Swedish Pension Fund Looks To Asia in 2010

Sweden’s largest pension manager, Första AP-fonden, also known as AP1, is all set to back its first Asian fund in 2010 as part of a major ramp-up of its private equity allocation.

The fund, which has an actual allocation to private equity of just over 1%, will seek to commit between SEK2.2bn and SEK2.5bn to the asset class during the course of 2010. The goal is to gradually increase its allocation to a target of 5%.

AP1 plans to be cautious in making commitments, seeking to diversify its portfolio by vintage year, fund type and geography, including its first commitments in Asia. In addition, the pension fund manager will seek investments in secondary vehicles and distressed private equity among others.

AP1 has just over SEK2bn invested in private equity funds (1% of its funds under management), and around SEK10bn committed (5%). Its allocation is split about equally between European and US private equity funds.

The fund’s alternative investments include real estate holdings, private equity (with a 10% allocation to venture capital), hedge funds and opportunistic investments. Total investments in alternatives as of June 2009 reached SEK9.2bn and accounted for 5.1% of net assets.

AP1’s private equity holdings consist of direct fund holdings in the Nordic market and three customized mandates in the international market managed by Swiss asset management group LGT Partners and US-based Hamilton Lane and WP Global Partners.

The SEK200bn AP1 is one of five “buffer” funds in the Swedish pay-as-you-go pension system. The role of a buffer fund is to even out temporary fluctuations during periods when pension contributions are not sufficient to cover pension disbursements. From June 2004 to June 2009, the fund has generated investment earnings of SEK27bn.