Assets under external management at year-end 2008 amounted to SEK 67.9 billion. This is equal to 40 percent of the Fund’s net assets, an increase of 4 percentage points over the previous year. Of total externally managed assets, SEK 58.7 billion was invested in listed assets.
Listed assets
The 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, US corporate bonds and European corporate bonds.
In 2008 the Fund completed a procurement of equity managers in the Pacific region (excluding Japan). A new tender process for management of US small cap equities was started during the year and is planned for completion in late Spring 2009. Assets were also transferred to a mandate for European corporate bonds during the year.
The assets are divided between 20 different managers and 26 different management mandates, of which the majority 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 managed assets have thus been built up gradually. Over the past five-year period these managers made an average annual contribution of 0.16 percentage points to the Fund’s total active return. In 2008, the combined contribution of the external mandates was 0.36 percentage points.
Income and expenses in active mgmt – external managers (listed assets)
External management mandates, 31 December 2008
| Listed assets Manager |
Market | Type | SEK bn | Starting date¹ |
|---|---|---|---|---|
| Equities³ |
|
|
|
|
| Barclays Global Investors | North America, large caps | Enhanced | 26.5 | Jan-01 |
| Dexia | North America, large caps | Active | 0.8 | Oct-05 |
| Dimensional Fund Advisors² | North America, small caps | Active | 0.8 | May-04 |
| Ironbridge | North America, small caps | Active | 0.6 | May-04 |
| Martingale | North America, small caps | Active | 0.3 | May-04 |
| Morgan Stanley | North America, small caps | Active | 0.6 | May-04 |
| UBS | North America, small caps | Active | 0.3 | May-04 |
| JP Morgan¹ | Asia/Pacific | Enhanced | 0.9 | Sep-08 |
| Treasury Asia¹ | Asia/Pacific | Active | 0.5 | Sep-08 |
| Capital International | Asia/Pacific | Active | 1.0 | Dec-03 |
| Lloyd George | Asia/Pacific | Active | 1.0 | Apr-04 |
| Marathon | Japan | Active | 1.9 | Oct-07 |
| Barclays Global Investors | Japan | Active | 1.1 | Oct-07 |
| Capital International | Japan | Active | 1.0 | Oct-07 |
| Axa Rosenberg | Japan | Active | 1.3 | Oct-07 |
| Alliance Bernstein | Japan | Active | 1.2 | Oct-07 |
| UBS – DSI | Japan | Enhanced | 0.6 | Oct-07 |
| Aberdeen | Emerging markets | Active | 1.5 | Jun-06 |
| Alliance Bernstein | Emerging markets | Active | 1.3 | Jun-06 |
| Emerging Markets Mgmt | Emerging markets | Active | 1.3 | Jun-06 |
| Marvin & Palmer | Emerging markets | Active | 0.2 | Mar-06 |
| BlackRock | Emerging markets | Passive | 4.4 | Jun-06 |
| PanAgora | Emerging markets | Active | 0.4 | Jun-06 |
| Total equities |
|
|
49.5 |
|
| Fixed income |
|
|
|
|
| Blackrock³ | Corporate bonds, USA | Enhanced | 6.3 | Oct-99 |
| Blackrock EMU | Corporate bonds, Europe | Active | 2.8 | Jul-08 |
| Total fixed income |
|
|
9.1 |
|
| Total external management, listed assets |
|
|
58.7 |
|
² Two mandates.
³ BlackRock Inc.’s mandate commenced in 1999, i.e. prior to reorganization of the AP funds. Första AP-fonden allowed
the mandate to continue under the new management that was started on 1 January 2001 and increased during 2003.
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 increased 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 2008 was SEK 27.3 billion. The year’s active return was 0.2 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 0.4.
Largest foreign equity holdings, 31 Dec. 2008
| Company | Market value, SEK m |
% of the Fund’s net assets |
|---|---|---|
| Exxon Mobil | 1,487 | 0.9 |
| AstraZeneca | 1,011 | 0.6 |
| Nestle SA | 720 | 0.4 |
| BP | 640 | 0.4 |
| Procter & Gamble Co | 640 | 0.4 |
US equities, small caps
In 2004 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 year-end 2008 was SEK 2.6 billion. Active return for 2008 was -1.9 percentage points before fixed and performance-based management fees. Annualized active return over the past three-year period was -2.1 percentage points and the information ratio was negative.
Japanese equities, large caps
The total volume under management at year-end 2008 was SEK 7.1 billion. Active return for 2008 was -0.6 percentage points before fixed and performance-based management fees. Annualized active return over the past three-year period was -1.7 percentage points and the information ratio was negative.
