Swedish fund shuns doomsday bets on property

Sweden

THE woman running one of Sweden's biggest pension funds says the Covid-19 crisis has done less damage to property markets than some feared.

That is why Kristin Magnusson Bernard, the chief executive of Sweden's US$40 billion AP1 fund, is "heavily exposed" to prime real estate in city centres.

Ms Magnusson Bernard says she and her team in Stockholm "have thought a lot about what a world with less demand for office spaces would mean for us". Though it is clear "the sector will see some adjustments", she said, "We don't believe in any systemic meltdown in the real estate market. That is not our view."

At the end of June, AP1's real estate exposure was close to US$6 billion, or almost 15 per cent of the total portfolio. The return over the first six months of the year was 1.1 per cent, making real estate one of the better performing major asset classes that AP1 invests in. Overall, the fund lost 1.8 per cent in the first half, after costs.

A recent study by Norwegian bank DNB found that working from home is likely to be considerably more widespread after the Covid-19 crisis than it was before.

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The survey, which focused on Norway and Sweden, showed that 28 per cent of office tenants expect to continue working from home, more than double the pre-crisis level.

AP1 holds key stakes in some of the Nordic region's biggest property managers and developers, such as Vasakronan AB.

In Sweden, which avoided going into a full lockdown during the pandemic, about 73 per cent of the population worked from home at the peak of the Covid-19 crisis back in March.

Studies suggest that even after the pandemic, more than a quarter of office workers would not come back.

In the search for diversification, AP1 has stepped up its focus on private equity. The CEO says it is also an avenue through which the fund is trying to expand its investments in assets that live up to environmental, social and governance goals.

"Recently, we have thought about it from an ESG-perspective," she said. "And to use dedicated investments in the PE area is actually something our board just a couple of days ago, took a decision for us to be able to increase."

Ms Magnusson Bernard says AP1 is also likely to continue relying on hedge funds to boost its returns. "We do think they add to our performance," she said. "We still see it as a very valid part of our portfolio that adds to diversification, but as anything else we will keep on questioning it." BLOOMBERG