The First Swedish National Pension Fund (AP1) reported a return of 9.1 per cent for 2023, equivalent to SEK 38bn.

Publishing its full-year results, AP1 said it has assets under management of SEK 454.4bn, as at 31 December 2023, and transferred SEK 4.8bn to the income pension system during the year.

The fund once again exceeded its target of a 3 per cent real return over rolling ten-year periods, since the average real return over the past ten years was 5 per cent. Positive performance contributions came from listed equities and bonds, offsetting negative returns on unlisted assets such as real estate, infrastructure and private equity funds.

The fund maintains a low management cost ratio of 0.06 per cent, while improving management efficiency and strengthening the fund's system capacity and infrastructure.

"Positive full-year results are the result of a carefully considered portfolio positioning and focused execution. Based on a careful analysis of expected developments, the equity weight and duration, i.e. interest rate sensitivity, were gradually increased from the conservative positioning adopted last year, via neutral to somewhat higher levels,” AP1 CEO, Kristin Magnusson Bernard, said.

“Allocation to a higher equity weight and longer duration paid off particularly in the final months of the year, when most of the underlying portfolios also outperformed their benchmark indices. During the second half of the year, we judged that the Swedish krona could strengthen, and the positions we took in the form of extended currency hedging and option strategies proved successful. During the year, we also underweighted our allocation to emerging markets based on our assessment of better return opportunities in developed markets.”

In 2023, the fund continued its important work on sustainability issues. For example, corporate governance is a core area of the ESG work and the fund has, before and during 2023, worked in nomination committees, voted at general meetings and driven issues such as fair and market-based remuneration and sustainable operations.

Through the AP Funds' Ethical Council, the fund conducts dialogues with foreign portfolio companies to influence positive change as a responsible owner. In 2023, the Ethical Council established a new governance model and organisation that provides better conditions for achieving greater impact cost-effectively.

In 2019, AP1 adopted a climate target of halving the carbon footprint of the listed equity portfolio by 2030 and reducing it to net zero by 2050. This work continued in 2023 and since 2019 the carbon footprint of the listed equity portfolio has been reduced by 64 per cent (31 December 2023).

"Our environment will probably continue to be characterised by uncertainty, stronger market volatility and higher capital costs, even though the interest rate peak has now probably been reached for this rate hike cycle. Innovative solutions and productivity development will be more decisive factors for growth and prosperity than the period we come from where market development was driven by continuously falling interest rates and other stimulus measures.

“The period ahead will not lack challenges for our mission to achieve high returns and sustainability benefits with good risk management on the pension capital entrusted to us. I am therefore particularly grateful for the openness and ability to jointly take on and implement changes from different perspectives that I see from the board and employees at the fund. It is my belief that our capacity for strategic movements and daily operational work will give us good conditions to take on the opportunities and challenges that lie ahead," Magnusson Bernard concluded.

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