Swedish Pension AP1 Loses 8.6% in 2022 | Chief Investment Officer

Swedish pension AP1 reported an 8.6%, or SEK39.9 billion ($3.81 billion), investment loss in 2022, as its fixed-income and equity investments weighed down the portfolio to lower its asset value to SEK421.2 billion from SEK465.8 billion at the end of 2021.

The pension fund blamed the fixed-income and equity losses on Russia’s invasion of Ukraine, lingering effects of the COVID-19 pandemic, high inflation and rising interest rates.

“2022 marked a dramatic end to the market environment of low inflation, record-low interest rates and growth that have boosted returns on financial assets since the global financial crisis of 2008,” AP1 CEO Kristin Magnusson Bernard said in a release. “Instead, simultaneous drops in equity and fixed income returns occurred through most of the year.”

Despite the overall negative returns, AP1’s alternative investments portfolio, which includes real estate, infrastructure and private equity funds, reported a positive return in 2022.

Bernard said that amid the current economic environment, the pension fund has taken short- and long-term moves to protect its investments. These moves include pro-actively changing its positions based on prevailing market conditions, such as by lowering equity exposure and reducing the duration of its fixed-income portfolio.

She also said that AP1 conducted its active ownership activities in 2022 with an increased focus on environmental, social and governance strategies.

“We have also kept our focus on sustainability to promote sustainable development, and we have implemented the new ESG strategy adopted by the board in 2021,” she said in a statement. “We also took further steps toward our goal of a carbon-neutral portfolio by the end of 2050, with a further reduction in the carbon footprint of our listed equity portfolio.”

Bernard said that part of the new ESG strategy includes directing more capital to investments that support sustainable development, while also meeting the pension fund’s risk-return requirements. She added that, since 2019, AP1 has reduced the carbon footprint of its listed equity portfolio by 57%.

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Tags: AP1, environmental, equity markets, ESG, Fixed-Income, Governance, high inflation, investment losses, Pension Funds, rising interest rates, social, Sweden

The 20 biggest corporate defined benefit plans climbed to their highest funded levels last year since 2007, even though they averaged a 21% investment loss, according to a new Russell Investments study.

The pension plans saw their funded ratios rise to 97% for the year ending December 31, 2022, an average annual increase of 2.6 percentage points from fiscal 2021.

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Russell’s report focuses on what it calls “the $20 billion club”—plans with more than that sum in liabilities. This most recent study has, as it turns out, 20 programs on its roster, stretching alphabetically from 3M at the top to United Parcel Service at the bottom. The group’s investment returns mark a reversal from 2021’s 7% gain, not to mention 2020’s 14% and 2019’s 17%.

Offsetting the investment slump was an increase in the discount rate, largely owing to a Federal Reserve-induced hike in short-term interest rates. This had the effect of reducing liabilities by almost $200 billion in total for the group, to $701 billion to end the fiscal year. Liabilities shrank faster than did assets. Meanwhile, sponsor contributions totaled $11 billion, the second lowest in the survey’s history, which began in 2005, and far down from their 2017 peak of $32 billion.

“Corporate pension trends typically move slowly in fairly predictable patterns with some blips along the way, but the year 2022 may have turned the new normal on its head,” said Justin Owens, director of investment strategy and solutions at Russell, in a statement. “Investment losses, discount rates, total assets, contributions, liabilities and ultimately funded status all hit levels not seen in at least 10 years.”

The members of Russell’s club have marked significant changes since the fiscal year ended last summer. In September 2022, for instance, IBM did a pension risk transfer, moving $16 billion in DB obligations to Prudential and MetLife. The tech company said that represented 40% of what it owes retirees. Additionally, UPS froze its benefit accruals for non-union employees, effective January 1, 2023.

The Russell 2022 report dovetails with other assessments of plan performances. An allocator survey from Investment Metrics, covering the calendar year ending December 31, found a median loss of 14.6%. That was a broader study, encompassing 1,500 institutional DB pension plans, including public and company plans.