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Investment strategy with a focus on diversification

AP3’s core mission is to create value in the Swedish pension system. By assuming responsibility and influencing the companies that we invest in, we make sure to generate the best possible returns for current and future pensioners.

By investing in both listed and unlisted assets locally and globally, AP3 has crafted a diversified portfolio that is more robust in periods of financial uncertainty. Our successful asset management has resulted in high capital growth, which helps ensure stable pension payments.

Based on our mandate from the National Pension Insurance Funds Act, we work to an annual percentage return target that guides our investment strategy.

 

Asset management department

AP3 has an asset management department with clearly defined roles and areas of responsibility. Decisions are taken in order to maximise our ability to deliver profitable and cost-effective asset management over time. We use structured monitoring and rigorous risk management to ensure that this delegating decision-making model works successfully.

Strategic allocation analyses the means for medium-term allocation decisions, and produce the bases for making said decisions. This asset management department operates based on the dynamic asset allocation model.

Beta management manages AP3’s actual exposures in the global financial markets. The Beta management department aims to employ cost-effective management to generate returns on par with index returns for the various markets in which they are invested

Alternative investments is in charge of managing AP3’s unlisted assets, low-liquidity assets and real estate. This group also bears management responsibility for new strategies that encompass a variety of diversifying strategies.

Alpha management is responsible for creating a portfolio aimed at generating absolute returns based on a predetermined risk and cost framework.

External management is responsible for administering the procurement and management of the Fund’s external investment activities within the Alpha and Beta management departments.

Investment philosophy

The Fund’s investment philosophy comprises the basis for decisions concerning AP3’s investment activities.

RiskTaking risks in the financial markets generates positive returns over time
Forecasting abilityReturns and risks on financial assets can be assessed using structured analyses
Risk diversificationRisk-adjusted returns can be increased by diversifying risks
Time diversificationCombining investment decisions with a long, medium and short term investment horizon yields high risk-adjusted returns, thus increasing the probability of achieving return targets
  • Venturing to take risks in the financial markets generates positive returns over time
  • Returns and risks on financial assets can be assessed and controlled using structured analyses
  • Risk-adjusted returns can be increased by diversifying risks
  • Combining investment decisions with a long, medium and short term investment horizon yields high risk-adjusted returns

By combining these, we increase the probability of achieving our return targets in the interest of protecting pensions.

Diversification

Risks yield returns. The risks that are taken are conscious, intentional and fall within the framework governing our operations.

The risks that are permitted and the level of risk-taking is governed by the National Pension Insurance Funds Act, restrictions adopted by the board of directors, as well as internal limits decided by the CEO. We also maintain a function for independent risk control to ensure that our operations are conducted within the established framework.

AP3’s investment strategy is geared to achieving the annual target return of 4% in the long term. We also use structured methods to change the composition of the portfolio by adjusting levels of risk to reflect prevailing market conditions. Our objective is always to ensure healthy returns, which helps create a stable pension system.

AP3’s high returns help keep pensions stable.

The investment strategy is built on procedures and structures that must be sustainable over time to generate returns at a reasonable level of risk. Risk can be defined as a future negative deviation from an expected outcome.

Strategic and tactical allocation

Since the allocation of capital and capital-free strategies is the single most important factor for AP3’s investment returns over time, we place considerable emphasis on dynamic allocation in our strategy. This also entails greater flexibility to adapt risk levels to market conditions.

Allocation decisions are made on the basis of the six risk categories, with exposures as specified below.