SWEDEN – The 13 billion euro Swedish buffer fund Tredje AP-fonden, or AP3, says its most important task is defining the right portfolio mix to generate the most benefit.

“Determining which long-term portfolio mix will generate the greatest benefit for the pension system is AP3’s most important task,” says AP3’s chief executive Tomas Nicolin.

“We have therefore devoted a great deal of time and labour to an in-depth ALM asset/liability_modelling study evaluating the consequences of different portfolio alternatives, based on alternative assumptions for asset price developments, GDP growth, demographic trends, etc,” Nicolin writes in the fund’s 2002 annual report.

“We have studied thousands of portfolios for several million possible scenarios,” he adds.

Nicolin said he was satisfied with AP3’s investment performance – despite a “painful” negative return of 12.6% in the year.

“So far, there is every reason for me to be satisfied with my organisation’s ability to generate positive active return in relation to markets, although it would, of course, have been nicer if the reformed buffer funds had been able to launch their operations in a rising equity market.”

He said that in 2002 AP3 generated returns that were 0.6% ahead of its reference portfolio. “This is equivalent to around 700 million crowns.”

"Although the year-end figures can be explained by the general fall in equity markets, it is always painful to report a shrinking fund capital,” Nicolin says.

AP3 is one of four independent buffer funds in the Swedish pay-as-you-go public pension system.