Portfolio and risk

In order to construct a portfolio that best balances expected returns and risk with the needs of the pension system, the asset management works systematically and in several stages.
Every three years, AP4 conducts a long-term analysis (an Asset Liability Management (ALM) analysis) of the pension system's long-term needs and requirements for returns over 40 years and to get an understanding of the long-term appropriate portfolio of shares, currency exposure and the average fixed interest term of fixed income investments.
The analysis seeks a balance between expected returns and the risk that best contributes to the long-term strengthening of the pension system and at the same time limits the risk of lowering outgoing pensions.
This was carried out in 2023 and resulted in, among other things, that appropriate long-term equity allocation is still considered to be in the range of 50-70 percent of the portfolio, justified by long-term higher expected returns than other asset classes.


Risk management

AP4 takes well-balanced risks in its management and good risk management is necessary in order to conduct successful asset management. Risks should be forecast before an investment and controlled retrospectively. Risk management is divided into three stages: risk management, which is a framework for risk tolerance, ongoing risk management, and follow-up and control. 
These are briefly described below:

Risk governance

AP4's Board of Directors annually adopts an investment policy and a risk management plan for AP4's operations. Together with the AP Funds Act, these governing documents form a framework for AP4's risk space.


Continuous risk management

AP4's daily risk management and control is decentralised to all operational parts of the organisation and follows the principle of three lines of defence, which distinguishes between functions that own risk (first line of defence), functions for monitoring, control and compliance (second line of defence) and functions for independent review (third line of defence). AP4's application of three lines of defence is adapted to what is deemed appropriate for AP4 and does not fully comply with regulatory requirements.


Monitoring and control

Risk & Operational Support is responsible for monitoring AP4's financial and operational risks. This means checking that statutory investment rules, Objectives and Guidelines, the requirements of the risk management plan and CEO decisions are complied with in the business. Risk & Operations Support's work includes carefully measuring and analyzing and daily reporting returns and risks, both in absolute terms and relative to the benchmark index, and reporting any violations of current regulations.