Doomsday Real-Estate Bets Rejected by $40 Billion Investor

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

That’s why Kristin Magnusson Bernard, the chief executive of Sweden’s $40 billion AP1 fund, is “heavily exposed” to prime real estate in city centers.

Doomsday Real-Estate Bets Rejected by $40 Billion Investor

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’s 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 $6 billion, or almost 15% of the total portfolio. The return over the first six months of the year was 1.1%, making real estate one of the better performing major asset classes that AP1 invests in. Overall, the fund lost 1.8% 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. The survey, which focused on Norway and Sweden, showed that 28% 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. “We are heavily exposed to that type of prime locations in city centers,” Magnusson Bernard said.

In Sweden, which avoided going into a full lockdown during the pandemic, about 73% 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 won’t come back.

Magnusson Bernard said it’s clear that the property sector “will see some adjustments, changed strategies, changes in business model.” But “for some, it will be more painful than for others,” she said.


Real estate isn’t the only market in which AP1 is staying put in the face of headwinds. Magnusson Bernard says she sees no reason for the fund to stop investing in China, despite a clear escalation in tensions between the world’s second-largest economy and the West.

“We think that China offers opportunities that are fairly uncorrelated to some other parts of the world where we are heavily invested,” she said.

“If you have an economy that in PPP terms is soon to be the biggest in the world, to disregard that as an owner of companies, is not a call that we would do,” she said.

But AP1, whose China exposure includes a $2 million stake in Geely Automobiles Holdings Ltd. (as of June 30), remains “somewhat underweight” the country. That’s because the risks are “difficult to assess,” Magnusson Bernard said. “But we have not seen any need to change the allocation due to recent events in China,” she said.

Private Equity

In the search for diversification, AP1 has stepped up its focus on private equity. The CEO says it’s 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.”

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.”

©2020 Bloomberg L.P.

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