Annual Report · 2020. 9. 11. · ** Interest-bearing instruments – OMRX Government, abolished as comparative index since 1999. Return in comparison with index 1996-1998. SIXTH

Annual Report2001

The Sixth Swedish National Pension Fund currently

administers SEK 16.7 billion of Sweden’s public

pension funds, of which around SEK 11 billion is

invested or committed to small or medium-sized

growth companies. In total, the Fund currently has

shares in more than 350 companies.

Contents

Short description of the Fund

The year in brief

President’s comments

The fi nancial market

The private equity market

The Sixth AP Fund Assignment

Life Science Ventures

Technology Ventures

Industrial Ventures

Buy-out

Asset Management

Business Support

Risk Management

Results for 2001

Income statement

Balance sheet

Accounting principles

Notes

Auditors’ report

The Board and President

Glossary

Portfolio holding

1

2-3

4-5

6-7

8-9

10-11

12-13

14-15

16-17

18-19

20-21

22

23

24

25

26

27

28-32

33

34

35

36-37

SIXTH SWEDISH NATIONAL PENSION FUND 1

A N N U A L R E P O R T 2 0 0 1

By providing capital, competence and networks to small and medium-

sized companies, the Sixth Swedish National Pension Fund, also men-

tioned as the Sixth AP Fund, contributes to the growth of Swedish

business, a good return on public pension investment and the develop-

ment of the Swedish private equity market.

Since its formation in 1996, the Fund has gradually increased its owner-

ship in primarily unlisted small and medium-sized growth companies and

currently has around SEK 11 billion invested or committed.

The effi ciency of the development of companies in the portfolio and

accurate assessment of investments are safeguarded through active owner-

ship and professional organisation with a clear focus.

The Sixth AP Fund’s partnership projects in Sweden and abroad ex-

tend the Swedish private equity market’s capital base and enhance its

competence. Regional networks strengthen the Fund’s opportunities for

identifying the small and medium-sized companies in Sweden that have

the right potential for providing good returns.

Short description of the Fund

2 SIXTH SWEDISH NATIONAL PENSION FUND

T H E Y EAR IN BR I E F

The Sixth AP Fund’s returns in 2001 were 6.2 percentage points higher than the comparative index – the Six Return Index. Both unlisted and listed port-folios reported better returns than the comparative index.

• The Fund’s total return before administration costs was -8.0% (-1.3). The return of the comparative index was -14.2%.

• The unlisted portfolio reported a profi t of SEK 503 million, equivalent to a return of 11.1%.

• The listed portfolio reported a loss of SEK 1 911 million, equivalent to a return of -13.8%.

• At the end of 2001 the value of the fund capital was SEK 16 728 million. Since its start in 1996 the fund capital has increased by SEK 6 360 million. This represents an average return of 12.1%.

• The market-assessed loss for the year was SEK 1 680 million (-428).

Since the end of 1998 the Sixth AP Fund has been fully invested in shares and par-ticipations in both listed and unlisted companies. The proportion of shares and participations in small and medium-sized companies has increased gradually since the formation of the Fund and now amounts, according to the allocation plan, to around SEK 11 billion, which represents around 65% of the Fund’s total assets.

The Fund’s portfolio currently contains around 350 investments in unlisted com-panies, of which around 290 are owned via private equity fi rms or investment funds.

The Fund’s objectivesAccording to the returns target set by the Board of the Sixth AP Fund, over a 5-year period the Fund’s investments shall exceed the Six Return Index. The comparative index is adjusted to take into account that the rules for the Fund state that no investments may be made in foreign companies that are included in the SIX Return Index.

Earnings trendThe total market value of the capital has risen from SEK 10.4 billion at the start in 1996 to SEK 16.7 billion at the end of

2001. This represents an average return of 12.1%. The year’s loss of SEK 1 680 million represents a return of -8.0%, compared with the return of -14.2% of the com-parative index. The Fund’s portfolio of unlisted com-panies reported a profi t of SEK 503 mil-lion, equivalent to a return of 11.1%. The return for the unlisted portfolio was thus 25.3% better than the compara-tive index. The listed portfolio’s loss in 2001 was SEK 1 911 million. This is equivalent to a return of -13.8%, which is 0.4 percent-age points higher than the -14.2 return of the comparative index. Since the start in 1996, the total growth in value of the Fund’s invested capital has been 68.0% before administration costs.

The year in brief

2001 was the fi fth year of operation for the Sixth AP Fund. A weak stock

market, faltering economy and an unfavourable climate for exiting

investments all had a major impact on fi nancial markets. However,

the Fund’s listed and unlisted portfolios performed better than the

comparative index and overall the Fund’s returns were 6.2 percentage

points higher than the comparative index.

% 1999 2000 2001

Investment Operations, unlisted shares 33.3 17.0 11.1Asset Management, listed shares 60.4 -6.3 -13.8

Total, Fund 55.8 -1.3 -8.0

Comparative index* 67.4 -11.9 -14.2

* SIX Return Index (adjusted for NOKIA) , new comparative index since 1999.

Return in comparison with index 1999-2001

% 1996 1997 1998 1996-98 Comparative index

Listed shares 10.2 39.8 8.8 67.6 47.9 * Interest-bearing instruments 0.2 5.7 9.9 16.5 17.9 **Asset Management 0.9 8.4 9.9 20.2 - Unlisted shares - - - - -

Total, Fund - 8.1 8.4 18.5 -

* Listed shares – Six Return Index, abolished as comparative index since 1999.** Interest-bearing instruments – OMRX Government, abolished as comparative index since 1999.

Return in comparison with index 1996-1998


T H E Y E A R I N B R I E F

Returns, 1999-2001Since the end of 1998 the Fund is fully invested in shares and related instruments. Capital in an interest-bearing portfolio has been re-allocated to the stock market.

Market value

SEK bn 1996 1997 1998 1999 2000 2001

Investment Operations, unlisted shares - 0.4 0.9 2.6 3.7 6.0 Asset Management, listed shares 10.5 10.9 11.3 16.2 14.7 10.7

Total, Fund 10.5 11.3 12.2 18.8 18.4 16.7

The above table shows the internal portfolio composition. The sums above are not shown in the balance sheet.

SEK m 1996 1997 1998 1999 2000 2001 1996-01

Result Investment Operations, unlisted shares 0 0 -23 504 624 503 1 608Result Asset Management, listed shares 124 853 967 6 283 -870 -1 911 5 446Management expenses -4 -35 -63 -78 -122 -148 -450Remuneration to external managers 0 -2 -21 -37 -60 -124 -244

Total, market value profi t/loss 120 816 860 6 672 -428 -1 680 6 360

Result summary

Total return in comparison with index, 1999-2001

Since the start of 1999 the Fund’s over-all return has been 35.8%. During the same period the return of the compara-tive index was 26.5%. The graph below shows the returns of the Fund against those of the comparative index.

9812 9903 9906 9909 9912 0003 0006 0012 0104 0108 011200090

10

20

30

40

50

60

70

80

90

100%

Sixth AP Fund SIX Return Index (Source: MPIR)

Investment Operations, unlisted shares

Asset Management, listed shares

Of which allocated to unlisted companies64%

36%

29%


The start-up phase lasted from 1996 to 1998. During this period the Fund performed a re-allocation from interest-bearing instruments to shares, and created an organisational base around the two core activities – managing listed instru-ments and investment in unlisted com-panies. Positive returns were achieved in an unexpectedly short time. The years 1998-2001 were characterised by active investment and the continued development of the organisation. Invest-ment was carried out in fi ve portfolios, each headed by a specialised investment team and with a clear focus. During this period the Fund achieved satisfactory growth for its capital and built a respected brand in the Swedish market. The third phase will be characterised by long-term strategic development and co-operation in new constellations, with the Fund focusing on areas where it has special competence – i.e. developing its role as an active owner and optimising its investment and ownership process. In this way the Fund can use its skills and resources actively to contribute to the natural structural changes that the Swed-ish private equity market is now facing.

