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New mandate structure for US Equities

Following a previously announced change in its reference index for global equities, the Third Swedish National Pension Fund (AP3) has also altered the structure of its US equity portfolio.

The portfolio has been brought into line with AP3’s European equity portfolio and divided into three market cap brackets: Large Cap, Mid Cap and Small Cap. AP3’s US equity portfolio totalled SEK 15.0 bn at 30 June 2004, of which 100 per cent was managed externally.

The US Large Cap segment will be managed via a passive and semi-passive mandate by Merrill Lynch, as in the past.

The new US Mid Cap segment has been introduced as a separate mandate and will be managed actively by a combination of two managers from AP3’s universe of contracted asset managers. Those appointed in this segment are AXA Rosenberg Investment Management Ltd and Batterymarch Financial Management Inc.

A new US Small Cap segment has also been introduced as a separate mandate and will be managed actively by a combination of two managers, also from AP3’s pool of contracted asset managers. Those appointed in this segment are Batterymarch Financial Management Inc and Dimensional Fund Advisors Inc.

Both Axa Rosenberg and Batterymarch were previously appointed for the former US mid/small cap mandate managed against the Russell 2500 (ex REITs) benchmark, while Dimensional Fund Advisors Inc is a newly appointed manager.

The benchmark indices for the new structure are:

  • Large Cap – FTSE North America Large Cap
  • Mid Cap – FTSE North America Mid Cap Index Ex REITs
  • Small Cap – FTSE North America Small Cap Index Ex REITs

Previously AP3 used the FTSE All-World North America Index for its Norh American large cap mandates and Russell 2500 (ex REITs) for its small/mid cap mandates.

AP3 manages SEK 152 bn (US$ 22,6 bn) of the buffer fund capital in the Swedish national pension system. Approximately 30 per cent of the capital is managed externally under a multi-manager approach. AP3 is an active “manager of managers”, making reallocations within a pool of leading managers with which we have contracts. Allocations between managers are based on risk budgeting considerations. The aim is to diversify risk and to generate active return to AP3 through an optimal mix of managers.