AP2, Gothenburg, Sweden, saw its assets grow to a record 280.3 billion Swedish kronor ($40.3 billion), a 5.9% increase over the six months ended June 30.
The fund generated a 7% net return over the first half of 2014.
In a financial update, executives wrote that the fund had increased its allocations to real estate and had decided to invest a further $750 million in agricultural real estate in association with other investors. The investments will be primarily in Australia, Brazil and the U.S.
“During this same period, the fund has also committed to invest a further $265 million in U.S. real estate together with the state-owned South Korean pension fund NPS and U.S. real estate company Tishman Speyer,” executives wrote in the update. National Pension Service, Seoul, has 436 trillion won ($430 billion) in assets.
As of Dec. 31, the fund had a 9% allocation to real estate. Further details on the future allocations could not be learned by press time.
The update also said the fund has a long-term strategy of “building up a more business-and-cost-efficient in-house unit for managing assets that are currently handled under external mandates.” A spokeswoman said the fund is planning to have “more and more internally managed.” By year-end 2013, 75% of the assets were internally managed. She said the fund does not have a target level for in-house management.
AP3, Stockholm, also released a financial update for the six months ended June 30, announcing a 5.5% increase in assets to a record 272.6 billion Swedish kronor.
The fund's return for the first half 2014 was 6.5% net of costs.
Executives are also continuing to diversify the portfolio, according to the update, increasing exposure to alternatives including real estate and infrastructure, and to risk premium strategies. Further information was not provided.
As of Dec. 31, AP3 had a 39.8 billion Swedish kronor allocation to alternatives.
Marten Lindeborg, head of strategic asset allocation at AP3, said in an e-mailed comment that the overall strategy of the fund is to diversify its portfolio, with real estate and infrastructure of particular interest.
“However, the investments should be relatively ‘safe’, but an expected return above the fund’s target return of 4% real,” he said. “As a part of this strategy we have during 2014 further expanded our exposure to Swedish, German and Finnish grocery stores.”
The fund’s risk premia strategy is in line with the diversification objective. “According to academic research; an investor could try to harvest several type of risk premia. If your portfolio construction is well done, it’s very likely that you, over time, will have higher return (and) lower drawdowns than a 60/40 (equity/bond) portfolio. We have increased our exposure to risk premia type of strategies during the last three years and so far the experience is beyond expectations.”
The alternatives and risk premia investments have largely replaced the fund’s dominant risk — equities. “However, we still hold — in capital exposure — around 50% in equities,” including private equity, he said.
