SWEDEN – The SEK180.2bn (€19.2bn) Fourth Swedish National Pension Fund, or AP4, is “likely” to use a passive rather than active approach when it invests 3% of its assets in emerging market equities.

According to AP4 external mandates chief Tobias Fransson, the fund has not invested in emerging market equities yet. Furthermore, the scheme will probably take an index approach.

“We are not likely to look for active managers,” Fransson told IPE.

“We don’t feel the cost benefit will be so very certain, and that active managers will be able to outperform considering fees and transaction costs. Investing in emerging market equities is expensive”

“Many active managers are also closed to new money at this stage,” Fransson added.

The scheme has yet to make a final decision on the investment structure or provider.

“Implementation will depend on market conditions and be gradual over the year,” Fransson said.

In 2005, the AP4 board approved a 3% investment in emerging market equities while reducing the scheme’s global equity holdings in developed markets by the same amount.

According to the fund’s 2005 annual report: “Investing in emerging market equities would help to reduce the risk of a future downward adjustment in pensions, though only to a limited extent.”

The move will see AP4’s current 42% allocation to developed market equities shrink to 39%. However, its 19% allocation to Swedish equities will remain unaffected following a detailed review of the equity portfolio.

According to the report, the scheme’s Swedish equity weighting is considered “appropriate”.

The scheme – which unveiled a 16.9% return on assets for 2005 - has 61% allocated to equities, 37% to fixed income and 2% to real estate.

In December 2005, AP4 terminated the role of chief investment officer following a restructuring of the scheme’s executive management committee. The move followed the departure of CIO Björn Linder, who quit to join the investment team of ferry line and shipping giant Stena Sphere.

AP4 president Thomas Halvorsen took over the reigns of daily business matters. Meanwhile, the remainder of the responsibilities were split between fixed income and currencies chief Leif Hässel and equities head Anders Årges.

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