Natural process of changeIn recent years a large number of new in-vestment funds have been established and the fi nance markets have seen a surplus of capital. Many funds are currently in the initial stage of entrepreneurial develop-ment. If the Swedish private equity market is to develop positively, several of these funds must soon enter the structural phase.

P R E S IDENT ’S COMMENTS

Active role for a developed private equity marketThe Sixth AP Fund’s fi fth year of operation was characterised by aggressive

measures to counter the falling stock market in a slowing economy. The

Fund reported a negative return, but one that was better than the comparative

index. Since the Fund has become fully invested in shares it has exceeded

the performance of the comparative index by 9.3 percentage points.

Meanwhile, the Fund has entered a third phase of development in which it

will play a more active role in the Swedish private equity market. The Sixth

AP Fund is thus driving forward the professional standards of the Swedish

risk capital market, which further increases the focus on small and medium-

sized companies with growth potential.

The Fund enters its sixth year of opera-tion with a portfolio worth SEK 17 billion consisting of listed and unlisted holdings. The Fund can swiftly release a signifi cant liquid reserve for investment. Most of the companies in the Fund’s portfolio are expanding, and during the past year great efforts have been chan-nelled into developing their operations according to established plans. Due to the unfavourable economic climate, few exits were made, which meant restricted oppor-tunity for making visible the value in the portfolios.

The Fund’s assignmentThe purpose of the Sixth AP Fund is to contribute to the development of Swedish business by providing risk capital for small and medium-sized companies. The Fund will achieve this in the same way as the other Swedish AP Funds – by adminis-tering national pension funds to meet demands for good returns and a long-term end effective distribution of risk. Today, Sweden’s national pension funds and Swedish insurance companies account for around 40% of the capital in Swedish private equity funds. This type of long-term investor is a key pre-condition for capital supply that will boost the growth of unlisted businesses in Sweden. Because of its unique position in the AP fund system the Sixth AP Fund has a vital role to play.

Three development phasesThe Fund will go through three phases of development.


PRES IDENT ’ S COMMENTS

This is characterised by a systematic work-ing method and involves working to fi xed targets with rationalised follow-up. The unlisted market is thus approach-ing a phase of maturity. It will include con-solidation and increased co-operation across national borders. The size of the players and the volume of transactions have recently grown considerably. Meanwhile, the investment criteria have shifted, with the emphasis now on cash fl ow, profi tability and competent man-agement. The Sixth AP Fund will play an active role in the structural change now started in the capital markets. The channelling of competence and capital to carefully selected objects within the various areas of focus will intensify and be made more cost-effective. In concrete terms this means that the Fund’s involvement in private equity will be driven from stronger platforms and that investment to an increasing extent will be made through private equity and investment fi rms partly owned by us. In this way it will be possible to utiliseexternal, highly specialised analysis capacity and secure the necessity of investment managers for each project that are required for a rational process.

Fine-tuning the processThe Fund currently has around SEK 11 billion of the total capital of SEK 17 billion allocated to growth companies according to a fi xed plan. Later on, a large part of assets will be in unlisted com-panies, with most of these companies

owned by established funds. Investment will also be made to a certain degree via completely new funds. The Fund will continue to start-up new funds in order to fi ll empty space on the market, which has been done before, for example, with Amplico and Medicon Valley Capital. The portfolio built up within the un-listed sector currently comprises around 350 companies, of which around 290 represent ownership via 29 individual funds or investment fi rms. Certain part-ners are listed companies focused on investment in growth businesses. All our partners focus on well-defi ned niches in high-tech, life science and industry. Their management teams have cutting-edge skills in the focus areas, and can thus contribute actively to the develop-ment of portfolio companies. The concentration on small and medium-sized companies, together with the long-term view which our mandate prescribes, has since our start in 1996 contributed to the excellent opportunities for growth and development experienced by many of our portfolio companies. A long-term perspective is especially important for companies working in complicated, high-tech sectors where lead-times from innovation to commer-cial reward are often long. Capital avail-able from the Fund is earmarked espe-cially for this type of company and over the years it has been used very effectively to create growth and development in Swedish business.

Results in 2001The portfolio of listed shares reported a loss in 2001, although it was 0.4 percen-tage points better than the comparative index. Growth in the unlisted portfolio was 11.1%, which led to a market-assessed profi t of SEK 503 million. The Fund now has participations in around 350 Swedish businesses, of which 64 are direct investments and the others are via private equity funds and investment fi rms. Since the start in 1996 the fund capi-tal has increased from SEK 10.4 billion to SEK 16.7 billion. This corresponds to average growth of 12.1%. Since the Fund became fully invested in shares at the end of 1998, returns have exceeded the com-parative index by 9.3 percentage points.

Long-term aimsThe Fund aims to consolidate its position among the leading players in the Swedish, unlisted market and to develop excep-tional competence in its ownership role and in the investment process. As a long-term, stable investor rooted in Swedish enterprise, the Fund will continue to work actively for growth in Swedish business and create good returns for Swedish pensioners.

Erling GustafssonPresident


F IN A N C I A L MARKETS

Financial markets

Global fi nancial markets fl uctuated considerably during 2001, partly

because of unpredictable events. The Swedish stock market and the

value of the krona were hit by major uncertainty in the world economy.

On the Stockholm Stock Exchange, 2001 was yet another weak year

for the broad share indices. The downturn was principally localised to

the IT and telecom sectors. Towards the end of the year there were

signs of a minor recovery.

Macroeconomic eventsThe global economy in 2001 experienced a strong, wide-ranging slow down. After going through an economic boom for nearly all of the 1990s, the US offi cially went into recession in the autumn. Fol-lowing the huge levels of investment and high consumption of recent years, espe-cially in high-tech sectors, the US econ-omy faced a fall from a huge height. Despite monetary stimulation, the Jap-anese economy continued to deteriorate, and the European economies, too, began to falter. Argentina, struggling for several years with a weak economy and punish-ing interest rates, was forced to intro-duce a parallel currency uncoupled from the dollar. This represented a massive devaluation. In September, just as signs of weak recovery were mounting, came the ter-rorist attacks on the World Trade Center and the Pentagon.

Even if the direct economic effects of the catastrophe were limited, the psycholo-gical effects can be long-term. Both con-sumption and business investment fell considerably during the autumn. The US administration effected several measures to kick-start the US economy. President George W Bush promised a tax cut and support for the airline indus-try. During the year the Federal Reserve cut its primary interest rate no fewer than eleven times. The fi nal rate at the end of the year, 1.75%, is the lowest since the end of the 1950s. The European Central Bank cut interest rates, too, although not as dramatically as in the US. Extensive stimulation reduced the US trade balance somewhat, but it still re-mained at record high levels. American savings, which had become negative, were also boosted. Infl ationary pressure in the global economy relaxed during the year as the economy slowed down, and prices

for raw materials fell. In Sweden, the weak krona led to imported infl ation and rising consumer prices. Most observers look to a recovery in the global economy in 2002, pointing to reduced consumer and business pessi-mism and the economic stimulus pack-age in the US.

