Updated with correction.
AP2, Gothenburg, Sweden, recorded a -1.3% return in 2018, with assets falling 4.9% in the period to 334.8 billion Swedish kronor ($36.9 billion).
An update Monday said the negative return meant a 4.3 billion kronor loss, compared to a 9% gain for the 12 months ended Dec. 31, 2017, when the fund returned 28.8 billion kronor.
The pension fund's 10-year annualized return was 7.7% for the period ended Dec. 31. Over the past five years the fund returned 5.8% annually.
"For AP2, 2018 was characterized by an underlying strong global economy, but also by some turbulence in the markets as a result of various geopolitical events, preparations for the changed investment regulations and continued sustainability integration," AP2 CEO Eva Halvarsson said in a release accompanying the financial update.
The fund's largest portfolio exposure was to developed market equities, at 19.3%. The allocation lost 3.3% in the 12 months ended Dec. 31. A 10.4% allocation to emerging market equities returned a negative 7.3%, while a 8.8% exposure to Swedish equities lost 4.6%.
Swedish fixed income, with an allocation of 11.9%, returned 0.8%; foreign government bonds exposure of 4% gained 5.9% and a 6.5% emerging market fixed-income allocation returned 3.3% for the 12 months ended Dec. 31.
The fund's 1% allocation to green bonds gained 4.7% in the period. The remaining 28% of the portfolio was invested in alternative assets, which returned 7.4%.
"The downturn in the equity portfolio was counteracted by solid returns on, for example, private equity investments, real estate and Chinese government bonds," Ms. Halvarsson said.
AP2 welcomed the new investment regulations, which became effective Jan.1, that allow Swedish funds to boost investments in unlisted assets. Funds can invest up to 40% of portfolios in illiquid asset classes, up from 5%.
Ms. Halvarsson said illiquid investments compensate for a lower anticipated return on some listed assets and help diversify the portfolio further.