Stockholm (NordSIP) – As always, the end of the year provides plenty of occasions to look back, sum up, and celebrate achievements. It is, after all, the season of banquettes and prize-award ceremonies. Claudia Stanghellini, Head of External Management at Swedish pension fund AP3, should know, having recently received two prizes within just a couple of weeks. At Citywire’s annual European conference in Berlin last month, Stanghellini won first prize as ‘Most Influential Fund Selector in the Nordics’ for helping push the industry forward. Her efforts at AP3 were also recognised by Tell Media Group with the ‘Equity Search of the Year’ award for conducting an excellent search for Emerging Markets Asia ex-China Mandate.
“I am extremely proud to have won the Citywire prize, especially as the votes came from my peers on the buy side,” says Stanghellini. “The ‘Search of the Year’ award is equally important although slightly different, based on qualitative judgement where Tell Media Group, with input from the industry, decides the winner,” she explains.
NordSIP is curious about what makes AP3’s approach to selecting external managers exceptional. “We have no secret recipe,” says Stanghellini. “We have just found a setup that works well for us. Perhaps what makes our selection process special is our flexibility in allocating resources according to the type of mandate we are searching for by leveraging capabilities across the whole asset management organisation,” she adds. “The Tell Media prize was a real AP3 team effort.”
It might come as a surprise to some that the external management team at AP3 is made up of just one person. However, when a search is initiated, the fund quickly allocates the appropriate internal resources to the task at hand. It means that each selection team is a different constellation of people headed by Stanghellini. “Depending on the type of mandate we are searching for, the team may include the Head of Equity, for instance, or one or more internal portfolio managers and analysts,” she explains. “Our CIO is also often involved at different stages of the process. It is a real cross-group collaboration process.”
Besides the flexible and collaborative resource allocation, what sets AP3 apart is the confidence to act on investment decisions even if no one else is doing it. This year’s search for an Emerging Markets Asia ex-China Mandate was a case in point. Institutional investors have been discussing separating the exposure to China from the rest of emerging markets for years. “As far as I am aware, however, no other large institution has moved forward and acted on this,” points out Stanghellini. “There are not many such live strategies in the market, either. I can see why AP3’s search has been deemed innovative by our peers on the buy side.”
In addition, AP3 has a lot of experience working with search platforms to collect data, structure due diligence questionnaires, and analyse quantitative and qualitative information. “Over the years, we have used and tested several different platforms available to us as an institutional investor,” says Stanghellini. “They are often very efficient in reaching out to a large number of managers, and they also store and organise information effectively. Once the data is collected, our selection process uses both quantitative and qualitative tools, all internally developed, to analyse candidates. We conduct several rounds of video calls to screen down the universe of candidates to a shortlist. Last but not least, the final stage of the selection process before awarding top managers a mandate is an onsite visit,” she adds.
Having worked with manager selection for many years, Stanghellini has experienced first-hand how the field has evolved over time. Many institutional investors, including AP3, are increasingly turning inwards. “These days, we manage 78% of assets in-house,” she says. “External management in the liquid part of the portfolio is limited to Small Caps Equities, Emerging Markets Equities and a portfolio of Absolute Return strategies. In these areas, external managers are crucial, as they can add value through their local presence, fundamental approach, and deep expertise. We could not manage such assets internally without considerably growing our teams.”
Another aspect that has changed dramatically over the years, according to Stanghellini, has been the focus on sustainability, i.e., how external managers deal with ESG risks and opportunities and integrate sustainability into the investment process.
“Nowadays, sustainability is a central pillar in AP3’s investment process, fully integrated into the manager selection process,” she says. “For us, sustainability work is the basis for long-term value creation. It means that when looking for external managers, we aim to partner with those who share a similar view and pay particular attention to sustainability-related risks and opportunities. A key factor, for instance, is external managers’ engagement with portfolio companies.”
We conclude the interview by congratulating Stanghellini and her colleagues for prizes well deserved.
