€43 billion pension fund halves external fund exposure in two years

The Swedish national pension fund, AP1, has more than halved the amount of assets under external management in two years, Citywire Selector has learned.

Its 2021 annual report, which was released earlier this week, shows assets under external management fell from 31.4% in 2019 to 22.6% in 2020 and fell further to 15.9% in 2021.

AP1’s reliance on external management has declined steadily since 2012, when assets under external management amounted to 39.3% of assets. Until 2019, however, external funds continued to account for more than a third of total assets of SEK 465 billion (€43.5 billion).

The pension fund aims to have as many in-house fund managers as possible to reduce costs, according to the report. Increased control over investments and a higher degree of flexibility were also cited as contributing factors.

The report suggests that external management is “more effective” in growth markets.

AP1 declined to mention which funds were cut, but a spokesperson said Citywire Selector that the change is due to AP1 shutting down the majority of its hedge funds in 2021.

“The purpose of investing in hedge funds was to create a more diversified portfolio and to cushion the effects of large swings in the rest of the portfolio.

“The funds have generated returns according to plan, but we have reallocated capital to other assets which we believe have better sustainability profiles and good opportunities for high returns.”

The AP1 portfolio returned 20.8% in 2021, down from 9.8% in 2020. Its chief investment officer is Mikael Angberg, who in 2013 joined his former role as senior vice president of Pimco.

Dolores W. Simon