The Third Swedish National Pensions Fund was voted Swedish market leader in investment strategy for the asset/liability modelling (ALM) study that the fund carried out as a part of the preparations ahead of the new asset management mandate that came into effect at the beginning of this year.

The aim of the study was to identify which strategic asset allocation was optimal in relation to the fund’s liabilities as a buffer fund in the Swedish public pension system.

It is this positioning of Swedish pension funds as a buffer which is highlighted by Niklas Ekvall, vice-CEO: “In a sense all funds in Sweden are distinct from their other European counterparts, acting as they do as a buffer between the inflow and outflow of monies. This makes our liabilities side different to most other plans.”

The award-winning study was coordinated by Erik Valtonen, quantitative analyst and Ekvall. The ALM study introduces some new thinking to the subject as it required modelling of the complex liability side of the AP-funds. Instead of analysing the liability side in terms of cash flow, the work included detailed modelling of the dynamics of the buffer-function role of the AP-funds in the Swedish public pension system.

“Our mandate from the Swedish parliament is to invest the fund capital in a way that creates maximal benefit for the pension system. Hence, an in-depth ALM study is an essential part of our investment strategy. We are very proud to be appointed market leader,” says Ekvall.

“Our ambition is to live up to industry best-practice in all parts of our operations. State-of-the-art ALM analysis is a high priority and AP3 will continue to devote significant resources to develop our modelling work and thinking in this area.

“Currently we are working on a project with the aim of improving our understanding of the links between demography and asset prices,” he says.
On the awards, Ekvall says he and his colleagues did not know what to expect.

“We worked very hard on our submission, but were still surprised to be country winners. It would be interesting to see the judges’ thoughts, and reasoning.

“I believe the awards may be the catalyst for a new benchmark across Europe,” he concludes.