Swedish national pension fund AP4 is preparing to reconsider the long-term economic scenarios underlying its strategic asset allocation, against the background of a upcoming US election seen as negative for global trade whatever the outcome.

In an interview with IPE, Niklas Ekvall, AP4’s chief executive officer, said: “It is a concern that both [Donald] Trump and [Joe] Biden are under pressure in terms of free trade.”

“Trump is very transparent with respect to wanting more bilateral agreements and, according to him, a fair relationship with countries exporting to the US, but Biden has also signalled that he might be into more restrictive trade policies, and that could be negative for global trade and global growth at some point,” said the CEO of the SEK499.6bn (€42.8bn) national pensions buffer fund.

“It is a problematic political environment for sure, and that will not go away in the coming years,” said Ekvall.

In a year with many other major elections taking place around the world besides the US presidential election on 5 November, Ekvall said he expects the investment environment to be subject to some turbulence along the way.

“But of course we are following closely what happens with global trade and what happens to the democratic systems in different countries,” he said.

“If trade policy changes dramatically that can have a substantial impact on economic growth, obviously, but also how companies will organise themselves, and which ones will be the winners and losers in such an environment.

“We try to have a view on how that will develop and we have different scenarios for that.

Niklas Ekvall at AP4

Niklas Ekvall at AP4

“It goes all the way from how we look at economic growth in different regions but also down to which companies that we believe will be gaining from that or will have problems,” he said.

Amid the uncertainty of looming elections, AP4 has the task in the next few months of deciding which outcomes are the most likely, and how the global economy could be affected.

“Every second year we update our long-term economic scenarios and, based on that, we rethink our dynamic normal portfolio, and this is a year we will be doing this,” Ekvall said.

AP4’s dynamic normal portfolio – the basis of its strategic asset allocation – has a 10-year time horizon, and while set within the limits identified by the fund’s long-term asset and liability management (ALM) strategy, is based on its analysis of five to 10-year economic scenarios.

As part of this work, Ekvall said AP4 will also be redesigning its defensive equities portfolio, which makes up 5% of the buffer fund’s overall portfolio and was created three years ago to introduce more stability into the portfolio.

“It will probably not be a revolution, but we will make some changes,” he said, adding that the work should be finalised over the summer.

The portfolio is a tailored equity asset class designed to fit with AP4’s view of economic scenarios.

“We designed it to look into particular factors we foresaw coming – more stable companies with better pricing power, also companies which could withstand higher rates,” Ekvall said.

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