Maximizing return on assets while maintaining a low level of risk is central to the AP funds’ mission. Investment strategy shall take into account the impact of pension disbursements and the payment reserve necessary to cover outflows from the funds. The strategic benchmark represents the mix of different assets classes that AP2 believes will generate the best long-term growth in pension values.
Over time, AP2 believes that around 90 per cent of the return on invested assets will derive from the composition of the strategic portfolio, the remaining 10 per cent from active management.
AP2’s strategy is based on a step-by-step approach to value generation: choice of strategic asset allocation, selection of indices and active management. This approach is based on a set of principles, or Investment beliefs. These describe the Fund’s view of how financial markets function and the opportunities and potential they present for generating a solid return on investment. An important part of the strategy is the target that sustainability must be integrated into all asset management’s decision-making and analysis processes. It is also reflected in the Fund’s annual business plan, whose overall objective is a “sustainable strategic portfolio”.
AP2’s Investment beliefs
- Thorough analysis of the pension system is key to choice of strategy.
- Systematic risk-taking is required.
- Diversification reduces risk.
- Active management creates added value.
- Sustainability pays off.
- Climate change is a systemic risk.
- Long-term mandate presents special opportunities.
- People and culture are critical success factors.
- Stable processes are an important prerequisite for good results.
- High cost effectiveness gives a better result.