The result is down to some successful manoeuvring by the SEK 13.4 billion (EUR 1.2 billion) pension fund since the end of last year. And, according to its CEO and chief investment officer Gustav Karner, a bit of luck as well. The pension fund’s return target for the year of 2.5 per cent might even be within reach but any temptation for some last-minute boost of returns seems to have been resisted. “We haven’t made any trades to try to increase returns but rather to try to limit the downside,” Gustav Karner comments.
As previously reported by Nordic Fund Selection Journal, Apotekets Pensionsstiftelse took a number of measures last autumn in preparation for tougher times ahead. This included reducing the equity exposure from 22.5 to 15 per cent, protecting the equity allocation from losses through a put option strategy, doubling its US dollar exposure as well as adding CTAs to its already substantial hedge fund portfolio.
“All of this was to protect against falling equity markets,” says Gustav Karner. “We didn’t know that Putin was going to attack Ukraine or that energy prices would go up so much but we did know that the Fed would have to fight inflation. They were pretty explicit during the autumn that a rise in interest rates would be necessary and that’s usually not good news for equities. So I was surprised that equity markets performed so strongly at the end of last year.” This meant that the put option strategy ended up being somewhat costly during the end of last year but it then proved its worth as the market sentiment turned in 2022.
Over the course of the year, the pension fund’s returns have been pretty stable with -2 per cent in the middle of the summer as the lowest point. Its hedge fund portfolio, which makes up about 30 per cent of assets, is one of the asset classes with a positive return contribution, delivering about 5 per cent in returns so far this year. Multi-strategy hedge funds have been the best performers but Gustav Karner also notes that at least one of its two CTAs has performed great.
Over the second half of the year, Apotekets Pensionsstiftelse made some further tactical changes. In late September, the pension fund sold the put options in anticipation of an upswing for equity markets later in the year, which turned out to be a well-timed move. In an attempt to secure profits following a period of the US dollar strengthening significantly against the Swedish krona, the pension fund got rid of its US dollar exposure by the autumn. The equity allocation was also reduced to 12 per cent of assets.
Asked whether the changes done at Apotekets Pensionsstiftelse over the past year would have been possible to make at a very large pension fund, Gustav Karner notes that some of the things should have worked, such as reducing the equity allocation, increasing the US dollar exposure or investing in CTAs. “Put option strategies might be a bit more difficult as it requires liquidity. And investing a meaningful amount in hedge funds could be difficult as you really want to invest with the best funds and they often have limited capacity,” comments Gustav Karner, who previously worked as chief investment officer of the Nobel Foundation but has also worked as CFO and head of asset management at the large Swedish pension and insurance company Länsförsäkringar.
Looking ahead into 2023, Apotekets Pensionsstiftelse is remaining cautious, even though Gustav Karner acknowledges that it really could go either way and 2023 very well could turn out to be a good investment year. Nevertheless, he doesn’t foresee any dramatic changes to the portfolio. “If anything, we might reduce risky assets somewhat – both equities and high yield. And increase investment grade bonds and absolute return strategies,” he says.
Over the past five years, the pension fund’s average annual returns have been 6.3 per cent, compared to 3.5 per cent for its reference portfolio.
For most Nordic pension funds, 2022 is set to be a rather depressive investment year but not all have been feeling the pain. Apotekets Pensionsstiftelse, the Swedish pension fund for employees at the state-owned pharmacy chain, has managed to defy the bear market and is well on track to end the year with positive return numbers. At the beginning of December, its investment portfolio was up by 1.5 per cent.
The result is down to some successful manoeuvring by the SEK 13.4 billion (EUR 1.2 billion) pension fund since the end of last year. And, according to its CEO and chief investment officer Gustav Karner, a bit of luck as well. The pension fund’s return target for the year of 2.5 per cent might even be within reach but any temptation for some last-minute boost of returns seems to have been resisted. “We haven’t made any trades to try to increase returns but rather to try to limit the downside,” Gustav Karner comments. As previously reported by Nordic Fund SelectionIf you’re new to Tell Media Group, create an account.
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