During the fall of 2020, AP6 evaluated its investment portfolio and strategic direction. Conclusions from the analysis verified AP6’s portfolio structure lending support for continuing to pursue the same strategic direction, albeit with some minor adjustments. The investment portfolio at the beginning of 2020 is the result of a comprehensive strategy shift that started back in 2012 and which was further refined in 2016 to include a combination of funds and co-investments. It wasn’t until 2019 that the portfolio transformation was fully completed, which demonstrates just how long it takes to alter a strategy in private equity.
The investment strategy that AP6 pursues is very successful and it has generated high returns to the AP fund system. The change in the strategic direction, which started back in 2012, is what has enabled the strong returns that AP6 has generated for the pension system since its inception, SEK 57 billion, of which slightly more than SEK 48 billion is attributable to the revised strategy.
A very long investment horizon is needed for private equity investments in order to manage the illiquid nature of investments in privately owned companies. In fact, institutional investors oblige themselves to, throughout the fund’s lifespan, inject capital during a pre-defined investment period. After that, they must wait for distributions until companies in the portfolio are divested. This is why an investment in a private equity fund is referred to as a fund commitment. It can take 8-10 years before a fund is fully divested and the investors have received all distributions on their invested capital. Co-investments are investments side by side with the majority owner, in one of the port-folio companies. Typically, the investment is structured in the same way as other private equity investments, where the main owner is responsible for running, developing and eventually selling the company.