Global fixed income- and equity markets showed negative returns in 2022, driven by the breakout of war, lingering post-pandemic effects, high inflation and rising interest rates. Energy dependencies and climate transition ambitions posed difficult short-term and long-term trade-offs for societies and corporates. Through active asset management focused on protecting the portfolio and limiting downside risks, Första AP-fonden reports a return of minus 8.6 per cent corresponding to net investment income of SEK -39.9 bn during 2022. The Fund exceeds its target of 3 per cent real returns over rolling ten-year periods.
The Fund’s CEO Kristin Magnusson Bernard comments on the year:
2022 marked a dramatic end to the market environment of low inflation, record-low interest rates and growth that have boosted returns on financial assets since the global financial crisis of 2008. Instead simultaneous drops in equity and fixed income returns occurred through most of the year. Market sentiment shifted several times throughout the year as investors across the globe struggled to grasp market directions. Given such widespread market turbulence, global financial systems and real economies have so far demonstrated strong and impressive resilience.
Our mandate is to generate high returns long-term through balanced risk-taking. In the current economic environment, Första AP-fonden has taken both short-term and long-term actions to protect the portfolio. We have pro-actively changed our positions based on changing market conditions, for instance by lowering equity exposure and reducing the duration of the fixed-income portfolio.
Our portfolio of alternative investments, which includes real estate, infrastructure and private equity funds, reported a positive return in 2022. The negative contributions from fixed income and equity investments however meant a total return of minus 8.6 per cent, corresponding to net investment income of SEK -39.9 bn. Assets under management amounted to SEK 421.2 bn as of 31 December 2022, and Första AP-fonden transferred SEK 4.7 bn to the income pension system in 2022. We have exceeded our mid-term target of 3 per cent real return over rolling ten-year periods, as the Fund’s average real return amounts to 5.6 per cent over the past ten years. Our focus on cost-efficiency has resulted in a continued low expense ratio at 0.06 per cent.
We have also kept our focus on sustainability to promote sustainable development, and we have implemented the new ESG strategy adopted by the Board in 2021. As one of the components of this strategy, we will direct more capital to investments that support sustainable development and meet our risk return requirements. All new investments in private equity should actively contribute to one or more of the global SDGs, and our important active ownership activities have continued with an increased ESG focus. We also took further steps towards our goal of a carbon-neutral portfolio by the end of 2050, with a further reduction in the carbon footprint of our listed equity portfolio. Since we set the goal in 2019, we have reduced our footprint by 57% in our listed equity portfolio.
We still await clear signs that the tragic war in Ukraine is about to end. Geopolitical tensions and energy dependencies are thus likely to affect the investment environment for a long time to come. A definitive lift-off of global stock markets will likely be elusive as long as market expectations regarding peak interest rates are fluid. I am however convinced that all the efforts employed towards more profitable and sustainable business models and more conscious risk-taking will lead to greater resilience and better outcomes in the long term.
|Closing net assets, SEK bn||421.2||465.8||392.6|
|Net investment income for the period, SEK bn||-39.9||80.7||34.8|
|Net flow to the pension system, SEK bn||-4.7||-7.5||-7.9|
|Opening net assets, SEK bn||465.8||392.6||365.8|
|Expense ratio, operating expenses, %||0.05||0.05||0.06|
|Expense ratio, commission expenses, %||0.01||0.02||0.02|
|Total expense ratio, %||0.06||0.07||0.08|
|Return after expenses, %||-8.6||20.8||9.7|
|Real return after expenses, %||-20.9||16.9||9.2|
|Annualised return after expenses, 5 years, %||6.7||10.6||8.4|
|Annualised return after expenses, 10 years, %||8.1||10.3||8.0|
|Real annualised return after expenses, 10 years, %||5.6||9.0||7.0|
|Carbon footprint of the equity portfolio, tCO2e/SEK m||7.1||8.2||9.3|
Download Första AP-fonden’s 2022 Annual Report here.
Kristin Magnusson Bernard, CEO Första AP-fonden, tel. +46 (0)8-566 202 00
Sara Christensen, Head of Communication, Första AP-fonden, tel. +46 (0)70-968 12 50, email@example.com.