Interest rates and currency marketsShort interest rates fell during the year, which was a direct result of the rate cuts by the central banks. Despite fl uctuations, the fi nal increases in bond rates during the year were mod-erate. US ten-year rates on government bonds rose from 4.9% to 5.0%, in Ger-many the rise was from 4.8% to 5.0% and in Sweden from 4.9% to 5.4%. The rate difference between corpo-rate and government bonds increased drastically up to the end of September when the repercussions of the terrorist attacks were strongest. They have since

Exchange rates10-year government bonds

Sweden 10-year bond, closing rate

Germany 10-year bond, closing rate

US 10-year bond, closing rate

febjan mar apr may jun jul aug sep oct nov dec

4.00

4.25

4.50

4.75

5.00

5.25

5.50

5.75

Sweden exchange rate EUR/SEK

Sweden exchange rate, USD/SEK

EMU exchange rate EUR/USD

febjan mar apr may jun jul aug sep oct nov dec8.75

9.00

9.25

9.50

9.75

10.00

10.25

10.50

10.75

11.00

11.25 0.83EUR/USD

0.84

0.85

0.86

0.87

0.88

0.89

0.90

0.91

0.92

0.93

0.94

0.95

0.96

weak krona

weak euro


F I N A N C I A L M A R K E T S

fallen considerably. This can also be interpreted as a sign that the economy is moving towards recovery, and that fi nancial risks for businesses will recede. The Swedish krona continued to weaken against the dollar up to the mid-point of the year. This was partly due to global uncertainty, but also to major capital fl ows into foreign stock markets. The euro weak-ened against the dollar up to the summer, but rallied towards year-end.

Stock markets2001 was yet another poor year for broad stock indices. As in 2000 the slides were most dramatic in the IT and telecom sectors. Sensitive and defensive sectors performed better. The S&P 500 (US) fell 13%, the DAX (Germany) fell 20% and the FTSE-100 (UK) fell 16%. The Stock-holm Stock Exchange (AFGX) fell 17%. Sweden’s industrial sector started the year badly, although the weak krona hel-ped exporters, especially forest companies.The stock market discounted expected recovery in the industrial sector during the latter part of 2002. The Affärsvärlden (AFV) raw materials index climbed 33%, while the industrial index fell 7%. The AFV consumer index performed strongly, soaring 43%. Hennes & Mauritz, which dominates this index, turned its decline in sales and profi t and continued its successful expansion in Europe and North America.

Health care shares, often viewed as a defensive investment, fared well in rela-tion to the general index and rose 1%. Astra-Zeneca succeeded in replacing Losec with Nexium and there were high expectations during the year for Crestor, a blood pressure medicine. Banks reported weaker results for the year due to declining stock markets and increased credit losses. The planned mer-ger of SEB with Föreningssparbanken collapsed, which could be a sign that consolidation in Sweden’s banking world has been completed. The property and building sector slowed down during the year, illustrated by falling peak rents in the big cities and by declining property prices. The IT sector continued to weaken due to weak demand and surplus capacity. The internet sector, especially, performed very poorly, and the AFV IT index plummeted 54%. In the telecom sector, Ericsson and Nokia noted powerful cutbacks in the mobile system and mobile telephone segments. While Nokia continued to in-crease market share and maintain good profi tability, Ericsson reported huge losses. The reaction was major savings programmes. Expansion by telecom operators came to a halt during the year, and demand for GPRS subscriptions had not taken off by year-end. The AFV tele-com index fell 39%.

Media businesses were hit by the eco-nomic downturn as advertising revenues fell, and the AFV index for media and entertainment was down 29%. The AFV services index, dominated by Securitas, ended the year unchanged. The terrorist attacks in the US were expected to lead to increased demand for surveillance services, but Securitas also faced legal challenges connected with alleged security failures at airports in connection with the attacks.

Stock exchanges

Sector index

Affärsvärlden Index, raw materials (index 29 December 2000)

Affärsvärlden Index, industrials (index 29 December 2000)

Affärsvärlden Index, consumer (index 29 December 2000)

Affärsvärlden Index, health care (index 29 December 2000)

Affärsvärlden Index, telecom (index 29 December 2000)

jan feb mar apr may jun jul aug sep oct nov dec

40

50

60

70

80

90

100

110

120

130

140

150

US S&P 500 index, closing rate (index 29 December 2000)

German DAX index, closing rate (index 29 December 2000)

Swedish Affärsvärlden general index, closing rate (index 29 December 2000)

UK FTSE-100 index, closing rate (index 29 December 2000)

jan feb mar apr may jun jul aug sep oct nov dec55

60

65

70

75

80

85

90

95

100

105

110


T H E P R I VATE EQU I TY

MA R K ET

Losses and attitude changesFor many in the private equity market the latest trends led to large write-downs of portfolio values and closure of activities. Overall, bankruptcies were up 12% in 2001. The largest stock market fall since 1990 was followed by dotcom failures. The troubled stock market and falter-ing economy also reduced opportunities for exits via listings or trade sales to corporate buyers.

TransformationThe Swedish private equity market is valued at around SEK 150 billion. Only the US and Iceland has higher risk capi-tal investment in unlisted fi rms, measured per capita. Following the downturn the sector faces wide-ranging restructuring. The Swedish market in the long term will be dominated by fewer, larger players working inter-nationally.

Smaller players will continue to dis-appear, international co-operation will increase.Furthermore, players will link up more and more, not just via formal mergers, but also in less formal networks. This is illu-strated by the increasing number of joint investment ventures. For the Sixth AP Fund these trends will require adjusting working methods to meet new market conditions. The Fund will co-operate increasingly with other players and focus more sharply on the investment process.

Early stageThe number of early stage investments decreased during the year. Of the total investments made during the fi rst three quarters of the year, early stage invest-ment was down by 25%. Many of the company incubators pop-ular in 2000 were closed down in 2001.

The market’s reluctance to invest in the early stage of a company’s development can partly be explained by investors’ dif-fi culties in allocating capital and partly in the shortage of resources among mana-gement teams. Furthermore, the larger funds were forced for resource reasons to prioritise larger investments in their later phase.

ExpansionThe expansion phase attracted most investments – around 50% of the total – during the fi rst three quarters of 2001. This was higher than the previous year, when the expansion phase attracted barely 30% of the total investment capital. An interesting entrant in the expan-sion capital market are the restructuring funds. These funds help to restructure businesses that require signifi cant changes in their activities.

The private equity market

Hesitancy and caution characterised the private equity market in 2001.

Optimism born in the internet revolution and talk about the New Economy

turned into pessimism as the overall investment total was more than

halved. A general economic downturn, stock market losses and an

increase in job lay-offs had a negative impact on Swedish private

enterprise and risk taking.


P R I VAT E

EQ U I T Y - M A R K N A D E N

Buy-outThe buy-out market progressed well in 2001. Buy-outs attracted around 80% of invested capital. By the end of the year the number of structural deals had dou-bled compared with the previous year. Around the same number of signifi cant additional investments were made. The fundamentals of the buy-out market are good. Continued focus on

core activities and thus more restructur-ing will open doors for more buy-outs. The number of disposals was lower than expected in 2001, but more are fore-cast for 2002. If the stock market picks up, a dozen or so listings in the several-billion-krona class can be expected.

Risk capitalInvestments in a

company’s own equity

Other investments inunlisted companies

Public equity...in listed shares

Private equity...in unlisted companies

Venture capital...active and timelimited ownership

Buy-out… stock market buy-outs or

acquisitions of parts of companies together

with management

What is private equity?Private equity stands for investments in unlisted companies. The words risk capital, which are sometimes used synonymously, actually mean investments in a company’s own capital. The word ”risk” here refers to the larger risk that the owner takes in relation to other fi nanciers in the company, such as banks or suppliers. (source: Venture capita – concept and defi nitions, by Professor Anders Isaksson).The illustration to the left shows how the different terms fi t together. The private equity market can be divided into • the buy-out market, which deals with strategic and fi nancially directed buy-outs and mergers of major companies or parts of major companies, and• the venture capital market, which deals with investments in smaller and often quickly growing companies. The term venture capital, which like most terms is not yet translated into Swedish, refers to time limited investments in unlisted companies where the investor often practices active ownership.


