Swedish national pension fund AP3 has trimmed half a point off its long-term return target following an asset-liability management (ALM) analysis, in a move echoing similar decisions by other buffer funds backing the country’s state pension.
A spokeswoman for the SEK374bn (€35.6bn) fund told IPE that AP3’s board had decided in December to revise the fund’s long-term real return target to 3.5% from 4%. The target has no time horizon, she said.
“The background is that the 2019 ALM analysis concludes that the AP3 portfolio’s risk level is well balanced to continue to meet AP3’s mission, which is to benefit the Swedish income pension system by delivering a high return at a balanced risk,” she said.
However, she said the board also took note that the long-term expected returns on both low and high-risk investments had decreased over the past decade, and had therefore lowered the fund’s return target.
“The decision is not expected to lead to a change in AP3’s overall investment strategy,” she said.
AP1 – another of the Nordic country’s big four pension buffer funds – announced last month that its board had decided in August to cut the fund’s real return target for rolling 10-year periods to 3% from 4%, with effect from the beginning of this year.
But AP1 also said it is keeping its long-term 40-year return target at 4%, reasoning that that after an initial low-return environment, things tended to normalise.
Over at AP4, a decision was taken back in 2017 to cut the 40-year real return target to 4% from 4.5 %, and have a medium-term 10-year target alongside that of an average 3% annualised real return, because return were expected to be depressed over the following 10 years.