Operational Backbone Strengthened with New System Platform
AP3, in collaboration with AP4, is implementing a new cloud-based system platform from SimCorp. The implementation began in late 2023 and continued throughout 2024, with an ambition for the new platform to be operational in 2025. This system will replace multiple existing systems, providing a modern, secure, and flexible operational support for the fund’s processes, including analysis, order placement, compliance, administration, portfolio management, risk and return, alternative investments, and financial accounting. The joint implementation with AP4 has facilitated shared challenges and synergistic solutions. (Page 4, 5, 17)
Sustainability Integration Deepens Across All Asset Classes
AP3 has updated its internal guidelines for sustainability in the investment process to include all asset classes. The fund has deepened its analysis of quantitative sustainability data, and all employees have completed a sustainability certification. AP3 focuses on four material sustainability areas: corporate governance, climate, human rights, and biodiversity. The fund aims for 100% of companies in its portfolio to align with the 1.5-degree climate target by 2040 and has set targets for increasing the proportion of sustainable bonds in its fixed income portfolio to 25% by 2025. The proportion of companies in high-risk sectors with human rights policies is targeted at 100% by 2030, and a similar target is set for biodiversity policies. (Page 4, 9, 10, 11, 15)
Leadership Transition and Active Management Philosophy
Jonas Thulin assumed the role of Chief Investment Officer (CIO) at AP3 in January 2024. His vision for AP3’s capital management emphasizes continuous refinement, empowering employees, increasing transparency in position-taking, and enhancing analysis to meet return targets. Thulin highlights AP3’s long history of successful active management and a risk philosophy that aligns with current market opportunities. He also stresses the importance of individual mandates and transparency in decision-making, contributing to a shared learning environment. (Page 4, 8, 9)
Strategic Review of Buffer Funds Underway
The Swedish Government Offices initiated a review in October 2023 to modernize and streamline the collective management of the buffer funds’ capital. In January 2024, an additional directive was issued to investigate and propose how the Stockholm-based buffer funds should be modernized. This review could lead to significant structural changes, as evidenced by the government’s announcement on January 31, 2025, that AP1’s assets will be transferred to AP3 and AP4, and AP6 will be integrated into AP2. (Page 5, 31)
Investment Performance Driven by Equities and Tactical Allocation
AP3 reported a strong 2024 with a 10.3% return after costs, and a fund capital of SEK 549.1 billion. The equity portfolio was the primary contributor to returns, yielding 17.4% and adding 7.6 percentage points to the total return. Fixed income investments also performed well, contributing 0.5 percentage points, while alternative investments provided a slightly positive contribution of 0.2 percentage points. The model-driven tactical allocation also positively impacted returns. The strong performance was attributed to the robust US economy, the success of major technology companies, and expectations of deregulation and tax cuts following the US presidential election. (Page 3, 4, 7, 30, 31, 33)
Cost Efficiency Maintained Amidst International Benchmarking
AP3’s management cost ratio remained at 0.07% of managed capital in 2024. The fund actively focuses on cost-efficient operations and participates in an annual analysis by CEM Benchmarking to compare its costs and returns against an international peer group. For the five years ending 2023, AP3’s costs were on average 34% lower than the average fund in the international comparison group, and 47% lower in 2023 alone. (Page 3, 30, 38)
Workforce Growth and Competence Development
AP3 welcomed ten new employees in 2024, contributing new knowledge and perspectives. The fund emphasizes fostering collaboration, development, and streamlining processes. The number of applicants for open positions has been record-high, indicating AP3’s attractiveness as an employer. All employees underwent sustainability certification training, enhancing the fund’s sustainability efforts. (Page 5, 14, 15)
Risk Management Framework and Financial Risk Appetite
AP3 operates with a three-lines-of-defense model for risk management, involving business operations, independent risk control and compliance functions, and internal audit. The fund’s operational goal is to achieve a 3.5% real return over time, balancing expected returns with risks to ensure generational neutrality. Financial risks, including market, counterparty, liquidity, and sustainability risks, are consciously taken to generate returns. The fund’s risk appetite for operational risks is generally low, but assessed relative to the nature and materiality of the underlying risk. (Page 25, 26, 40, 41)
New Appointments and Fund/Mandate Information
New CIO Appointment:
Jonas Thulin was appointed as AP3’s new Chief Investment Officer (CIO) in January 2024. He is responsible for managing AP3’s portion of the buffer capital and leads a team of over 30 employees. (Page 4, 8, 29)
New Board Member Appointment:
Per Lindqvist was appointed as a nw board member in June 2024. (Page 28)
Re-entry into Emerging Markets
AP3 has resumed investments in emerging markets in 2024, after a period of divestment in 2022. The fund intends to continue increasing these investments in 2025. (Page 4, 6, 9)
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