D IR E C TOR ’S REPORT

The Fund’s involvement in unlisted growth companies focuses on four key areas: industry, technology, life science and buy-out phase investment. The illustra-tion on page 11 shows how the Fund’s investments are divided among different sectors compared with the weighting in the Affärsvärlden general index. The Fund is heavily committed to IT and life sci-ence, areas that are prioritised because of their growth potential.

Rational processEach focus area represents a portfolio, which has its own team of highly specia-lised investment managers. The fourth team is responsible for the Buy-out port-folio, which is focused on strategically and structurally motivated business. The Fund’s listed holdings are managed by the Asset Management team. Central administration and support are handled by the Business Support staff. At present a large portion of the Sixth AP Fund’s capital is invested directly or indirectly in small and medium-sized growth companies. To achieve higher re-turns than the stock market over the long term, the Fund intends to further increase the portion invested in unlisted compa-nies. This will be done primarily via investment in listed and unlisted private equity companies or in investment funds. In this way the Fund safeguards access to professional management teams and increases its own investment capacity.

In addition, further capital can be attrac-ted from more passive investors who see it as an advantage that the Sixth AP Fund takes an active ownership role.

Presence in all stagesThrough a signifi cant amount of invest-ment in funds and companies in various stages of development the Fund has a strong position in the private equity mar-ket. Effective spreading of risk requires care-ful diversifi cation among portfolio com-panies in different stages of development. In 2001 the Fund had the following acti-vities in different development stages:

Early stageVia investment in around 15 funds focus-ed on the early stage of business devel-opment, the Sixth AP Fund has a very strong position in this sector. The Fund invested SEK 180 million in this area in 2001, of which SEK 150 million was in the life science sector. The largest new investment, worth SEK 20 million, was in the Got-A-Gene research company. Positions in two funds, Medicon Valley Capital and Karolinska Investment Fund, were boosted via two additional investments of around SEK 55 million. Only one new investment in the technology sector was made during the year in the form of SEK 11 million to Vision Capital III.

ExpansionInvestments in around a dozen funds means that the Fund plays a signifi cant role in the expansion capital market. A total of SEK 270 million was invested in this area in 2001, of which SEK 140 million was in the technology sector. The largest individual investment was SEK 84 million in the BrainHeart IT fund. The largest new investment in life science was SEK 30 million in Aerocrine in the medicine technology segment. Major restructuring of the industry portfolio took place.

Buy-outIn the Buy-out market the Fund has main-tained its strong position through invest-ment in Nordic Capital and EQT and through its own investments in the buy-out phase. The Fund invested a total of around SEK 1 billion in this area in 2001. Positions in Nordic Capital and EQT were reinforced via additional investments amounting to around SEK 300 million. The Fund’s investment in the buy-out phase developed strongly during the year. The single largest new investment was worth around SEK 500 million and was made when Lindab AB was bought out of the stock market. A consortium consisting of the Sixth AP Fund, Skandia Liv and Ratos headed the deal. The larg-est additional investment amounted to

The Sixth AP Fund Assignment

The role of the Sixth AP Fund is to offer small and medium-sized

Swedish growth companies long-term capital, and thus contribute

to the development of Swedish business.

This assignment must be performed in such a way that the overall

goals for the AP fund system – high returns over the long term and a

satisfactory diversifi cation of risk – are achieved.


THE S I X TH AP FU ND ’ S ROLE

around SEK 250 million and was made in Mölnlycke Healthcare.

Balanced portfolioA decisive factor for achieving good risk diversifi cation and high returns is having a large number of investments. It is equally important that investments are balanced over time, so that there is protection against the impact of the business cycle. The Fund’s investments in small and medium-sized growth companies rests upon the following cornerstones:

• access to professional management teams• a well developed investment process • regional and global networks• balanced spread across different stages of company development• diversifi ed portfolio – across different sectors

AP fund systemThe Sixth AP Fund is one of the fi ve pen-sion funds in the Swedish Pension Fund system that manages buffers for pension income (so-called buffer funds). The Sixth AP Fund has a unique posi-tion in the AP system. Unlike other AP funds, which invest primarily in listed

The Deal Sourcing ProcessIn the fi rst phase, contact is made with the companies showing interesting potential. This is done via the Fund’s network and via evaluations of proposals from the companies.

The Negotiation ProcessOnce the company’s potential has been evaluated, a suitable price level is decided and negotiations are entered. Before a fi nal decision concerning investment, consensus with the other owners concerning, for example, management culture and strategic goals, is ensured.

The investment process

The Deal Sourcing Process

The Negotiation Process

The Ownership Process

The Exit Process

Investments in unlisted companies comprise a work-intensive and time-consuming process, which can be divided into four phases, as shown in the illustration above.

The Ownership ProcessActivity and expertise in the role as owner are cornerstones of the Fund’s work method. The Fund works actively – among other methods, via the company’s board of directors – in order to create long-term value development. Via its network, the Fund can often provide external expertise and contribute to the creation of new alliances.

The Exit ProcessIn the fi nal phase, the Fund exits its holding. This is achieved by selling to another long-term owner or via a stock market introduction. In the latter case, the Fund can remain an owner of the listed holding.

2%

24%

16%

25%

9%

5%

16%

2%

1%

Sector weighting, Fund’s total portfolio, 31 December 2001

Sector weighting, Fund’s unlisted holding, 31 December 2001

1%

39%

22%

16%

6%

9%

5%2%

Sector weighting, Affärsvärlden’s general index, 31 December 2001

7%

10%

15%

25%

10%

26%

3% 2%

2%

Commodities

Health care

Industrials

Financials

IT

Consumer products

Telecom

Services

Media, entertainment

instruments, the Sixth AP Fund comple-ments traditional capital management with active ownership of unlisted small and medium-sized growth companies. The Sixth AP Fund is mandated to invest in:

• listed shares, where the holding is less than 30% of capital and votes• unlisted Swedish shares• interest-bearing instruments• accepted derivative instruments• no restrictions in allocating between different classes of assets The Fund’s Board has set as an objective that returns on the Fund’s investment over a 5-year period shall exceed the SIX Return Index. The comparative index is adjusted to take into account that the Fund’s regulations, which do not permit investment in foreign companies inclu-ded in the index.


L I F E SC I ENCE VENTURES

Life Science Ventures invests in Swedish companies active in the pharmaceutical, biotechnology and medical technology sectors. These are research intensive areas and Life Science Ventures works closely with the science faculties at Sweden’s universities. Historically, returns in this sector have been higher than for the market as a whole. The Swedish life science market has also performed very strongly from a European perspective.

PortfolioInvestments are predominantly long term. The sector is high risk, with investment in a single company often meaning invest-ment in a special technology or a new medicine in an early stage of development. The portfolio is well balanced between holdings in pharmaceuticals, biotechnol-ogy and medical technology.

Most active investments, with the excep-tions of Biora AB and Mölnlycke Health-care AB, are in the early stage. While they can be seen as risk investments individu-ally, the overall composition is well ba-lanced, with investment in different tech-nologies and different types of project.

Intensifi ed co-operationCo-operation with universities and col-leges intensifi ed during the year. For ex-ample, a venture capital fund was formed, which includes holding companies at Upp-sala University and the Swedish University of Agricultural Sciences as part owner. Swedish and Scandinavian medical re-search is very successful, especially in the biotechnology area. Important progress has been made in stem cell research. With investments in NeuroNova AB and A+ Science Invest AB, the Fund’s life science portfolio has a good position in this area.

Close relations with universities and col-leges mean that Life Science Ventures will continue to develop the commercial po-tential of research conducted in Sweden’s science faculties.

