Real return target
AP4’s real return target is based on a long-term analysis of return potential and the pension system’s obligations over a 40-year period. This is followed by a medium-term analysis over 10 years, which also takes into account the prevailing market situation and the current strength of the pension system. This culminates in a real return target of an average of 3% per year during the coming 10 years and a dynamic normal portfolio (DNP) that indicates a suitable asset allocation. For a time horizon longer than 40 years, the target return is 4%. The fact that the real return target is currently 3% per year means that an initial period with this lower return target will need to be followed by a period for which the return exceeds 4% per year in order for AP4’s long-term real return to average 4% over the full 40-year period. The new target applies as from 2018 and replaces the previous target of an average annual real return of 4.5%.
Active management target
The continuing asset management is handled by AP4’s operative asset management organisation. The portfolio’s allocation and active management decisions are steered through the use of structured risk budgeting. Every year the Board sets a risk scope within which the operative asset management must act. For 2018, AP4’s risk mandate was for a 5% active risk, and the active asset management target was a 1 percentage point excess return relative to the dynamic normal portfolio (DNP). The active asset management target for the operative asset management replaces the previous active return targets for strategic and tactical management. The operative asset management is evaluated over a five-year period.