Operations and results in 2007External management
Assets under external management at year-end 2007 amounted to SEK 78.7 billion, equal to 36% (34%) of the Fund's net assets. Of this total, SEK 72.2 billion was invested in listed assets.
The externally managed assets were divided between six different mandates; US equities (large and small caps), Japanese equities (large caps), Pacific equities excluding Japan (large caps), emerging market equities and US corporate bonds.
In the first half of 2007 the Fund invited tenders for external management of Japanese equities for the possible replacement of existing managers. A new tender process for management of Pacific equities (excluding Japan) was started at the end of the year and the Fund expects to transfer assets to the selected managers before the summer of 2008.
The assets are divided between 19 different managers and 23 different mandates, of which all but one are active or enhanced. A couple of the managers were already in place at the beginning of 2004, but most have been added since then and the assets have thus been built up gradually.
Income and expenses in active management – external managers (listed assets)
- Active management income
- Operating expenses
- Cumulative income after expenses
Investment income for 2006 is shown excluding restructuring costs for emerging markets. If these costs are included, income is reduced by half.
Over the pat five-year period these managers made an average annual contribution of 0.12 percentage points to the Fund's total active return. In 2007, the combined contribution of the external mandates was neutral.
Largest foreign equity holdings at 31 Dec. 2007
|Company||Market value, SEK m||% of the Fund’s net assets|
|Exxon Mobil Corp||1 214||0.6%|
|General Electric Corp||883||0.4%|
US equities, large caps
For management of US large cap equities, the Fund has chosen to place a sizeable share of the assets under enhanced management. This strategy is based on the used of quantitative methods and in-depth knowledge of index management and low-risk index enhancements to generate excess returns.
Management of the enhanced mandate has been handled by Barclays since 2005, with an increase volume in 2006. Management of the mandate has been supplemented by Dexia, which also has a quantitative management style but uses a high degree of risk.
The total volume under management at year-end 2007 was SEK 36.0 billion. The year's active return was 0.1 percentage points before fixed and performance-based management fees. Over the past three-year period, annualized return was 0.5 percentage points and the information ratio was 2.4.
US equities, small caps
In 2007 these assets were assigned to five different managers offering a well balanced mix of management styles and growth/value. A few managers base their investment decisions on traditional fundamental research, others on quantitative analysis and one on an approach resembling behavioural science. These managers also have varying risk profiles.
The total volume under management at 31 December 2007 was SEK 3.4 billion. Active return for 2007 was -1.2 percentage points before fixed and performance-based management fees. Average annual return for the past three-year period was -0.8 percentage points and the information ratio was negative.
Japanese equities, large caps
In accordance with its established process, the Fund invited new tenders for the Japanese mandate during 2007. This normally takes place within a period of three to five years. The procurement resulted in a renewed contract for one manager, renegotiated terms for one manager and the removal of one manager, while five new managers were funded. The assessment is that the Fund now has a better mix of management styles and risk profiles.
The total volume under management at year-end 2007 was SEK 10.6 billion. Active return for 2007 was -3.1 percentage points before fixed and performance-based management fees. Annualized active return over the past three-year period was -1.5 percentage points and the information ratio was negative.
Pacific equities (excl. Japan), large caps
The mandate for Pacific equities amounted to SEK 4.4 billion at year-end 2007, and is handled by two managers. Active return for 2007 was 7.8 percentage points before fixed and performance-based management fees. Over the past three-year period, annualized active return was 3.1 percentage points and the information ratio was 1.4.
Emerging market equities, large caps
This mandate, in its current form, is relatively new to the Fund. The main transfer of assets to the new managers took place in June 2006. The total volume under management at year-end 2007 was SEK 13.3 billion.
Active return for 2007 was -1.7 percentage points before fixed and performance-based management fees. Annualized active return since the start of the mandate is 1.4 percentage points and the information ratio is 0.4.
US corporate bonds
US corporate bonds are the Fund's only fixed income assets that are managed externally (enhanced). Investments are made in the US credit market in the form of bonds. One manager is responsible for the entire investment portfolio of SEK 4.6 billion.
Active return for 2007 was 1.8 percentage points before fixed and performance-based management fees. For the past three-year period, annualized active return was 0.2 percentage points and the information ratio was 0.5.
At year-end 2007 the value of the Fund's unlisted holdings - alternative investments - amounted to SEK 6.5 billion, equal to approximately 3%, of the Fund's net assets. Due to their relative illiquidity, these assets are not managed actively in the same way as listed assets. Consequently, return on alternative investments is not included in calculation of the Fund's active return.