Investment in cutting edge technologyInvestments were made in four new com-panies in 2001 – of which two were in biotechnology and two in medical tech-nology – and in one new fund. One of the new investments was in Aerocrine AB, a medical technology company that has developed a unique method for early diagnosis of asthma attacks. Another investment is in Surgical Sci-ence AB. The company has developed a simulation model for keyhole surgery. The method allows students and sur-geons the chance to practice different techniques in a virtual environment. The Fund has also invested in Angio-Genetics AB, a company that conducts research and development into medi-cines used to regulate vascular growth. The method is used to treat heart and vascular problems. Another investment in the biotechnology sector was in Got-A-Gene AB, which develops technology for more effective gene therapy and cancer treatments with targeted viruses. During the year Life Science Ventures, together with Investor Growth Capital, Health Cap and 3i, carried out several planned issues of new shares in com-panies which were already owned. Tam-roOY’s holding in Mölnlycke Health Care AB was acquired, in partnership with Nordic Capital and Bure Equity AB.


The downturn in the life science sector that started in 2000 continued

into 2001. Despite this, the Life Science Ventures portfolio posted a

14.0% return for the year. Activities ran largely according to plan and

number of investments and new share issues in owned companies

were carried out. Close co-operation with universities and research

institutes was further strengthened.


L I F E S C I E N C E V E N T U R E S

Life Science Ventures 2001 2000 1999

Committed capital, SEK m 2 429 1 753 1 066

Market value, SEK m 2 085 1 438 798

Result, SEK m 217 338 59

Return, % 14.0 26.9 10.3

Results2001 and 2000 were tough years for the life science market. The downturn which started in mid 2000 continued into 2001. Several companies failed in their efforts to achieve market listings. Several of the companies that succeeded with their launches experienced dramatic falls in share prices. However, the Life Science Ventures portfolio progressed positively in 2001. At the end of the year it consisted of 19 direct holdings, six listed companies and shares in nine investment funds. The market value was SEK 2 085 million and the return was 14.0%. In summary, 2001 was a successful year for the life science portfolio. It was a year of good returns and promising investment. Operations in the directly owned companies progressed largely according to plan.

Outlook for 2002The good fl ow of proposals is expected to continue during 2002. The weaker business cycle is likely to make investors cautious, and it will be diffi cult to launch high risk companies on the stock market.

Life ScienceVentures

35%

Syndication partners will in certain cases not have the capital they need to continue the development of their busi-nesses. The risk in the portfolio will therefore increase. Some venture capital fi rms will pro-bably be acquired by the richer players or be forced to dilute their holdings con-siderably when they cannot participate in necessary additional investment. In order to ensure that new investment decisions can be made at an early stage, Life Science Ventures will continue to focus on cash fl ow and available capital in portfolio companies. Co-operation with one or more partners will begin in 2002, partly to increase op-portunities for making investments and partly to be able to participate in the restructuring that the current economic downturn is likely to result in.

Total portfolio holding on page 36.

Proportion of Investment Operations


Lars Ingelmark, Head of Life Science VenturesCarina LangelandJan SundqvistKarl Anders KarlssonSusanne OlofssonThomas Brodin


T E C H NOLOGY VENTURES

Technology VenturesThe market for investing in technology-intensive companies followed the

same negative development in 2001 as the overall venture capital market.

This restricted opportunities for favourable exits. However, the investment

funds in the Technology Ventures portfolio were able to make good acquisi-

tions due to low price levels. The portfolio’s return for the year was –23.2%,

which was largely due to adjustments in value of portfolio companies.

Technology Ventures invests in technol-ogy-intensive companies, primarily via specialised players who focus on early stage involvement in the IT, telecom and media/entertainment sectors. The strategy also includes investing in individual port-folio companies in parallel with their partners, primarily in expansion and internationalisation stages.

Market trendsThe Swedish market for technology in-vestment has followed the very negative trend experienced by the US venture capital market. Portfolio companies in the US IT funds had their value written down by over 60% during the year. Almost no new investment teams were established during the year, and only funds with strong histories succeeded in attracting capital.

Negative market trends meant signifi cantly lower price levels for new investments and created opportunities for several of Technology Ventures’ funds to do good business that meets the return objectives of the Sixth AP Fund.

However, exit opportunities were delayed. Successful exits of companies requires the formation of syndicates featuring Swedish and international partners. Restructuring of the Swedish and Scandinavian markets will continue and will be more noticeable in 2002.

Interest in SwedenDespite the weak market, interest in Sweden from international players re-mains strong. Sweden has become an important market for new technology, partly due to the high penetration of the internet and mobile telephones. Sweden and Finland, together with Israel and the US, are among the most innovative markets in the world. Scandinavia has a world-leading reputation in research and development within interesting growth areas, mainly due to Ericsson and Nokia. In August, Technology Ventures or-ganised a seminar in Göteborg together with the Swedish Trade Council entitled “Creating Global Market Opportunities for Swedish Technology Companies”. This was part of a strategy aimed at cre-ating an international network comprising Technology Ventures and its partners.

Performance of Technology Ventures’ funds

0

200

400

600

800

1 000

1 200

1 400

SEK m

9703 9709 9803 9809 9903 9909 0003 0009 0103 0109

Invested capital

Paid back capital

EVCA*-valued capital

EVCA*-valued capital + Paid back capital

*EVCA – European Venture Capital Association


T EC H N O L O GY V E N T U R E S

Technology Ventures 2001 2000 1999

Committed capital, SEK m 1 898 1 492 425

Market value, SEK m 621 616 570

Result, SEK m -145 324 312

Return, % -23.2 42.6 185.4

Technology Ventures

10%


Great interest was shown in the seminar, especially from international contacts.

PortfolioOn 31 December 2001 Technology Ven-tures had a total of SEK 1.6 billion in committed capital across 14 venture cap-ital funds (see table below). Of this sum, SEK 481 million has been invested, in-cluding SEK 200 million in 2001. Technology Ventures is either the lead investor or co-lead investor in the invest-ment funds in which it has part invest-ment. The ownership is active through participation in decision-making com-mittees and boards.

ResultsTechnology Ventures reported a loss of SEK 145 million in 2001, which repre-sented a negative return of –23.2%. The negative result was due to adjustments in the value of portfolio companies. The result includes a loss of SEK 25 million connected with Mobilisys AB. Only a few exits were made during the year.

Outlook for 2002The weak market for IT companies is expected to continue in 2002. Changed market conditions also affect venture capital funds.

Fund Ownership Business focus according to fund’s or management team’s website

BrainHeart Capital 20% Wireless online services and personal online services, wireless broadband services or embedded internet or M2MInnKap 2 Partners 5% Information & Communication Technology (ICT), Health Care and Life SciencesInnovationsKapital Fond I 29% Information & Communication Technology (ICT), Health Care and Life SciencesIT Provider Century Fund 33% Wireless and broadband, software and content and servicesNth Power Technologies 8% Energy Power related marketSlottsbacken Fund II 25% Mobile communications, IT security and advanced corporate softwareSlottsbacken Venture Capital 50% Mobile communications, IT security and advanced corporate softwareSwedestart II 21% Development and sales of products and services in IT, telecom and life scienceSwedestart Tech 21% Development and sales of products and services in IT, telecomV2 Internet Fund 16% Hardware-focused portfolio companies deploying world class technology within the global datacom, telecom or wireless market-placeVision Capital III * Trans Atlantic investments focusing on communication, software and Internet/e-commerce companiesVision Capital 6% Trans Atlantic investments focusing on communication, software and Internet/e-commerce companiesVision Extension 6% Trans Atlantic investments focusing on communication, software and Internet/e-commerce companiesZodiak Venture Capital 10% Telecommunications, IT and media

* This fund is still open, ownership share not available.

The funds listed above had around SEK 1.000 million invested in unlisted companies in 2001.

