Sweden’s AP4 partners with Hypoteket as anchor investor to new mortgage fund

The Fourth Swedish National Pension Fund (AP4) has partnered with Swedish mortgage provider, Hypoteket, to become the anchor investor on a new mortgage fund.

Hypoteket, which is one of the main challengers in the Swedish mortgage market, recently launched the new fund, which has investment grade rating (Baa2 with Moody's). Hypoteket Mortgages CEO and co-founder, Carl-Johan Nordquist, explained that the company learnt investors were interested in its residential mortgages after investor talks.

“It was a challenge we decided to take on, and in continuous talks with our investor on one side and Moody's on the other we have managed to navigate through to a product that meets the standards of all participants involved - not least our own.”

In developing the new product, Hypoteket said big steps have been taken in the direction of a more traditional fixed-income instrument. It believes this is a natural transition as a mortgage fund investment is quite a typical fixed-income investment by most means, but one where investors have struggled to place it in that investment bucket due to some of its characteristics.

“A mortgage fund is a great product for many life- and pension-like investors when compared to most traditional investment grade fixed income securities. Unfortunately, as they are packaged in a somewhat alternative configuration, some of them have had a hard time deciding how to fit us into their current setups. Yield has typically been on the low side to qualify us for the alternative mandates, whereas illiquidity and / or the alternative investment fund model has excluded us from the fixed income money,” Hypoteket head of funding, Johan Hasselblad, said.

"It is a shame, as it really provides benefits to most fixed income portfolios in terms of both diversification and yield enhancement in the current interest rate regime".

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