Magnusson Bernard CEO of Första AP-fonden (AP1), one of the largest pension schemes in the Nordics and which manages part of the capital in Sweden’s national income pension system offers this investment outlook.
Global equity markets rallied during the first half of 2024, while valuations of unlisted assets stabilised. A strong US economy and slowly declining inflationary pressures were the main reasons for company and investor optimism, despite interest rate cuts being fewer than expected and repeatedly postponed. Carefully balanced long-term as well as medium-term portfolio positioning combined with a steadfast focus on cost-efficiency generated a return of 5.0 per cent after expenses in the first half of 2024. Net investment income was SEK 22.7 billion and assets under management totalled SEK 476.2 billion at mid-year.
We have consistently exceeded our target of 3 per cent real return over rolling ten-year periods, with an average return of 4.8 per cent over the past ten years. Positive contributions in the first half of 2024 came from listed equities, while the returns from unlisted assets such as real estate, private equity investments and infrastructure assets stabilised. Our continued focus on cost-efficiency has led to a consistently low expense ratio of 0.06 per cent. By challenging existing cost structures and implementing new ways of working, we have reduced our expenses by a total of SEK 650 million since 2019.
Our asset management teams have worked intensively and dynamically to adapt investments in both specific companies and in overall allocations to global fixed-income, currencies and listed equities, to create value in this positive, but also uncharted market environment that we have operated in. A larger share of equities in the portfolio, a thoughtful allocation strategy, and successful company selections within Swedish listed equities had a particularly positive impact on net investment income. Reduced uncertainty ahead led to a stabilisation of the valuations of unlisted assets, as expectations regarding future interest rate levels over the longer term are an important factor in the discounting of future cash flows.
The Swedish government’s annual evaluation included a special focus on the AP Funds’ investments in unlisted assets, and it was concluded that the returns we have generated are higher across different timeframes compared with international pension funds considered to be world-class. The evaluation also highlighted that our costs have been substantially lower compared to international peers, and that our ESG work is of a high standard. This evaluation provides a clear confirmation that our asset management model, and how we carry out our mandate, have created value for the income pension system. Evaluation and transparency are important aspects of our work to retain the trust of the general public and other stakeholders.
In complex and uncertain times, we need to stay focused, and create value by continuing to improve our ongoing work, and constantly evaluate different risks against each other while tackling major changes. I’m grateful for the strong commitment, drive, and engagement shown by all our staff, and how you work closely together to support each other to achieve even better results. Coupled with the strategies, frameworks, and compliance systems set out by our Board, we are well-positioned to continue to create high returns and sustainability value with good risk management of the pension capital entrusted to us.
