The $27.3 billion Tredje AP-Fonden (AP3) of Sweden has instituted a search for active fixed income managers to run portfolios of US, European and UK credit.
The search has been undertaken to renew credit mandates awarded in 2002, but this time AP3 has “expanded the scope of the investment” in order to broaden its long-only, international debt exposures, a spokesperson for the fund said.
The fund currently holds a mandate for US investment grade credit with an external manager. According to the spokesperson, all of AP3’s investments in long-only, non-Swedish credit are managed externally.
One of the so-called “buffer funds” in the Swedish pension system, AP3 is searching for external managers to run the following segregated portfolios:
– US investment grade corporate bonds, against the BofA Merrill Lynch US Corporate Index;
– US dollar high-yield corporate bonds, against the BofA Merrill Lynch BB-B US high-yield Constrained Index;
– European investment grade corporate bonds, against the BofA Merrill Lynch Euro Corporate Index; and
– UK sterling investment grade corporate bonds, against the BofA Merrill Lynch Sterling Corporate Index.
The precise amount of capital allocated to each mandate will be determined at a later date, the fund stated. Portfolio positions will be taken on a cash basis, but limited derivatives exposure will be allowed.
According to the fund’s 2009 interim report, 35.6 per cent of the fund’s total portfolio was invested in government and corporate credit.
Since the fund’s investment team is split into alpha and beta teams, rather than into asset class silos, AP3’s selections of external managers will be based on the “risk and return characteristics of the active component of the return”, the fund stated.
“AP3 works on an alpha and beta separated basis and requires that the active component of any mandate shall have a low correlation with existing alpha and beta sources.”
The Swedish buffer funds are part of the pay-as-you-go component of the national pension system, in which the current benefits to pensioners are funded by workers’ contributions.