In 2007 Första AP-fonden's alternative investments returned 18.6%. Since 2003, when the Fund added this asset class to the strategic benchmark, annual return has averaged a 21.2%. The high return in 2007 is explained by positive development for the Fund's holdings in AP Fastigheter and Cevian Capital.
The external management unit is responsible for tendering continuous evaluation and possible replacement of external managers. In 2007 the unit was reinforced with two employees with a special focus on alternative investments.
AP1, AP2, AP3 and AP4 each own 25% of AP Fastigheter. The market value of Första AP-fonden's holding in AP Fastigheter at year-end 2007 was SEK 5.0 billion. (4.6).
The year's return on investment amounted to 21.4%. Since 2003, the Fund's investment in AP Fastigheter has produced an average annualized return of 22.6%. This is on par with return for the benchmark index used by the Fund for this investment (Carnegie Real Estate Index).
Private equity funds
The Fund's private equity investments consist partly of direct holdings in private equity funds, and partly of three funds-of-funds with customized mandates.
The direct holdings consist of InnKap 3 and InnKap 4, which invest in early stage Nordic companies in the ICT and life science sectors.
The fund-of-fund program consists of investments in private equity funds in North America, Europe and Global. In 2007 Första AP-fonden changed to a new manager for the global mandate.
The Fund's goal for its private equity investments is to achieve a long-term return at least on par with the MSCI World Index +4 percentage points (after expenses). Because this investment program is still in the build-up phase, has such a long investment horizon, is unlisted and has relatively low liquidity, it is not yet meaningful to evaluate return.
The Fund's investments in hedge funds consist of direct holdings in Cevian Capital and Cevian Capital II. Cevian is a so-called activist fund that acquires significant minority ownership positions in undervalued listed companies in the Nordic region, and in the past year also Germany.
The Fund's investments in the Cevian funds have produced a return after expenses of around 36% in 2007 and an annualized return of 48% since the start in 2003. This can be compared to the Fund's index for hedge funds (MSCI World Index plus 4 percentage points, after expenses) which has returned approximately 15% annually since the start.
Income and expenses, external management of unlisted assets, SEK m
|Fixed management fees||-29|
|Net investment income||87|
|Receivable, management fees 1)||24|
|Invested, fair value||1 442|
|Remaining commitments||4 367|
External management mandates, 31 December 2006 unlisted assets
|Fund/private equity company||Market||Currency||Totalt commitment, millions||Invested volume, millions||Starting date|
|Cevian Capital II||Nordic||EUR||40||40||2006|
External management mandates, 31 Dec. 2007
|Listed assets, Manager||Market||Type||SEK m||Starting date1)|
|Barclays Global Investors||North America, large caps||Enhanced||34.8||January 2001|
|DEXIA US||North America, large caps||Active||1.1||October 2005|
|Dimensional Fund Advisors2)||North America, small caps||Active||1.1||May 2004|
|Ironbridge||North America, small caps||Aktiv||0.7||May 2004|
|Martingale||North America, small caps||Active||0.4||May 2004|
|Morgan Stanley||North America, small caps||Active||0.7||May 2004|
|UBS||North America, small caps||Active||0.5||May 2004|
|Capital International||Asia/Pacific||Active||2.8||December 2003|
|Lloyd George||Asia/Pacific||Active||1.6||April 2004|
|Nomura 2)||Japan||Active||0.3||October 2007|
|Barclays Global Investors||Japan||Active||2,0||okt-07|
|Axa Rosenberg||Japan||Active||1.5||October 2007|
|Capital International||Japan||Active||1.7||October 2007|
|UBS - DSI||Japan||Enhanced||1.4||October 2007|
|Alliance Bernstein||Japan||Active||1.6||October 2007|
|Aberdeen||Emerging markets||Active||2.1||June 2006|
|Alliance Bernstein||Emerging markets||Active||2.4||June 2006|
|Emerging Markets Mgmt||Emerging markets||Active||2.1||June 2006|
|Marvin & Palmer||Emerging markets||Active||0.5||March 2006|
|BlackRock||Emerging markets||Passive||5.4||June 2006|
|PanAgora||Emerging markets||Active||0.7||June 2006|
|BlackRock 3)||Corporate bonds USA||Enhanced||4.6||October 1999|
|Total external management||72,2||