Active Management in Swedish National Pension Funds: An Analysis of Performance in the AP-funds

Abstract: This paper investigates the active management in the Swedish National Pension Funds. Monthly returns have been collected from two out of six funds for the time period 1 January 2003 to 31 December 2007. Three different models; Jensen’s alpha, the Treynor & Mazuy Market-timing model and Fama and French Three Factor Model, have been applied to empirically test if active management contributes with excess returns to the Swedish pensioners. Furthermore, performance is compared to three different benchmarks; two external equity indices and one internal index provided by the funds. The results are ambivalent depending on what benchmark that is used. When comparing the fund’s performance to the internal index, no significant excess return can be identified. For the external indices the results support a value creation by active management. These excess returns are a product of portfolio manager’s selective ability and not a market-timing ability.