SWEDEN - Alecta pension fund has reported a loss of 7.8% in 2008 although it claimed asset diversification had limited the decline in its portfolio.

The fund attributed the fall in investment returns to the global financial crisis, as it also confirmed the total return on the Alecta Optimal Pension, Alecta's product for the premium fixed pension, was -16.6%.

Figures showed the total return on the firm's pension portfolio, which includes different types of occupational pensions including retirement and disability benefits, was -7.4%, significantly lower than the 4.8% result in 2007, although it said the average five-year return remains positive at 5.8%.

Staffan Grefbäck, chief executive of Alecta, said: "Although the stock market fell by around 40%, we succeeded in limiting the decline in the portfolio," as he suggested a "balanced mix of investments", including an equity portfolio focused on financially strong companies, reduced risk early in the fourth quarter and helped to mitigate the negative impact.

That said, the pension fund confirmed change in risk-free long-term bond yields negatively impacted its result in 2008 as it increased the estimated value of future pension obligations, while Alecta said the interest rate affect on the pension liability accounted for "two-thirds" of the deterioration of its collective funding ratio.

Figures confirmed the collective funding ratio - a buffer to protect against fluctuations in investment return and insurance risks - at 31 December 2008 dropped to 112%, from 126% in September 2008.

This means the ratio is below the normal range of 125-155% outlined in its collective funding policy, so Alecta stated it would charge the full premium on its pensions in 2009 to ensure sustainability and restore the ratio closer to the target level of 140%.

The fund, which had around SEK 400bn (€37.1bn) in assets under management in September, had reduced premiums for defined benefit (DB) schemes within its ITP Plan by around 40% at the beginning of last year as it had exceeded the 140% buffer target and wanted to avoid further surplus funding.

However Grefbäck added: "Alecta is financially strong enough to handle even long downturns in the economy."
 
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