The First AP Fund (AP1) in Sweden returned 6.6 per cent in the first half of 2023, rebounding from the -9.4 per cent return in the first half of last year.

Its half-year report showed that the pension fund's real return was 5.3 per cent in H1 2023, up from -14.7 per cent in H1 2022.

Year-on-year, the pension fund’s managed capital increased by SEK 26.3bn to SEK 446.4bn at the end of June 2023.

Meanwhile, it made investment profit of SEK 27.8bn during the first half of this year, up from a loss of SEK 43.6bn in H1 2022.

AP1’s annualised return over five years rose slightly to 7.5 per cent, while its annualised return over 10 years fell slightly to 8.4 per cent.

The pension fund noted that global bond and equity markets recovered in the first half of 2023 from the “sharp” market falls of the previous year.

“We again exceed the target of 3 per cent real return during rolling 10-year periods, as the average return over the last 10 years amounts to an average of 5.7 per cent,” commented AP1 CEO, Kristin Magnusson Bernard.

“Positive profit contributions came from listed shares and currency and outweighed the negative return from unlisted properties. The costs remain at a low level with an administrative cost share of 0.06 per cent.”

Bernard added that high and rising inflation has been investor’s primary concern for a long time and, while inflationary increases gradually fell, levels are still well above banks’ inflation targets.

“Market sensitivity to unexpectedly high inflation outcomes during the period was high, which is not surprising given that central banks' tightening is historically dramatic both in terms of pace and extent,” she continued.

“In the tentative but, over time, positive market situation, we gradually increased the share weight and duration, i.e. interest rate sensitivity, from the conservative positioning we took last year to just above neutral levels.

“The property companies we own have maintained their excellent credit ratings and continued to have good access to the capital market. We have also made efforts to stick to our funding strategies to maintain our investor confidence.”

Amid the war in Ukraine and other geopolitical tensions, Bernard warned that the landscape would likely continue to be characterised by uncertainty, volatility, and high capital costs.

“Expected market returns in the future will likely be somewhat lower, but perhaps also more sustainable where viable business models can be strengthened, and higher prices can contribute to careful management of finite resources,” she stated.

“In order to create security, action and return in such an environment, good governance and management is required.

“During the year, our board began a review of the control model for our risk-taking that has been with us for almost 10 years. The aim is to ensure that our risk-taking framework gives us the best conditions to fulfil our statutory mandate and is at the same level as the most professional pension funds around the world.”

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