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AP 3, the €24.3bn Swedish national pension buffer fund, has made its first commitments to indirect international property. The fund has until now only invested in property through the AP-funds’ co-owned property firm AP Fastigheter.
“In time, our aim is to have the property portfolio equally split between investments in Sweden and abroad. Geographically, we will start in Europe and Asia, and North America will follow,” said Bengt Hellström, head of alternative investments.
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Bengt Hellström, head of alternative investments |
The fund, which invests in private equity, property, timber, infrastructure and listed life-science companies, currently has about 7.5 per cent allocated to alternatives, but will increase alternatives to 15 per cent.
“We expect to reach 15 per cent in four to five years and will mainly increase our exposure to private equity, property and timber. Our aim is to have 8.5 per cent allocated to property and timber,” said Mr Hellström.
In 2007, the fund has so far made 13 new investment commitments totalling €300m to private equity and more than €190m to timber investments.
“Our aim is to make more commitments and invest more capital. Timber has similar returns characteristics to property - risk adjusted returns that are not correlated to equities and bonds,” said Mr Hellström.
The fund invests in timber in Sweden, South America and the Pacific. AP 3 is the only AP fund investing in forestry and has the largest allocation to private equity. The investments in private equity are, however, limited to 5 per cent of the portfolio by Swedish regulation. Although it has remained cautious about hedge funds, which was considered but rejected last year, future investments are not excluded.
“In our view there are three parameters for making an investment: risk, return and cost. At that particular time, we couldn’t get these components to work together, but the decision is not written in stone and is constantly re-considered,” said Mr Hellström.
AP 3 returned 6.8 per cent after costs in the first six months of 2007. Private equity had the best returns of 15.5 per cent, while property and forestry investments returned 12.2 per cent.
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