AP2, Gothenburg, Sweden, achieved a 10.5% investment return for the year ended Dec. 31, with assets rising 8% to 324.5 billion Swedish kronor ($35.7 billion), said the pension fund's annual report.
The return, equating to 30.5 billion kronor, compares to a 4.1% return for the year ended Dec. 31, 2015.
The pension fund's annual report, published Friday, showed positive returns across all allocations. Swedish equities, to which the fund has a 10% exposure, returned 9.1% in 2016, compared with 15.2% in 2015. Developed market equities, with a 24% allocation, posted a 16.9% return, compared with a 9.4% return in 2015.
Swedish debt returned 2.2% in 2016, with a 12.7% allocation. The previous year return for Swedish debt was 0.7%. Overseas government bonds returned 8.3% on a 3.8% allocation, compared with a 2.1% return the previous year. Overseas debt returned 12.3% for the year, with a 10% allocation. That compares with a 3.2% return 2015.
Emerging markets hit the pension fund's returns in 2015, but posted strong returns in 2016. The fund's 10.5% allocation to emerging market equities gained 18.9% in 2016, compared with a 9.1% loss in 2015; while emerging market debt exposure of 5.9% returned 17.8% in 2016. That compared to a 7.2% loss in 2015.
In 2016, the pension fund split out its green bonds exposure into a stand-alone allocation, making up 1% of assets. That portfolio returned 5.6%.
Eva Halvarsson, CEO at AP2, said in a statement accompanying the annual report that assets were at their highest level “despite a record payment to the pension system” of 6.6 billion kronor.
“We think that our diversified portfolio will continue to generate a good return for Sweden's pensioners. At the same time, we realize that the return levels we have historically had become increasingly difficult to achieve, with such large part in fixed-income securities, with the applicable investment regulations for the AP funds.”
The pension fund also published its “2016 Sustainability and Corporate Governance Report.” The report highlighted the fund's integration of environmental, social and governance factors into its quantitative equities allocation of about 90 billion kronor, and its stand-alone green bonds allocation.
“During 2017, we shall be focusing still greater attention on opportunities within the field of sustainability. We must also prioritize those actions that best satisfy our mandated commitment to work for the good of Sweden's pensioners,” Ms. Halvarsson said in a statement accompanying the sustainability report.