Very good return for AP4 against the background of strong economic recovery

The Fourth Swedish National Pension Fund’s (AP4’s) return for the full year 2021 was 19.2% after costs, and the net result for the year was SEK 85.7 billion. This is the highest result ever achieved since AP4 began operating in 1974. Active management continued to be successful and contributed 3.5 percentage points to the return, corresponding to SEK 15.2 billion in 2021. After net transfers of SEK 7.5 billion to the pension system during the year, fund capital increased to SEK 527.6 billion at year-end 2021. AP4’s carbon emissions for the listed equity portfolio decreased by an additional 23% during the year.

“The strong economic recovery that began during the second half of 2020 continued with full strength in 2021. A key reason why the recovery has gone so fast and been so strong is the historically rapid development and the mass production of effective vaccines. The very powerful and swift monetary and finance policy measures that have been taken during the past two years to support the world’s economies have also been highly significant,” comments Niklas Ekvall, CEO of AP4.

“AP4’s return since the start of the new pension system in 2001 has averaged 7.2% per year after costs. This exceeds the income index – the index with which the pension system’s liabilities side is indexed – by an average of 4.3% per year since 2001. AP4’s excess return in relation to the income index thus corresponds to SEK 307 billion and entails that AP4 has made a significant contribution to the growth of the AP4 funds’ aggregate buffer capital from 10% of the income pension system’s assets at the start in 2001 to just under 18% at year-end 2021.

“We find ourselves in an uncertain macroeconomic environment, with a number of relatively likely economic scenarios with widely varying outcomes. The tug-of-war between these various scenarios will likely at times lead to nervosity and market turbulence. In general, in the coming years we cannot expect to see the same, favourable investment environment and very favourable returns on financial assets that we have experienced during the past ten years.

“AP4’s work on managing climate risks in our investment portfolio has also generated results over time. As an example, since 2010 we have cut the carbon footprint of our investments in listed equities by 60%, and AP4 has set a target to have net-zero emissions by 2040 at the latest. AP4 also has an ambitious agenda to gradually increase the allocation of investments that contribute to the sustainability transition as well as benefit from it. During 2021 AP4 made such new thematic sustainability investments of SEK 13.7 billion.

“AP4’s cost level for 2021 was 0.08% of assets under management. AP4 strives to conduct its pension management as cost-efficiently as possible, and in an international cost comparison, AP4’s cost level was less than half that for corresponding pension funds internationally,” concludes Niklas Ekvall.

Key ratios for AP4’s operations

2021

2020

Fund capital at end of period, SEK bn

527.6

449.4

Net result for the year, SEK bn

85.7

39.3

Net flow to national pension system, SEK bn

-7.5

-7.9

Fund capital at start of period, SEK bn

449.4

418.0

Asset management costs, operating expenses, %

0.05

0.06

Asset management costs, commission expenses, %

0.03

0.03

Total asset management costs, %

0.08

0.09

Return after costs, %

19.2

9.6

Annualised return after costs, 5 years, %

11.6

9.8

Annualised return after costs, 10 years, %

11.8

9.7

 

Published Wednesday, February 23, 2022