AP4 returns 5.2% in H1
Results published by AP4 – one of the so-called buffer funds in the Swedish long term savings regime – show that it made a return of 5.2% after costs in the first six months of 2016, taking total assets to a new high of SEK348bn (€36.5bn).
Over 10 years, the fund has returned 88% after costs, or an average annual return of some 6.5% – 5.4% adjusted for inflation. Both inflation and non inflation adjusted figures are above the fund’s long term real return target of 4.5%.
Niklas Ekvall, CEO of AP4, said: “It is gratifying that AP4 over time has contributed positively to the financial strength of the pension system and that we have generated a long-term return that outperforms a tough target in real terms.”
“AP4 continues to focus on sustainability in the investments – an ongoing work that is constantly evolving. Our ambition is to further broaden and integrate the analysis of sustainability aspects as part of our investment process, both in terms of risks and business opportunities. Our low-carbon strategies, which reduce the climate risk in the assets, has now increased to 27 percent of the global equity portfolio with a target to reach 30 percent by the end of 2017.
As a buffer fund, during the first half of 2017, AP4 paid out SEK3.7bn (€387m) net of fund capital to help cover the deficit between pension contributions paid out and pension contributions paid in to the pension system. Overall, since 2009, when the system’s net flow became negative, AP4 has paid out SEK40bn (€4.2bn) from fund capital to the pension system.
Sweden’s AP funds overall constitute some 14% of the system, according to AP4. They exist to cover imbalances, for example, in years when more people retire than enter the workforce, as pension liabilities would grow faster than contributions.
On 7 July, Sweden’s Ministry of Finance outlined changes proposed for the AP1-4 funds, supported by six key political parties in the current Parliament. The changes, which are proposed to take effect in 2018, would give these funds more flexibility to invest in assets not listed on the local stock market, as well as lowering the requirements for minimum exposure to fixed income instruments.
The Ministry said that these changes would increase the opportunity of accessing good returns and good pensions, especially in mind of the low interest rates ongoing.
The proposals also propose strengthening the requirements for the AP funds to achieve sustainability targets.
The full outline of proposals are available from the Ministry’s website here (in Swedish): http://www.regeringen.se/rattsdokument/departementsserien-och-promemorior/2017/07/andrade-regler-for-forstafjarde-ap-fonderna/