Level 1: Long-term real return target of 4 % over 40 years
At the top level, the Board of Directors has set a long-term return target that indicates the level of return needed for AP4 to fulfil its mission in the pension system over time with a balanced measure
of risk — approximately 40 years. The analysis is based on studies of the pension system’s obligations and expected future returns. The final result of the analysis is a target return and risk scope in the form of intervals for the share of equities, currency exposure, and durations in the fixed income portfolio. This extensive process is conducted every three years.
Level 2: Medium-term real return target of 3 % over 10 years
Level 2 consists of a medium-term real return target over ten years that the asset management aims to achieve. This mediumterm target is set following an analysis of market conditions
from a medium-term perspective for the various asset classes included in the portfolio. At this level an allocation portfolio of market indexes is established, adapted to the estimated mediumterm
market outlook (5—15 years). The medium-term allocation portfolio and a set risk budget serves as a reference for AP4’s operational day-to-day asset management, which enables a systematic follow-up and evaluation of the operation’s asset management. Level 2 decisions are made yearly by the Board of Directors.
Level 3: Operational management of AP4’s assets
The day-to-day management of AP4’s asset makes up level 3. The asset portfolio is managed with a holistic perspective, where AP4’s total investments are taken into account together. The portfolio is
steered with the help of structured risk budgeting, and the asset management works with several different investment horizons up to ten years. The decision-making levels in the new organisation are well-defined, which contributes to high transparency.