AP2, AP4 hail active management

Swedish buffer funds AP2 and AP4, have hailed active management as a major driver of profits in the first half of the year, at a time when the Government has challenged the value of active management and launched a review of the funds’ costs management.

AP2 and AP4 reported returns of 6.4 per cent and 7.9 per cent respectively for the first half of 2009, amounting to a profit of SEK10.9 billion ($1.54 billion) for AP2 and SEK11 billion ($1.55
billion) for AP4.

Mats Andersson, chief executive of the $24.9 billion AP4, said he strongly believed active management could add
value over time, so long as the right people were in charge.

Since he joined the fund in 2007, AP4 has turned over 50 per cent of staff, hiring a new head of global equities, Bjorn
Kvarnskog, and a new head of fixed income and foreign exchange, Bengt Lindfeldt, last year.

In the first six months, Andersson said active management had added 100 basis points to the fund’s listed assets,
resulting in a return on the listed portfolio of 8.5 per cent.

“In light of earlier weak results, it is very pleasing to note that our active management this period contributed positively with close to SEK1.5 billion ($212.8 million), which is more than twice the fund’s targets on an annual basis,” he said.

The $25.9 billion AP2 attributed its combined relative return on the fund’s market quoted assets of 0.1 per cent to
active in-house management of Swedish equities, foreign fixed income and foreign exchange.

Eva Harlvarsson, chief executive of AP2, said the fund’s strategy of maintaining the portfolio’s high share of equities was a key factor in its recovery.

“Our fundamental approach therefore remains unchanged,” she said. “We believe a large share of equities is essential if we are to achieve the goal prescribed for us within the Swedish national pension system.”

The Swedish government launched a review of the AP funds in May following poor investment performance last year. The first four buffer funds collectively lost $27.5 billion or -21.6 per cent in 2008.

In a letter presented to parliament by the finance ministry, Mats Odell, minister for local government and financial
markets, acknowledged that some of the losses were down to the collapse of financial markets, but said the results of active management were “generally weak” and that the funds should review their cost base in order to avoid further deterioration of assets.

Since the second half of 2001, active management was said to have represented 25-50 per cent of costs for AP1-4, with
overall costs totalling $1.05 billion.

AP4 will be profiled
in conexust1f.flywheelstaging.com in the next month