SWEDEN - Emerging market debt is being viewed as the next growth area by Sweden's buffer fund AP2, its chief investment officer has said.

Speaking after announcing returns of 11%, Hans Fahlin said the SEK222.5bn (€34.7bn) fund had long been investing in equities in the region, but was now considering other assets as it tweaked its investment approach.

"We are looking at emerging market debt in local currency," he said. "Previously, all we've had is hard currency exposure.

"Historically, the fund has had a fairly high exposure to emerging market equities, but the world has caught up with us, so we are looking at taking another step on the equity side too."

Fahlin, who joined the fund a year ago - having worked for ABN AMRO, as well as Fortis following the buyout of his employer - said that any changes to its emerging market exposure would be made with a strategic allocation in mind, rather than due to the short or medium-term gains it could reap.

It currently invests 5% in emerging market equity.

He cited a recent "soft patch" in emerging market equity, saying that these last few weeks of instability were in no way critical for it going forward.

Fahlin also explained AP2's move into forestry and agricultural real estate as a wish to gain exposure to more illiquid assets, in line with his belief that it needed the diversification to offset the scheme's high exposure to equity, in which it invests more than half of assets.

"We are required to have a fairly high level of real return, so it was natural to think about real assets," he said. "Where could we invest in real assets that were, for example, different from the Swedish real estate holdings that we already had?"

He said the illiquid assets offered high-risk premiums for schemes such as AP2, which was likely to have liquidity even at a time when it was scarce in the market.

However, he dismissed the notion that investments in these areas would help the fund offset climate change risk, as suggested in a recent study by Mercer.

 

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