Consolidation is expected among Swed-ish venture capital funds active in the IT sector. It will be very diffi cult to start new funds in the coming year. During 2002 Technology Ventures plans to start working with researchers, institutions and companies with the aim of investing in very early stage of devel-opment. This stage is associated with very high risk, but there is also great poten-tial for high returns. It is reasonable to expect continued co-operation between Swedish and international venture capi-tal funds and investors. This is positive, both for Technology Ventures and the Swedish market overall. As part of the restructuring of the Swedish and Scandinavian markets CapMan, one of the region’s leading players in private equity and venture capital, acquired Swedestart Manage-ment. The Sixth AP Fund committed SEK 600 million to CapMan’s Swedish fund in 2002. Technology Ventures was an established lead investor in Swede-start’s funds.


Technology Ventures

Mats Augurell, Head of Technology VenturesAngela VidelaCarl-Peter Mattsson Cecilia Gross FribergerErik JohanssonTill Gutzen


I N D U STR I A L VENTURES

Industrial Ventures focuses on investment in small and medium-sized companies producing goods and services and enter-ing phases of growth and/or restructur-ing. The aim is to take an active owner-ship role and contribute to the positive development of the investment object. Full commitment to the ownership role and concentration on the refi nement of existing holdings characterised activities during the year. The investment strategy was also developed further.

The portfolio in 2001During 2001 a couple of new investments were made and several exits were made. New investments were made in Envi-ronmentor Intressenter AB and Secus Nordic AB. Holdings were sold off in Fogmaker International AB, Goodfood & Readymeals AB, Gniraebut AB and TeknoTerm Climate AB. Environmentor Intressenter AB is based in Göteborg. The company devel-ops and sells products for measuring and reducing magnetic fi elds. Secus Nordic AB, which is based in Solna, focuses on advanced printer solutions for label sys-tems, etc. Industrial Ventures portfolio performed well in 2001. Good develop-ment potential for the future was shown by Aspen Invest AB, Autoadapt-BEV AB, Malmö Bildetaljer Invest AB and Tribon Solutions AB.

Industrial VenturesDespite the weak industrial business cycle in 2001, Industrial Ventures’

total return for the year was 7.5%. The result included both capital

gains and losses and reduced market value among several portfolio

companies. During the year Industrial Ventures focused on refi ning

existing holdings in order to secure future value. Two new investments

were carried out and several holdings were disposed of as a result of a

restructuring of the portfolio.


I N D U S T R I A L V E N T U R E S

Fylkinvest AB and A H Småföretagsinvest AB – in partnership with Nordea and Svenska Handelsbanken – are considered to be fully invested since the start of 2001. Work during the year concentrated pri-marily on refi ning the existing portfolio in terms of the ownership process. Z-Invest invests in small and medium-sized companies in the mid Norrland region. During the year several holdings were sold off, and work aimed at restruc-turing the portfolio has continued. The Reconstruction Fund – owned in partnership with Ackordscentralen – has through the management company, Amplico Kapital, built up a clear profi le during the year in the market, with a steady fl ow of propositions. Investments were made in Bergsala AB, which holds agent rights in Sweden and Denmark for Nintendo products. This company performed very well during the year.

ResultsThe portfolio’s results and returns were affected by the weak industrial climate. Industrial Ventures made a profi t of SEK 51 million, representing a 7.5% return. Considering poor economic factors, this was satisfactory. The market value of the portfolio reached SEK 779 million. Exits during the year led to both capital gains and losses. The value of the portfolio was written down to a certain extent, which negatively affected results.

Industrial Ventures 2001 2000 1999

Committed capital, SEK m 833 753 373

Market value, SEK m 779 655 367

Result, SEK m 51 94 -6

Return, % 7.5 16.8 -2.4

IndustrialVentures

13%


Outlook for 2002 – developed strategyThe strategy is based upon utilising in-dustrial competence and networks deve-loped over the year. The focus is on small and medium-sized companies pro-ducing goods and services. These com-panies must have an effective business concept and strong growth potential, organically or structurally. The Fund’s participation is aimed at strengthening the business potential and enabling sig-nifi cant expansion. There is increasing demand for private equity to fi nance industrial companies that seek growth via structural deals and the development of new technology. The combination of industrial experience in the investment teams and the strong networks connected to the Fund create good conditions for active participation in interesting new investment objects. Overall this gives Industrial Ventures the opportunity to carry out several acquisi-tions in 2002 that have major develop-ment potential.


Industrial Ventures

Per Hallberg, Head of Industrial VenturesAnders FermFredrik GrothHelen GlansJan DahlqvistJerker SundströmJoakim WinggrenLars JohanssonMarie Atterland FribergMats Andersson


B U Y - O UT

The Buy-out portfolio is focused on com-panies in more mature phases which need to change their fi nancial or struc-tural situations. The active search profi le focuses on reputable, established growth companies with low technological and operational risk and predictable cash fl ow. The prospect must have interesting busi-ness potential so that Buy-out’s partici-pation will help create signifi cant expan-sion. In addition, an exit alternative must be clearly defi ned at the start of the investment. Through its broad network and by being a stable owner, the Fund fi nds it relatively easy to attract the right compe-tence to the company, to strengthen the board of directors, for example.

Structural dealsIn early 2001 Elimag Industry AB, a com-pany serving the telecom sector, was sold to the listed company, Beijer Alma AB. Beijer Alma focuses on growth in the telecom sub-contractor sector. The Fund’s single largest direct invest-ment was its involvement in the consor-tium that bought out Lindab AB from the stock exchange. Other members of the consortium were Ratos and Skandia Liv. The investment in Lindab, which is a market leader in ventilation in Europe, is based upon the company expanding geographically by building up strong positions in the highly fragmented US market. On 1 June NS Holding (Norrporten) purchased property worth SEK 5 billion, bringing its total property portfolio up to a value of around SEK 9 billion. The strategy is to create a property company with strategically well located property in the key cities in Sweden outside Stockholm, Göteborg and Malmö.

Buy-out

During 2001 Buy-out continued refi ning its portfolio so as to increase the

concentration on larger business. Companies that fell outside the strate-

gic framework were sold off, while the market situation was exploited as

several offensive deals were made. Volumes reached a high level and new

investment during the year reached around SEK 1 billion. The portfolio’s

overall return was 22.6%. Buy-out will continue to refi ne its portfolio and

extend its already large network.


The acquisition strengthened the com-pany in several locations where it already had a presence and also added new loca-tions. Following the acquisition the com-pany is now owned in equal parts by the Sixth AP Fund, Second AP Fund and Vasakronan.

PortfolioRefi nement of the portfolio continued during the year. The focus on larger busi-ness meant that considerable time had to be invested in identifying new busi-ness opportunities and in exiting from companies that fell outside the strategy framework. Plant Vision, among other companies, was sold off during the year. The strategy of indirect investment has continued and new capital has been committed to two buy-out funds, EQT and Nordic Capital, both of which started new funds and completed several deals during the year. The Fund’s Buy-out portfolio reported good success in 2001, in terms of both results and volumes. The profi t was SEK 380 million, which meant an average return on capital of 22.6%.

Buy-out 2001 2000 1999

Committed capital, SEK m 3 233 1 828 1 133

Market value, SEK m 2 498 1 018 815

Market value, SEK m 380 -132 139

Return, % 22.6 -12.2 26.9

B U Y - O U T

Buy-out 42%


The market situation meant that several interesting deals were possible, and new investment during the year reached around SEK 1 billion. This was a large increase on the previous year.

Outlook for 2002In the portfolio’s direct investments there are few companies currently mature enough for exiting. The portfolio includes several companies ready for listing when the stock market climate becomes more favourable. It is therefore realistic to await visible value in the coming year. In terms of new investments, Buy-out is actively involved in a process of identi-fying suitable acquisition objects.


