The choice of strategic portfolio, i.e. the relative exposure to the equity and fixed-income markets and other investment areas, mainly contributes to the Fund’s value generation and capital growth.
AP2’s first strategic portfolio 2001
(% of Fund capital)
Today´s strategic portfolio features much greater spread, with more asset classes and alternative indices. This change exposes the Fund to a greater number of yield sources than previously, ading considerable value.
To analyse the dynamics of the income pension system, AP2 has an internally- developed ALM model (Asset and Liability Management). The ALM model simulates the pension system’s annual development over the chosen analysis horizon, i.e. 30 years. Based on the simulations, the portfolio composition can be identified which best meets the goal, i.e. the one that minimises the negative effects due to automatic balancing.
A key variable for the analysis is the demographics, i.e. how the population is composed and expected to develop. For this purpose, the pessimistic scenarios adopted by Statistics Sweden are used, which represent an unfavourable development of the pension system. Other variables that are central to the development of the contribution assets and the pension liability are unemployment – or, analogously, employment – and income development. When it comes to the development of buffer capital, the expected long-term returns on financial assets are central. The risk for each asset class and the pair-wise correlations between them and the socio-economic variables are also central.