses also include custody account bank fees and charges for managing collateral, which together amounted to SEK 15 million (14). These are costs for managing and maintaining custody of the Fund’s securities, derivatives and associated collateral. See Notes 4 and 5 in the annual report for further information on operating expenses.
Other costs, fees and remuneration
Transaction costs relate to purchases and sales of securities and are the difference between the buying and selling rates. These types of costs are recognised as part of an asset’s cost or as a deduction from sales income. Equity trading also results in brokerage fees. These totalled SEK 73 million (69) in 2021. Transaction costs have an impact on the net results of all asset classes.
Performance-based fees totalled SEK 99 million (133). See Note 5 in the annual report for further information on performance-based remuneration. Tax costs that the Fund is entitled to reclaim under double taxation treaties are recognised in the balance sheet as a claim and hence have no effect on income.
More about AP3
A strong pension system
AP3 is tasked with managing the buffer capital to generate maximum benefit for the state income pension system and since its inception in 2001, AP3 has contributed to the system’s long-term stability by ensuring a strong performance of the Fund’s assets. […]
The Fund’s capital is invested to obtain high returns over time. Our mission includes promoting sustainable development through responsible ownership and investment. […]
Here you can find AP3s financial, sustainability and stewardship reports. In the report archive you can find reports from previous years. […]