Hanna Ideström is a senior portfolio manager for AP4, the Fourth Swedish National Pension Fund. The public pension scheme, as of the end of 2020, had assets of SKr449 billion ($54 billion; €44 billion). New Private Markets caught up with Ideström, a speaker at May’s Impact Investor Forum, to learn more about the pension’s sustainability priorities.
How does impact fit in the wider AP4 portfolio?
AP4 has a primary focus on climate-related strategies from a sustainability perspective, which we have translated into thematic convictions. This goes across the entire portfolio, so impact is no separate mandate or allocation. The thesis is that a global sustainability transition is already taking place. A number of sectors are affected by such transition, which creates investment opportunities. A subset of those sectors can provide an attractive risk adjusted return, whereas others are still too early stage from an investor perspective.
Our main focus currently is on renewable energy, resource efficiency and energy transition. We are trying to access these exposures regardless of asset class. The return requirement in private equity is no different from ‘regular’ private equity investments, ie, market rate returns.
Do you commit capital to funds, invest directly or both?
The strategy is implemented through funds, as we are not allowed to make direct investments in the current legislation. Over time, we hope to allocate more money through what we refer to as platforms, which is a much closer form of partnership than the traditional fund structures. We already have some precedents in our portfolio, with a small base of like-minded LPs that have a greater say on investment strategy and portfolio construction. These platforms can also be more long-term in their ownership perspective, and if not more cost efficient, then at least with better alignment between the GP and the LPs.
What do you look for in an external fund manager?
We prefer specialist managers over generalist managers. We are also looking for good alignment between GP and LPs. We prefer funds that are a bit ‘smaller’, where we matter as an LP and with fee levels that can be justified.
To what extent do you measure non-financial impact of your investments? What frameworks, if any, do you use?
We are still at a quite early stage in this regard and are closely following what happens in the market. We have some specific ESG requirements on our managers, which we follow up regularly. We expect to develop in this area in the next few years, and go beyond CO2-emissions, which has been a focus so far.
Are you seeing anything new and exciting in terms of how impact in private markets is developing?
Impact if definitely becoming more mainstream. I hope we will see some conversion when it comes to impact measurement. I also personally hope that [the term] ‘impact’ will be used more carefully and specifically going forward, dividing it into sub-segments, be it from a return perspective, geographic or sector focus etc. Impact is a too broad term right now.
What is taking up your time right now?
We are seeing active dealflow in line with our thematic priorities, for example within food and agriculture. I am also spending a fair amount of time on possible platform set-ups as mentioned before.