Investment philosophy

As a buffer fund in Sweden’s income pension system, AP4 has three essential characteristics that distinguish it and to some degree set it apart from other investors. These characteristics represent the core of AP4’s investment philosophy. The three characteristics are complemented with six investment beliefs. These investment beliefs characterise AP4’s portfolio structure, investment strategies and positioning, and describe how AP4 acts to create value-added for Sweden’s pensioners.

Characteristics of AP4’s investment philosophy

Long-termism

Long-termism and a mandate for an investment horizon that is longer than for most other investors gives AP4 a relative advantage. Other investors are often driven by short-term demands posed by rules or demands for high liquidity. AP4’s long-term perspective affords an opportunity to think differently than other investors, to tolerate and be able to go against the stream during short-term market volatility, and be able to bear illiquidity when it is determined to be favourable over the long term.

Large degree of freedom

A large degree of freedom to formulate strategies, portfolio structures and choose investments within the framework of AP4’s statutory investment rules. This gives AP4 the opportunity to benefit from its comparative strengths, to take advantage of diversification opportunities, and to proactively adapt the portfolio when market conditions change.

Size

AP4’s assets under management are just the right size — neither too small nor too large — to allow for economies of scale that enable cost efficiency without restricting investment opportunities.

Investment beliefs

Sustainability

Integrating sustainability aspects in asset management contributes over time to better management of risks and opportunities, and thereby to returns. AP4 uses active corporate governance to secure asset values.

Well balanced and disciplined risk-taking

Well balanced and disciplined risk-taking is necessary for generating returns. Risk-taking shall be responsible, well balanced and measureable.

Inefficient markets

The financial markets are not always efficient. This creates opportunities for AP4 through long-termism and active management to capitalise on value-added when imbalances arise between assets’ expected returns and risks.

Diversification

A portfolio that is well diversified generates a better risk-adjusted return over time.

Structured processes

A structured investment process is a prerequisite for successful asset management. AP4’s processes shall be transparent, disciplined and responsible. Simplicity is sought after, and complexity shall be avoided when it does not generate distinct value-added. All investments are analysed from a portfolio perspective.

Competent organisation

Portfolio management is a knowledge-intensive operation where competent employees are an essential success factor. This puts demands on culture and values to be able to attract, retain and develop competent employees.