AP7 puts hedge funds on watch

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SWEDEN – Sjunde AP-fonden, the roughly SEK66bn (€7bn) Seventh Swedish Pension Fund or AP7, has put its only two fund of hedge fund mandates on a watch list due to underperformance and administrative issues.

The mandates – worth €83m each – are managed by EIM and K2 Advisors. AP7 awarded the briefs back in June 2002, and was the first Swedish public pension scheme to invest in the asset class.

AP7 vice president and administration head Svante Linder told IPE the firms would be on the watch list for a year.

“They both have a year to shape up to our expectations,” he said. “We have a clear framework for continuously monitoring our managers. We will do this ourselves.”

EIM had a performance target of between 8% and 12% per annum set in absolute terms, said EIM partner and business development head Bill Glass.

He told IPE that while EIM had “unquestionably” performed below this target, AP7 was pleased with its performance compared to the industry as a whole.

“The year was generally more difficult for absolute return strategies than in the past,” Glass added.

AP7 has also put EIM on the watch list following “general administrative issues”, said Linder.

However, Glass stated the matter was not due to EIM’s “administrative lapses” but rather due to communication issues between AP7 and the third party custodian.

EIM had more than €5.1bn in assets under management in 2005. No one from US-based K2 Advisors was available for comment.

At the end of January, AP7 launched a re-tendering process for three equity mandates amounting to SEK43.9bn as part of a mandatory five-year review process. The current managers - State Street Global Advisors, Carlsson Investment Management and Goldman Sachs Asset Management – were encouraged to re-apply.

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