The Second Swedish National Pension Fund/AP2 has posted its best result and net return on invested assets since its foundation in 2001. This means that the Fund, in the five years since its inauguration, has posted a return on investment in line with its established goal, generating an annual average return of 5.1 percent, thereby fulfilling its role in the Swedish National Pension System.
Financially, 2005 was a good year. Return on investment was 18.7 percent, capital assets increased by SEK 32.5 billion and the Fund’s net profit for the year was SEK 29.6 billion. Since the Fund was established, its capital assets have increased by SEK 56.6 billion, including inflows of SEK 16.6 billion.
The solid growth in Fund capital may be attributed primarily to the maintenance of a high allocation of equities, fully in line with long-term investment strategy.
The capital assets of the Second Swedish National Pension Fund/AP2 totalled SEK 190.6 billion as per December 31st 2005, an increase of SEK 32.5 billion compared with the preceding year. During the year, the Fund reported a net inflow of SEK 2.9 billion. Net profit for the year totalled SEK 29.6 billion.
The Fund posted a return of 18.7 percent on the total portfolio, before commission fees and operating expenses. If these expenses are included, the portfolio generated a return of 18.5 percent.
The Fund posted a positive relative return of 0.2 percent for market-listed assets, before commission fees and operating expenses, for 2005. This positive return is primarily attributable to the success of its tactical allocation during the year.
The level of exposure in foreign currency was 11 percent at year-end 2005. As a result of this limited degree of exposure, the weakness of the Swedish krona had a negative impact on Fund earnings.
During the year, the Fund capitalized mandates in tactical asset allocation and the management of international bonds and credits.
The return generated on Swedish and foreign equities amounted to 36.6 and 22.9 percent respectively. Fixed-income assets posted a return of 4.3 percent, while alternative investments posted a return of 30.1 percent.
Restructuring of the Fund’s portfolio management activities was completed in 2005, whereby mandates awarded were classified according to the level of risk accepted. Most equities were managed according to strategies based on low active risk. In addition to these, a number of more specialised mandates were awarded, involving higher levels of risk and offering higher potential returns. A large portion of the Fund’s low-risk equity management has been taken over by its in-house quantitative management group, established in 2004.
For further details, please contact Gunnar Larsson, Chairman of the Second Swedish National Pension Fund/AP2, or Carl Rosén, head of Corporate Governance & Communications, on +46 (0)31 704 29 00.