Fingers in all pies
“AP4 is the fund that ticks all the requirements: diversified long-term strategy, strong governance to implement tactical decisions, key indicators in place, ESG beliefs and external supervision,” judge’s comment
Country |
Sweden |
Founded |
1974 |
Type |
Hybrid of defined benefit and defined contribution |
Members |
5,000(active) |
Assets |
€41,260m |
Performance |
-11.9% (1yr) |
Fjärde AP-fonden (AP4) manages €41.3bn within Sweden’s state pension system. Its investment strategy centres on a comprehensive asset-liability management (ALM) study, which is revisited every three years, providing a foundation for the fund’s long-term approach. This study determines AP4’s return targets and allocation intervals for equity, foreign exchange and fixed income in the portfolio, evaluating the pension system’s prolonged need for returns, economic structural factors and expected long-term returns.
The 2023 ALM study revealed a shorter-than-expected period of remaining outflows from AP4 and the other buffer funds. This positive outlook for the system led to the decision to maintain an annual 3.5% real return target over a 40-year horizon. AP4 aims to balance anticipated returns and risks, ensuring the pension system’s strength without one generation benefitting at the expense of another.
AP4 introduced a new asset class, which it terms ‘defensive equities’, in 2022. This comprises stocks strategically weighted to provide desired return and risk characteristics. The allocation has a target weight of 5% of the fund’s portfolio. The investment showcased its effectiveness during the market downturn of 2022, with defensive equities dropping less than 4% compared to a 19% decline in the global equities portfolio.
Changes to investment regulations for the AP funds were rolled out in 2019 and 2020. These empowered AP4 to increase its exposure to illiquid real assets. Consequently, this allocation has risen from 12% to 18%, predominantly consisting of new investments in infrastructure. This shift is part of a strategic move to diversify the portfolio and enhance exposure to stable, long-term cash flows.
Thematic sustainability investments are integral to AP4’s approach, guided by continuous analysis of sustainability trends. The fund invested approximately €700m in this area in 2022 and has committed a further €2.5bn over three years. These investments focus on climate transition and align with five main investment themes, addressing global greenhouse gas emissions and contributing to a sustainable future.
STRATEGIC TAKEAWAYS
➤ Reviewed strategy following positive results targeting a 3.5% annual average return over 40 years |
➤ Introduction of new ‘defensive equities’ allocation to produced positive results in volatile markets |
➤ Increased exposure to infrastructure and other illiquid assets following changes to investment regulations |
HIGHLY COMMENDED
Country |
Spain |
AUM |
€747m |
Performance |
-8.9% (1yr); |
The €747m Repsol II Pension Fund serves more than 15,000 members in Spain. It operates as a defined contribution (DC) pension fund but resembles a collective DC plan due to shared investment strategies among participants. Repsol II follows a detailed governance manual, segregating decision-making between an operating subcommittee and the full board of trustees. A diversified long-term investment strategy covers listed equity and bonds, private markets assets, and liquid alternatives, and includes actively and passively managed mandates. More than half (57%) of its assets are run by specialist managers. Repsol II also uses a currency overlay that utilises futures and options for various hedging activities. Equity hedging strategies are also enacted depending on mid-term market views. The board has a broad and detailed approach to sustainability, including strong governance policies, key indicators, and collaboration with other investors.
Judged by
Hermann Aukamp
Xavier Bellavista Badia
Peter Kraneveld
Jeff Houston
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