Operations and results in 2007Total return

Return on the Fund's net assets in 2007 was 4.8%, or SEK 10.0 billion, before commission costs and operating expenses. After these costs and expenses, return was 4.6% or SEK 9.7 billion. Return on the Fund's portfolio excluding alternative investments, equal to more than 97% of the Fund's net assets, was 4.4% during the year.

Alternative investments, consisting primarily of unlisted real estate and participations in private equity funds, returned 18.6%.

Foreign equities and fixed income investments were top performers return-wise in 2007. An especially strong contribution to return relative to the asset class's share of the portfolio came from equity investments in emerging markets.

Equities

Returns on the global equity markets have been high in a five-year perspective, particularly in Asia and the emerging markets. Swedish equities also produced high returns during the period.

Returns on the international stock markets were volatile in 2007, shifting between sharp upward and downward swings in different parts of the year. Especially strong returns were seen in emerging market equities, while returns on Asian equities was low due to weak performance by Japanese stocks. Swedish equities posted a negative return during the year for the first time since 2002.

The Fund's equity index returned 4.1% during the year. Return on the Fund's equity investments was 4.7%, or SEK 5.4 billion before expenses.

Fixed income

Market interest rates fluctuated during the year, when the US mortgage crisis led to low interest rates on government bonds, high rates on credit bonds and somewhat rising rates on European government bonds. Because the Fund's bond holdings consist of bonds with very high credit ratings, the fixed income portfolio has not incurred any credit losses as a result of the mortgage crisis.

In the past two years, fixed income management has shifted from a sector allocation to a focus on capturing drivers that influence returns in all bond markets. The Fund's fixed income index produced a return of 3.6% in 2007. Return on the Fund's fixed income investments was 4.2%, or SEK 3.6 billion before expenses.

Foreign exchange

Because foreign exchange has low correlation with other asset classes, the Fund has chosen to maintain open currency exposure in order to reduce volatility in total return over time. The Fund lowered its currency exposure from 20% to 16% at the end of 2006 and a number of minor adjustments have been made in currency weightings in the strategic benchmark since that time.

In 2007 the Swedish krona gained against the US dollar but weakened against most other currencies. All in all, the decision to reduce long-term volatility in the portfolio through open currency exposure had a weakly negative impact on investment earnings in 2007.

Alternative investments

This asset class is made up of unlisted real estate equities and participations in private equity and hedge funds. Alternative investments generated a return of 18.6%, equal to net investment income of SEK 1.0 billion. The year's return mainly reflects positive development for the Fund's holdings in AP Fastigheter and Cevian Capital.

Five-year overview

At year-end 2000 the Fund was assigned assets worth SEK 134.0 billion. Over the period from 2001 to 2007 the Fund then received additional net contributions of SEK 20.3 billion from the pension system and liquidation funds. The total capital inflow thus amounts to SEK 154.3 billion. At the end of 2007 the market value of the Fund's assets was SEK 218.8 billion and cumulative investment income was SEK 64.5 billion, equal to an annualized return of 5.2% before and 5.0% after expenses.

Return over the period has been strongly influenced by development in the stock markets. The stock market plunge of 2001-2002 was replaced by a sharp upswing in the past five years.