"Focus on the long-term"

Niklas Ekvalls letter from the CEO from AP4's Interim Report 2017.

We have seen broad based economic growth internationally during the first half of 2017, and the financial markets have overall had a positive development.   

Generally strong corporate earnings reports in the first quarter and profit growth that was broad based across both regions and sectors was one result of this trend. The increased confidence from companies in the economic recovery, together with improved earnings growth, has resulted in increased demand for investment goods. The number of IPOs in the Swedish equity market remained high.

Results were also strong for AP4 with earnings of almost SEK 17 billion for the first half of the year. Assets grew to almost SEK 348 billion and the return for the period after costs was 4.7 percent at the end of June, with good contributions from both our Strategic and Tactical management. Over time, AP4 has contributed positively to the financial strength of the pension system.

Short term, we see no reasons for economic growth to weaken. However, there are several major imbalances and risks including geopolitical, which can cause concern, turbulence and adversely affect economic development.


Our ambition is to further broaden and integrate sustainability into our investments, both in terms of business opportunities and risk reduction.


In particular, I want to highlight the risks associated with the long period of almost extreme monetary policy carried out in most of the major developed countries. This policy of enormous liquidity injections together with very low, or even negative, interest rates has helped create major imbalances, which can cause significant problems when monetary policy is normalized at some point in the future. A generally high debt level in many countries further risks complicating an orderly process of normalization.

If and when turbulent times transpire, it is important for us to take advantage of the opportunities that arise given our long-term perspective. The AP Funds have a unique mandate in several respects, both in terms of our long-term perspective and our capacity to bear risk. We can stand firm even in times of market turmoil, when many other players of various legal, or for structural reasons, are forced to take short term measures. In such times, we can "go against the flow" and take advantage of business opportunities that arise that we believe are profitable long-term.

Evaluation positive of AP Funds

This year’s Government evaluation of the AP Funds affirms that AP4’s long-term returns measures up favorably in an international comparison. The report also noted that AP4 has exceeded both its long-term return target and the income index over all periods analyzed.

In AP4’s endeavor to deliver as high as possible a sustainable return after costs, cost effectiveness is of course of key importance. It is therefore gratifying that the Government evaluation also maintains that the AP Funds overall have significant cost- effectiveness. In an international comparison of similar pension funds, it is specifically noted that AP4’s costs are nearly 60 percent lower than the average costs of the comparison group and 40 percent lower after adjustments for asset allocations and fund size.

Modernized regulations

Only just recently, the Government proposed changes to the regulations for AP1-AP4. Broadly, the requirement to hold liquid and credit-worthy interest-bearing assets is reduced from 30 to 20 percent of the portfolio. The proportion of illiquid investments is proposed to increase from 5 to 40 percent, however it is proposed that property investments should be included in the increased mandate. Formulations regarding responsible investment and governance are also introduced in the law. AP4 welcomes the proposal. A modernization of the current investment rules will provide us with even better possibilities to achieve our long-term return target and thus fulfill our mission in the pension system.

In addition to greater freedom in the choice of assets, it is also crucial that sufficient flexibility is provided so investments can be made as cost-effectively as possible. Opinions regarding the proposed changes should be submitted by October 26. The ambition of the Ministry of Finance is for the amended rules to apply as of July 1, 2018.

Sustainability is central for AP4

The world is facing a number of major sustainability challenges. This is something that AP4 has focused on for a long time - and that we work with daily. We have, among other things, reduced the climate risk of our assets through investments in low-carbon strategies. At the beginning of the year 24 percent of our global equity portfolio was invested in low-carbon strategies; by the end of the first half of the year this had increased to 27 percent. We aim to increase this to 30 percent by the end of 2017.


It is crucial that the AP Funds also be given the opportunity to invest cost-effectively in illiquid assets.


Our ambition is to further broaden and integrate the analysis of sustainability aspects as part of our investment process - both in terms of risks and business opportunities. Our approach naturally includes sustainability aspects generally, but with the intention of having a greater focus on Climate and the Environment and Corporate Governance - two areas that have a major impact on our portfolio and which we consider to be central to our long-term return. In addition to return on investment, we believe, as managers of buffer capital, that we have an important role to current and future Swedish pensioners in contributing to the way we can overcome major sustainability challenges that we all face, and to work for sustainable development.

AP Funds Ethical Council celebrates its 10th anniversary

I would also like to highlight the sustainability and governance work AP1-AP4 together manage through the AP Funds’ Ethical Council. The Ethical Council is now an established and respected participant in Sweden and internationally. The 10th anniversary was marked earlier this year through, among other things, a well-attended seminar where both Al Gore and Johan Rockström participated as distinguished speakers.

It is also gratifying that our work continues to be highlighted in Sweden and internationally and that both AP4 and the Ethical Council received awards during the Spring as evidence of our efforts. 

Development work

AP4 has a strong platform and organization. However, our world is changing rapidly, which also requires that we continually develop as an organization to be at the forefront. With this backdrop, extensive development work was initiated in early 2017. Of the initiatives that have already been implemented within this framework, I want to specifically mention a major reorganization, which aims to better support the areas AP4 sees as strategically most important going forward. In conjunction with the organizational change, a new comprehensive strategic plan was also presented. This plan covers how we will develop our organization over the next three years within all areas of the fund to live up to our vision and high ambitions.

Asset management is a very knowledge-intensive area, where AP4 is as good as the knowledge-base and motivation of its employees. For this reason, the development work focused on our values as well as how we can attract, develop and retain those individuals who best meet the knowledge and skills required for our operations to continue to develop successfully over time.

I am proud of all my colleagues at AP4 that have made tremendous efforts in contributing to our strong results, and to wholeheartedly embracing and initiating the major development work that has started. Therefore, I would like to conclude by thanking all the very talented and dedicated AP4 employees!


Niklas Ekvall, CEO