What the judges said: ”Sophisticated and well defined technically.” The judges noted that AP3 had made a clear statement of the problem, which they said was “very difficult to solve”.
AP3, however, according to the judges, had come up with “innovative concepts” and an “honesty” in recognising the limitations of modelling and interpreting output. “This is ‘blood and guts’ stuff, revealing evidence of a sophisticated understanding of the issues,” the judge concluded.
AP3 CEO Tomas Nicolin, comments: “The award-winning ALM-study was coordinated by Dr Erik Valtonen, quantitative analyst, and Dr Niklas Ekvall, deputy CEO at AP3. 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. The model included stochastic asset prices as well as liabilities,” he says.
“Our mandate from the Swedish Parliament is to invest the fund capital in a way that creates maximum 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 named market leader,” says Nicolin.
“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 in order to develop our modelling work and thinking in this area.
“Currently we are working on a project which addresses the question of prospective rates of return on different asset classes. We are also looking into the subject of whether it is possible to identify ‘asset bubbles’ and hence take over- or undervaluation into account in forecasting medium term asset returns,” concludes Nicolin.

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