Swedish fund upbeat despite further pensions drain

The Swedish “buffer funds” have suffered their first-ever net withdrawals, but a strong recovery in investment performance is expected to stem the outflows over the next few years.

According to the annual report of the Second Swedish National Pension Fund (AP2) published this week, the increase in returns last calendar year of 20.6 per cent was the best in the fund’s 10-year history. However, the previous year’s loss of 24 per cent, coupled with outflows due to recession, means that the fund may well face net redemptions for some years.

Sweden has four “buffer funds” set up in 2001 to supplement the country’s pension system. Another fund provides similar services under different guidelines.

Eva Halvarsson, chief executive of AP2, says in the annual report that the changes to asset management strategy implemented in late 2008 helped increase returns for 2009, particularly with active management of the funds.

AP2 reduced slightly its in-house funds management, but still accounted for about 75 per cent of its assets internally as of December last. The active in-house management of global equities was terminated along with a number of other in-house mandates.

Halvarsson says the changes proved a success, with the streamlined in-house management outperforming benchmarks.

Last year represented the first time that payout to the national pension system were greater than inflows from it. Net outflows are likely to increase over the next few years.

Halvarsson says that while several indicators show the economy will continue to recover, it remains uncertain how the world will react when governments start to withdraw their support measures.

The fund is continuing its long-term project regarding sustainability issues, including analysing the fund’s own carbon footprint.

“Generally speaking, sustainability issues are becoming increasingly integral to investment strategies and analyses,” Halvarsson says. “Companies that are quick to see the potential stand to make some serious profits.”