Peder Hasslev CEO
We manage collectively agreed occupational pensions and therefore our investment activity is focused on that and that alone.
Returns on defined contribution and defined benefit pensions
Alecta is one of Europe's largest pension managers and one of the biggest investors on the Stockholm Stock Exchange. However, we only manage collectively agreed occupational pensions and therefore our investment activity is focused on that and that alone.
In our experience, economies of scale in the financial sector are often lost by over-complicating things and trying to do too many different things at once. We believe that it is easier to achieve really strong results with a specialised organisation that is fully focused on one thing only and is able to keep costs down.
We have been entrusted with the important task of managing other people's money. This calls for high ethical standards, an understanding of our mission and precision in our day-to-day management. We must earn the respect of our customers and be able to stand by the choices we make, in terms of both sustainability issues and the performance of the funds we manage.
We think that it is important for large investors such as Alecta to carry out their own careful analysis prior to each investment and then continuously monitor whether the holdings meet our high standards. We feel this reduces the risk of bad investments, and it is also an important contributor to Alecta's strong management performance.
The cost of our active management is only 0.02% of the capital – which is much lower than the cost of index management as a rule. We are able to be this cost-effective because of our focus, because we manage everything in-house and because we constantly challenge ourselves to become even more efficient.
When it comes to sustainability, we have high ambitions, and our active management is an essential part of that work. We believe that it is more responsible to choose each individual investment after careful analysis rather than just invest in a ‘mixed bag’ the way index management tends to do. While index managers may have thousands of different shares in their portfolios, we have just over 100. Every share has been handpicked by our managers after careful screening and analysis.
Alecta invests in three types of asset classes: shares, interest-bearing securities and alternative investments.
Our share portfolio includes large, well-known companies as well as smaller companies that our equity analysts believe in strongly for the future.
Our interest rate portfolio includes secure government bonds, but also corporate loans, residential bonds and other types of loans with varying maturities and risk levels.
Our portfolio of alternative investments includes unlisted equities and investments in property, energy systems and infrastructure.
Alecta is wholly owned by its customers. This means that all the value we create goes to our customers and no one else. That's how it's worked ever since we were founded by Swedish salaried employees and their employers over 100 years ago.
In Alecta's defined contribution pension called Alecta Optimal Pension, the return or profit is paid to the employee, and in the case of defined benefit pensions the profit is paid to the employer.
In the Alecta Optimal Pension, the return has a major impact on the value of the employee's future pension. The value of the pension depends mainly on:
- the amount paid in
- the amount of fees deducted
- how long we manage the money
- the proficiency of our managers
- the investments we have
- the distribution between shares, fixed-income securities and property
- how financial markets develop
Returns can go up or down. We allocate the return to the employee each month.
Returns even during the payout period
We continue to allocate returns on pension capital – even during the payout period. This allows the monthly pension to increase over time and thus maintain its purchasing power.
The return on the defined benefit portion affects how much the employer needs to pay in premiums. The premiums are there to cover the pension we will pay to the employee when it is time for them to retire.
The biggest influences on the amount the employer pays, apart from the return, are:
- the employee's salary – as the pension is calculated on their salary.
- how many years the employee has left until retirement – that's how many years the employer has left to cover the pension we will be paying out.
- how much the employee has already earned towards their pension.
Payments are index-linked with pension supplements
The defined benefit pension ITP 2 and the original ITPK are index-linked with a pension supplement. The pension supplement is an annual increase of the retirement pension in ITP 2.
The idea is that the pension should retain its purchasing power from the first day of payment to our pensioners. The pension supplement can correspond at most to the change in the consumer price index, CPI. This means that those who receive a pension from us will be compensated for rising prices.