MJ Biz Reports…..A Swedish state-owned pension fund has invested in cannabis companies for the first time.
More government-run pension funds are dipping into large-cap cannabis stocks, a sign that such investments are going more mainstream.
The Swedish fund, AP7, is considered a higher risk – and potentially higher – return investment.Canada’s Public Sector Pension Investment Board recently boosted its stake in Ontario’s Canopy Growth and took positions in three more multinational Canadian marijuana firms.
AP7 picked up shares in Alberta-based Aurora Cannabis and Canopy in 2018, the Stockholm-based business magazine Affärsvärlden reported.
AP7 Såfa is a fund portfolio managed by the state pension fund AP7. It is the default alternative in the Swedish premium pension system. If an active investment decision is not made, the premium pension capital will be allocated to AP7 Såfa. The AP7 Såfa fund portfolio is a blend of the AP7 Equity Fund and AP7 Fixed Income Fund.
AP7 Såfa is constructed for savers who do not wish to be active in fund market and is designed to complement the state income pension with an improved risk diversification and potential higher investment returns.
The allocation between the equity and fixed income funds is based on the individual pension savers’ ages in a lifecycle approach. Up to the age of 55, 100 percent is allocated to the equity fund. From the age of 56 to 75 the allocation is annually rebalanced toward the fixed income fund until reaching an allocation of 2/3 fixed income fund and 1/3 equity fund at the age of 75. The reasoning behind this is that your risk shall gradually be reduced when approaching and after retirement .
The management fee of AP7 Såfa portfolio is depending on the management fees of the AP7 Equity Fund and AP7 Fixed Income Fund and the allocation between the funds for each individual saver.
Leverage multiplies investment returns
The AP7 Equity Fund uses leverage through derivatives to generate higher returns. This results in that every Swedish krona invested in the fund is being subject to a multiplier effect of normally 1.25 times the increase or decrease in the market. For this reason, the AP7 Equity Fund’s NAV movements are larger than the markets’. As pension is a long-term investment, we believe that this approach benefit our savers in the long run.
In order to protect the Fund’s assets, the Board may if deemed necessary, decide to reduce leverage to a lower level. Please visit the Swedish version of the site for latest leverage updates and levels.
The Swedish state pension consist of income pension and premium pension. All citizens are entitled to both. It is important to combine the income and premium pensions when measuring overall risk in the state pension scheme. The income pension combined with premium pension invested with AP7 Såfa have a combined risk score of 3 under the SRRI scale*, which relates to the mean risk of increases and decreases in the value of fund capital prior to the age of 55. The risk level decreases after 55, though this have no impact on the risk score for the state pension as a whole.
For the premium pension specifically, AP7 Såfa is risk level 6 for savers under 55. This means there is a very high risk of rises and falls in the value of fund capital. However, AP7 Såfa portfolio shift leftwards on the scale over time due to that equity market exposure is reduced after the age of 55. AP7 Såfa has risk level 4 for investors aged over 74, which correlates to a medium risk.
* The Synthetic Risk Reward Indicator (SRRI) is a risk scale rating used in the Key Investor Information Document, a European Union regulatory requirement for collective investment schemes.
How AP7 Såfa complements the income pension
The income pension is the main component of the state pension and is directly tied to Sweden’s economic performance, with interest rates determined by household incomes. The second component is the premium pension.
This is the part of the pension scheme that AP7 manages and invests in equities and other securities. Because new pension entitlements are allocated every year and equity prices are constantly changing, pension capital allocations are being invested when the market is both strong and weak, which means peaks and troughs become less important over time.
The income pension is linked to economic performance and income growth, while the premium pension improves risk diversification through exposure to global capital markets. The two pensions are thus complementary. As the default choice for Swedish premium pension savers, AP7 Såfa is specifically designed to act as this complement to the income pension.