Buy-out

Urmas Kruusval, Head of Buy-outAnna HaglundCarina KoitrandChristina ArvidsgårdHåkan BohlinPer Lindahl


to some extent by keeping the Fund’s cash account at a higher level than normal. The Fund’s signifi cant position in Industrivärden, which was acquired in early 2000, was reduced considerably during the year. Divestment included a signifi cantly smaller investment com-pany discount than was involved at the time of acquisition. In connection with this, Ericsson, Skandia, SCA, Sandvik and other shares were acquired that are included in the Industrivärden portfolio. As a consequence, the Fund’s previous overweight in investment companies was reduced, while under-investment in other sectors was neutralised. At the start of the year Sanmina Cor-poration made an offer for Segerström & Svensson, and the Fund sold off all its shares in this company, after previously being a signifi cant owner. Later, the Fund sold its holding in AssiDomän after the Swedish State made an offer for the com-pany. Shares in Perstorp were sold fol-lowing the offer from Industri Kapital. In accordance with the Fund’s regula-tions, Nokia may not be included in the Asset Management portfolio. In compen-sation, the Fund has a overweight in Erics-son. The overweight in the IT sector in-creased during the year. This is mainly due to the fact that the Fund’s IT holdings are in profi table growth companies which performed better than the Affärsvärlden IT index. Other purchases during the year included Drott, Assa Abloy and SKF.

Strategic HoldingIn addition to the Benchmark portfolio the Fund has four strategic holdings where the Fund participates actively in the development of the companies in order to obtain better long-term returns. These holdings include Bure Equity, Capio, Castellum and Svolder.

A S S E T MANAGEMENT

Asset Management

The Fund’s listed holdings are the responsibility of Asset Management.

During 2001 the portfolio’s return was affected by stock market uncer-

tainty and the result was negative. However, it was 0.4 percentage points

above the comparative index.

Since the end of 1998 Asset Management has invested exclusively in listed Swedish shares and share-related derivatives. The capital is divided primarily between the Benchmark portfolio and Strategic Hold-ing portfolio. Asset Management’s task, in addition to maximising the return, is to manage the liquidity that is needed for the Fund’s investment strategy focusing on small and medium-sized companies.

Benchmark portfolioAsset Management consists primarily of the Benchmark portfolio, whose compo-sition is similar to that of the Stockholm Stock Exchange. During the year the port-folio had a overweight in growth compa-nies and companies sensitive to the busi-ness cycle. This resulted in a beta value of over 1.0, which was compensated for


A S S E T M A N A G E M E N T

Bure Equity, an investment company focused on the TIME sector, transferred the media monitoring company, Observer, to shareholders in 2001. Dimension, the IT integrator, was launched on the stock market during the year. Bure produced a negative return of –7.2%, including dividends, for 2001. The Fund increased its holding in Bure during the autumn at very low price levels, but overall reduced its holding for the year as a whole. Capio is active in various segments of the health care market. During the year the company acquired a British company, which gave a strong boost to sales. Capio produced returns of 2.1% for the year. To obtain better risk diversifi cation the Fund sold part of its holding during the year. Castellum, thanks to continued strong development in its operations, climbed by 9.6%, including the dividend. The Fund reduced its holding in Castellum. Svolder, an investment company focus-ed on small companies listed on the Stockholm Stock Exchange, was towards the end of the year valued at a premium against the net worth, which resulted in a better return (-11.7%) than the Carn-egie small company index (-14.8%).

ResultsThe SIX Return index fell back –14.2% during the year. Asset Management’s total yield was better than the index and stood at –13.8%. Part of the reason for this was the good performance of Aktiva Innehav, Hennes & Mauritz, Elec-trolux, Segerström & Svensson, Nibe and Industrivärden.

Asset Management 2001 2000 1999

Market value, SEK m 10 750 14 655 16 248

Result, SEK m -1 911 -870 6 283

Return, % -13.8 -6.3 60.4

Comparative index, % -14.2 -11.9 67.4

Market value Result* Return Comparative SEK m SEK m % index

Benchmark portfolio 8 713 -1 767 -14.8 -

Strategic Holdings 923 -79 -4.0 -

Other 1 114 --65 - -

Total, Asset Management 10 750 -1 911 -13.8 -14.2

*Market-valued result, before costs

Asset Management on 31 december 2001

Strategic Holdings, 9%

Benchmark portfolio, 81%

Other, 10%

Asset Management

Henrik Malmsten, Head of Asset ManagementFabian DahlKristofer AlmMagnus DahlgrenMats Venndahl


BUS INESS SUPPORT

F U N C T IONS

Business Support Functions

The Fund’s central functions are summarised under the name Business

Support. They are adapted to the complex investment and business

fl ow. The individual functions and their respective roles in operations

are described below.

Group Control monitors the Fund’s eval-uation process and co-ordinates the con-troller functions of the various portfolios.Risk Management is a separate unit that monitors the Fund’s risk taking within Asset Management.Finance is responsible for internal and external accounting and associated tax issues.Back-offi ce checks transaction notes, follows up transactions, and is responsi-ble for daily contacts with banks and the Fund’s business associates. The IT department is responsible for development, operation and support for the advanced IT environment used within the Fund.

Business Support Functions

Group ControlAnnika Ahl Åkesson

Risk ManagementLena Erickson

FinanceHelene SandqvistMarianne BergersenUlrika Drotz Molin

Back-offi ceCharlotte André KarlssonMonica Lingdén

IT departmentHelena JerkstenRobert Wellqvist

Ulrika Drotz Molin

Legal departmentAlexandra NilssonGerd Oving DalgrenJonas Lidholm

Human ResourcesAnna Haglund

Offi ce AdministrationKarolina Björklund

Liselotte Svensson

President’s secretaryLisbeth Ekelund

Head of Business SupportStefan Holmgren

The Legal department supports the Fund’s Investment Managers with advice during all investment process phases.Human Resources is responsible for staff administration and advises on staff–related issuesOffi ce Administration is responsible for offi ce procedures and statutory register keeping.

Committee’s of the Sixth AP Fund

Board

President

Management CommitteeResponsible for the Fund’s operations.Lead by the President.Finance CommitteeResponsible for the listed portfolio.Led by the President.

Investment CommitteeDecision forum for investments, disposals and other business issues within the framework for the President’s mandate.

Internal board for unlisted holdingsFollows the continual development of the risk profi le of the unlisted portfolio.


R I S K M A N A G E M E N T

Risk ManagementInvesting capital involves dynamic, fast and unexpected changes. Effi cient

risk management, therefore, is of decisive importance for the Sixth AP

Fund’s results, and the methods used are assessed continuously. The

defi nition of risk levels in activities is a vital policy matter that has top

priority in the work of the Board. The principal document used for the

Fund’s risk management is the fi nancial policy, which is reviewed regularly.

Risk management within Asset ManagementRisk management within Asset Manage-ment follows the guidelines set by the Fund’s fi nancial policy. The policy indi-cates how capital is to be allocated be-tween the portfolios, sets limits and restrictions for holdings and describes how controls and monitoring are to be performed. The fi nancial policy is revised regularly and is approved once a year by the Fund’s Board. Within Asset Management the focus is on share price risk, but other risks, such as interest rate risk, liquidity risk and credit risk, are followed up daily. The President receives a risk report each week and risk has a fi xed point on the agenda for each Board meeting.

Managing share price riskAsset Management’s portfolio consists mainly of shares, making share price the most important risk that is handled.

The risk is measured against a compara-tive index, the SIX Return index. During 2001 a model for analysis and follow-up of results and risk in the share portfolio was developed by the Fund. It gives an overview of how sectors and individual companies have contributed to results and the risk that was generated. Measurements such as Tracking Error and the Sharpe Ratio are used. Share price risk is limited by setting the Fund’s sector weightings in relation to the sector weightings specifi ed in the Affärsvärlden general index. Scope for deviating from the comparative index is indicated in the fi nancial policy. Each sector has fi xed limits for deviations from the sector weightings in the index. Thus the framework is established for how the Fund’s holding per sector can be weighted in relation to the index. Tracking Errors show how the dif-ference between the return from the portfolio and the selected comparative

index vary over time. A small variation indicates a low risk in relation to the com-parative index, while larger variations indicate a higher risk in relation to the same index. The Fund’s strategy is to take active risks, that is, to position itself so as to deviate from the comparative index. The Sharpe Ratio shows the size of risk in relation to the return generated. The ratio is measured as the portfolio’s return reduced by risk-free interest in relation to the portfolio’s risk. The meas-urement is used to follow risk taking and to study whether a higher risk pro-vides a better return.

