The Third Swedish National Pension Fund (AP3) has been named Swedish market leader in investment strategy by the industry magazine Investment & Pensions Europe (IPE).
The award is for the Asset/Liability Modelling (ALM) study that the Fund carried out as part of its preparations for the new asset management mandate that came into effect at the beginning of this year. The aim of the study was to identify what strategic asset allocation was optimal in relation to the Fund’s liabilities as a buffer fund in the Swedish public pension system.
The award-winning study was coordinated by Dr Erik Valtonen, quantitative analyst, and Dr Niklas Ekvall, Deputy CEO. The ALM study introduces some new thinking to the subject, as it required modelling of the complex liability side of the AP funds. Instead of analysing the liability side in terms of cash flow, the work included detailed modelling of the dynamics of the buffer-function role of the AP funds in the Swedish public pension system. The model included stochastic asset prices as well as liabilities.
“Our mandate from the Swedish Parliament is to invest the fund capital in a way that creates maximum benefit for the pension system. Hence, an in-depth ALM study is an essential part of our investment strategy. We are very proud to be named market leader,” says Niklas Ekvall.”
“Our ambition is to live up to industry best practice in all parts of our operations. State-of-the-art ALM analysis is a high priority and AP3 will continue to devote significant resources in order to develop our modelling work and thinking in this area. Currently we are working on a project with the aim of improving our understanding of the links between demography and asset prices,” concludes Dr. Ekvall.
AP3’s annual report for 2000 contains an overview of the Fund’s ALM work.