Frameworks and governance

Our investments are governed by law

Legal requirements are the foundation of the Fund’s operation Investments are selected under controlled forms, in line with frameworks that are broken down into several sub-levels.

AP1 is a Swedish Government authority and its operations are primarily regulated by the Public Pension Funds (AP Funds) Act. The act states that the Fund has three different objectives. The first objective is that the funds should be invested so as to achieve a high return in the long run. The second objective is that the funds should be invested in an exemplary way through responsible investment and responsible conduct. The First – Fourth AP Funds have jointly agreed on how this should be interpreted and on common core values. The third objective is that the Fund should be sufficiently prepared to be able to transfer funds to the Swedish Pensions Agency as required. This act also defines how we may distribute our investments across different types of asset. Alongside the formal requirements, we also choose to work in line with relevant frameworks in areas such as sustainability and active ownership.

The Fund’s board of directors is appointed by the Swedish Government, via the Ministry of Finance. The board’s overriding demand of the organisation is that we should manage our proportion of pension assets to ensure that the fund’s medium-term return target on the total portfolio after costs is 3.0 per cent real per year measured over rolling ten-year periods starting in 2020. The long-term return target (over 40 years) is 4 per cent average annual real return after costs. The board also decides what level of financial risk the Fund should take.

The board’s requirements are summarised as guidelines for an overarching division of assets into equities and fixed-income investments.

The real return should be at least 3 per cent a year.

Different levels of requirement

The CEO breaks down the board’s guidelines into a more detailed division of assets over a 10-year term. These assets include equities and fixed-income securities, but also alternative investments such as real estate, infrastructure, private equity funds and hedge funds.

In a shorter term of 3-5 years, the strategic management is formulated by the Fund’s specialist function for asset management and executed by the rest of the investment organisation. This includes active in-house management of Swedish equities, as well as expertise in tactical allocation, fixed-income securities, alternative investments, systematic strategies and so on.

In addition the Fund cooperates with external asset managers, and there is a part of the organisation specifically dedicated to this collaboration.

Thorough monitoring

There are specific specialist functions for e.g. risk management, active ownership and sustainability.

Follow-up and reporting

Risk control takes place at several levels: with the people who were involved in the investments, by following up rule compliance, as well as internal and external auditing.

Every year AP1 presents an Annual Report, a Six-Month Interim Report and an Ownership Report.

The Swedish Government scrutinises the AP Funds annually via an international consultancy firm, and compiles a report to Swedish Parliament by 1 June of each year. Read more.