Now in his second year heading up Sweden’s globally-diversified AP3 national pensions buffer fund, it is Staffan Hansén’s job to keep a keen eye on the international investment environment - which means seeing both the big political picture as well as get up-close to the physical details of a far-flung asset.
At the SEK499.8bn (€43.6bn) fund’s Stockholm office, the chief executive officer told IPE about his experience a month before when he and AP3’s forestry manager Dan Bergman visited the fund’s woodland assets in Oregon, US, which are managed by AP3’s local partner Lone Rock.
“We own timberland, mainly in Oregon, Texas, Sweden, Australia and New Zealand and most is owned through directly-owned companies, not through funds, so we need local asset managers.
“When we go out and meet our asset managers, it’s just to see how they run the operations, how they do it - commercially and in a sustainable way,” he said.
Timberland made up 2.8% of AP3’s portfolio at the end of last year.
Zooming out from the CEO’s hands-on Oregon site visit, Hansén gave IPE his perspective on the global investment environment in 2024, aware that the many major elections taking place around the world this year could impact the fund’s risk and returns.
While AP3 has a home bias in its investment portfolio - 12% of its assets are invested in Swedish equities - it has a 34% allocation to foreign equities.
“Many of these elections are balanced between democracy and autocracy, which means it is a bit of a watershed year when it comes to politics and of course we also have the US presidential election,” he said.
In investment terms, he said AP3 - which invests in some 1,200 companies altogether - argues that democracies provided better long-term odds for positive economic development.
“So on the margins, we’d rather invest in democracies, and of course these elections might have an impact on how we invest,” said Hansén.
The use of AI and deep fakes in social media was also a key issue in a year of elections, he said.
“This can cause distractions, which can cause mistrust - and mistrust has traditionally also been a breeding ground for autocratic leaders rather than democracies.
“So there are a lot of things going on around these elections - I think it will be an interesting year, and I don’t know how it will play out,” he said.
Regarding emerging markets, AP3 currently has no exposure to assets in those geographic sectors. The fund ended the broad emerging markets mandates it had with external managers two years ago with a view to rethinking the strategy.
“We do believe emerging markets have a future, also regardless of trade patterns and trade disruptions and so on, but we believe you should be more selective when it comes to which countries you should invest in,” the CEO said.
“We have done an analysis over the last year and the conclusion is that we prefer to invest in countries that are democratic, have strong governance and rule of law and lower corruption,” Hansén said.
When AP3 does re-enter emerging markets - as it plans to - it will select only those countries the fund sees as balanced based on those three indicators, he said, adding: “So we won’t go back to emerging markets as a broad index, but in a selective way, and we expect to start in Asia.”
However, Hansén said, while AP3 was starting by applying the new analysis to emerging markets, in the future the filtering method would also be used to assess developed markets.
He said: “If we see that developed markets are moving towards an autocratic development, then our scoring would capture that. And it might have implications for how we invest in the future.”
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