Asset management goals

AP4 has two different targets for evaluating the portfolio’s return. One is the portfolio’s real (inflation-adjusted) return target of 3% per year on average, and the other is the operative management’s active return target of 1% per year relative to a benchmark portfolio.

Real return target

AP4’s real return target is 3% per year on average over a medium-term perspective of ten years. However, AP4 has determined that over a long-term horizon of 40 years it is possible to achieve an average annual real return of 4%. Following a time period with lower anticipated returns – which the market is currently in – a normalisation is expected to take place whereby a real return of slightly more than 4% will once again be reasonable. Since the start of the pension system in 2001, i.e., a time horizon of more than 19 years, AP4’s average annual return after costs has been 6.5% in nominal terms, which is higher than the long-term target of an average of 5.7% per year (real return target indexed by inflation). Expressed in real terms, AP4’s average annual return has been 5.1%, compared with the long-term target of an average of 4.3% per year. The return has also amply exceeded the average annual 2.9% growth in the income index, which means that AP4 has contributed to the pension system’s stability.

Active return target

The operative management’s active return is evaluated in relation to the Dynamic Normal Portfolio (DNP), which is the benchmark set by the Board of Directors. Starting in 2018 the target is 1.0% per year measured over five years. The target is linked historically to previous excess return targets – in this case for the three years 2015–2017, when the active management target was an average of 1.1% per year. For 2019 the active return was 4.4%, compared with the 1.0% target. Over the five-year period 2015–2019 the active return averaged 2.3% per year compared with the target of 1.1% per year. AP4’s operative management thereby outperformed the active return target both for 2019 and over five years.