Pacific equities (excl. Japan), large caps
The mandate for Pacific equities amounted to SEK 3.4 billion at year-end 2008 and is handled by four managers. Active return for 2008 was -0.95 percentage points before fixed and performance-based management fees. Over the past three-year period, annualized active return was 1.8 percentage points and the information ratio was 0.4.
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 2008 was SEK 9.1 billion.
Active return for 2008 was 1.3 percentage points before fixed and performance-based management fees. Annualized active return since the start of the mandate was 1.1 percentage points and the information ratio was 0.2.
US corporate bonds
US corporate bonds are managed under an enhanced mandate. Investments are made in the US credit market in the form of bonds. One manager is responsible for the entire investment portfolio of SEK 6.3 billion.
Active return for 2008 was -3.5 percentage points before fixed and performance-based management fees. For the past three-year period, annualized active return was 1.9 percentage points and the information ratio was 2.3.
European corporate bonds
In the past year the Fund transferred asset to a mandate in European corporate bonds. The mandate has an active orientation and the investments are made in the European credit market in the form of bonds. One manager is responsible for the entire investment portfolio of SEK 2.8 billion.
Active return for 2008 was 0.3 percentage points before fixed and performance-based management fees, and the information ratio was 0.1.
Alternative investments
At year-end 2008 the value of the Fund’s unlisted holdings – alternative investments – amounted to SEK 9.3 billion, equal to approximately 5.4 percent 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 2008 Första AP-fonden’s alternative investments produced a negative return for the first time, at -3.5 percent. During the period from 2004–2008 the annualized average return was 21.5 percent. The year’s return is mainly explained by negative development for the holding in Vasakronan, which returned -2.3 percent.
Vasakronan
AP1, AP2, AP3 and AP4 each own 25 percent of Vasakronan. In 2008 AP Fastigheter acquired the property company Vasakronan and AP Fastigheter subsequently changed name to Vasakronan. In connection with the acquisition, Första AP-fonden provided additional capital of SEK 2.7 billion, of which SEK 2.2 billion in the form of a promissory note and SEK 0.5 billion in shareholder contributions. The acquisition has created a company focused on long-term management of commercial properties in growth areas. At year-end 2008 Vasakronan had an estimated market value of SEK 27.8 billion.
The market value of Första AP-fonden’s holding at year-end 2008 was SEK 6.9 billion (5.0). Since 2004, the Fund’s investment has produced an annualized return of more than 21 percent.
Private equity and hedge funds
The Fund’s private equity investments include direct holdings in private equity funds and participations in 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-funds program consists of investments in private equity funds in North America, Europe and globally. Return in 2008 was
-5.2 percentage points, measured in SEK.
The Fund’s investments in hedge funds consist of two direct holdings in Cevian Capital I 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 investments in Cevian Capital I have produced a return after expenses of around -25 percent in 2008 and an annualized return of 50 percent since the start in 2003.
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). This investment program is still in the build-up phase an is characterized by a long investment horizon, unlisted assets and low liquidity. The Fund’s return on private equity and hedge funds surpassed the target for the year.
As a consequence of the financial crisis, Första AP-fonden has written-down its private equity assets by approximately 15 percent in local currency. The write-down has been offset by the Fund’s unrealized foreign exchange gains in non-Swedish investments, and the write-down is based on a separate and current valuation performed by the fund manager.
In view of the time lag typical of valuations in this market, additional write-downs may be made in the spring of 2009. An additional write-down by 10 percentage points would have an impact of SEK -0.2 billion on the Fund’s investment income.
External management mandates, 31 December 2008, unlisted assets
|
Fund/venture capital company |
Market | Currency | Total commitment, millions | Invested volume, millions | Starting date |
|---|---|---|---|---|---|
| InnKap 3 | Nordic | EUR | 7 | 7 | 2004 |
| InnKap 4 | Nordic | EUR | 12 | 4 | 2005 |
| LGT | Western Europe | EUR | 360 | 72 | 2006 |
| WPGP | North America | USD | 470 | 95 | 2006 |
| Hamilton Lane Advisors | Global | USD | 310 | 78 | 2006 |
| Cevian Capital I | Nordic | EUR | 12 | 39 | 2003 |
| Cevian Capital II | North America | EUR | 40 | 40 | 2006 |
Net contribution from external management of unlisted assets, SEK m
|
|
Unlisted assets |
|---|---|
| Gross income | -17 |
| Paid management fees recognized in the balance sheet | -51 |
| Management fees recognized as commission costs | -4 |
| Net contribution | -72 |
|
|
|
| Net assets under management, 31 Dec. 2008 | 2,429 |
| Invested volume, 31 Dec. 2008 | 2,324 |
| Investment commitments, 31 Dec. 2008 | 10,899 |