Risk management in unlisted holdingsA large amount of investment and broad diversifi cation across sectors are key fac-tors in spreading risk connected with the Fund’s unlisted holding. It is impor-tant that investments are made with a good distribution over time, so that the phases of the business cycle are taken into account. Investments in different stages of company development are also balanced carefully. Rational assessments of investment objects and active participation in the ownership process are other tools for controlling risk levels in unlisted hold-ings. The unlisted holdings’ risk profi le is monitored continuously within each investment area at Board meetings.

PoliciesActivities are governed by several poli-cies established by the Board. These include an Ownership policy, Financial policy, Information Security policy and Media policy.

Sector Sector weights in the Affärsvärlden Sector weights in the Fund’s Generalindex as on 28 dec. 2001 benchmark portfolio as on 28 dec 2001

Commodities 7.0% 4.1%Industrials 15.4% 15.7%Consumer products 10.2% 11.9%Health care 10.5% 9.2%Financials 25.4% 24.2%IT 1.6% 3.7%Telecom 25.8% 26.6%Media, entertainment 1.0% 1.7%Services 3.1% 2.9%

100% 100%

Share price risk in Asset Management


R E S U LTS FOR 2001

Results for 2001

The loss for the year amounts to SEK -1,680 million (-428). The Fund’s loss comprises returns in the form of interest, coupons, dividends, and option premiums together with changes in value – realised and unreal-ised – in the Fund’s assets. The market value result for the year, before costs, is divided into SEK -1,911 million (-870) from the Asset Manage-ment operational area and SEK 503 mil-lion (624) from the Investment Opera-tions area. Share dividends amounted to SEK 417 million (435). The Fund’s administration costs for the year amounted to SEK 148 million (122).

During 2001, the Fund’s results have been charged with fees for external investment managers amounting to SEK 124 million (60), which have been paid to investment companies as remuneration for adminis-trating the investment funds.

ReturnsThe total returns before administration costs for all investments during 2001 amounted to -8.0% (-1.3). The returns for the Asset Management operational area amount to -13.8% (-6.3) and for Investment Operations, 11.1% (17.0).

LiquidityThe Fund’s readiness to pay is specifi ed in the Finance Policy. It shall normally be equal to, at every specifi ed point in time, the liquid fund needs that the Fund has for the coming quarter.

PersonnelThe number of employees at the Fund at the end of the year was 44 (40). Additional personnel information can be found under note 4.

Sixth AP Fund as on 31 December 2001

Operational areas Market value Market value Result* Return** Comparative SEK m SEK m SEK m % index

Investment Operations, unlisted shares 3 727 5 983 503 11.1 - Asset Management, listed shares 14 655 10 750 -1 911 -13.8 -

Total, Fund 18 382 16 733 -1 408 -8.0 -14.2

* Market valued profi t/loss, before expenses.** Profi t/loss through average capital.

Market value Result* Return** Comparative SEK m SEK m % index

Life Science Ventures 2 085 217 14.0Technology Ventures 621 -145 -23.2 Industrial Ventures 779 51 7.5Buy-out 2 498 380 22.6

Total, Investment Operations 5 983 503 11.1 -14.2

* Market valued profi t/loss, before expenses.** Time weighted return.

Investment Operations as on 31 December 2001

Market value Result* Return** Comparative SEK m SEK m % index

Benchmark portfolio 8 713 -1 767 -14.8 Strategic holdings 923 -79 -4.0 Others, incl. liquidity 1 114 -65 -

Total, Asset Management 10 750 -1 911 -13.8 -14.2

* Market valued profi t/loss, before expenses.** Time weighted return.

Asset Management as on 31 December 2001


ASSET MANAGEMENTCapital gain/loss 1 -15 1 643Unrealised profi t/loss 2 -2 257 -2 927Dividend 315 405Net interest income/expenses 46 9

Asset Management total -1 911 -870

INVESTMENT OPERATIONSCapital gain/loss 83 527Unrealised profi t/loss 298 167Net interest income/expenses 35 6Dividend 102 30Other fi nancial expenses 3 -15 -106

Investment Operations total 503 624

EXPENSESPersonnel expenses 4 -64 -55Other expenses 5 -84 -67Remuneration to external managers 6 -124 -60

Total expenses -272 -182

Market valued loss -1 680 -428

I NCOME STATEMENT

SEK m Note 2001 2000

Income statement


B A L A NCE SHEET

SEK m Note Market value Market value ASSETS Financial assets Shares in listed companies 7 9 944 14 217Shares in unlisted companies 8 5 098 2 792Shares in unlisted subsidiaries 9 1 426 826Bonds and other interest bearing assets 10 1 302 1 044

Total fi nancial assets 17 770 18 879

Receivables and other assetsInventories and other tangible assets 16 8Other current receivables 2 108Liquid assets 13 11Accrued earnings and deferred expenses 111 42

Total receivables and other assets 142 169

Total assets 17 912 19 048

FUND CAPITAL AND LIABILITIESFund capitalStart-up capital 10 366 10 366Profi ts brought forward 8 042 8 470

Profi t/loss for the year -1 680 -428

Total fund capital 16 728 18 408

Current liabilitiesAccrued expenses 36 25Other current liabilities 11 1 148 615

Total current liabilities 1 184 640

Total fund capital and liabilities 17 912 19 048

Pledged securities 293 None

Contingent liabilities 164 246

Commitments – Contractual commitments for capital contribution 2 750 2 622

Balance sheet

31 Dec 2001 31 Dec 2000


A C C O U N T I N G P R I N C I P L E S

As a result of the new law governing the Sixth Swedish National Pension Fund, investments should also be market valued in the Fund’s accounts. The Fund capital thereby contains profi ts brought forward concerning previous year’s unrealised changes in values and balance sheet accounts and comparisons can therefore be made between previous annual accounts’ balance sheets and the market value. No change has been recorded in the valuation principles.

Accounting for and valuing investments in listed securitiesThe assets in which funds are placed are taken up in the annual accounts at their market value. The market value is based on listed prices at the close of trading on the closing day.

Purchases and sales of all securities are accounted for on the trading day. This principle includes transactions on the money and bond markets, plus the equity market. Transactions concerning calls, warrants, forwards and swaps are accoun-ted for on the day the serious risks and rights transfer between parties, i.e. on the trading day.

The acquisition value of shares and other securities includes commissions and other direct costs incurred by the purchase.

When calculating capital gains and losses, the average value method has been applied.

Interest-bearing securities are accounted for at the market value with reference to allocation over time of premiums and discounts over the remaining life of the security.

The market value is primarily set to the fi nal buy-rate during the fi nal trading day of the year, secondarily to the fi nal sell-rate.

The positions of derivative instruments are valued according to the same princi-ples as those applied to the investments for which the market risk is protected or altered.

Changes in values, realised and unreal-ised, are accounted for in the income statement and are included in the profi t/loss for the year.

The capital gain/loss is the difference between sales revenue and acquisition cost. The capital gain/loss concerns profi ts from sales of invested assets.

Accounting for and valuing investments in unlisted securitiesWhen setting the market value for un-listed securities

Documents

Annual Report · 2020. 9. 11. · ** Interest-bearing instruments – OMRX Government, abolished as comparative index since 1999. Return in comparison with index 1996-1998. SIXTH