Investment strategy for TONO’s assets under managemen

Last amended at the Annual Meeting on 10 June 2025

TONO’s asset management shall be carried out in a sound manner. Cash at bank and fund portfolios shall be set based on considerations of security, return and liquidity. TONO’s most important asset management criterion is low risk, but given this prerequisite, the best possible return on assets shall be sought. The asset management strategy, as set out in this document, shall apply until the Annual Meeting has adopted a new and amended strategy. The investment strategy shall be considered by TONO’s Annual Meeting each year.

Fundamental principle  

The main objective of TONO’s investment strategy is to manage the funds in the best possible manner pending their distribution and payment to the rightsholders.  Notwithstanding frequent distributions and a growing number of advance payments, TONO maintains a substantial and long-term capital base. The return on this capital must derive from investments with low risk and volatility.

Adopting a long-term investment strategy would have resulted in greater volatility, making the financial markets an unduly significant factor in the size of the distribution amount for each individual performance year. TONO has therefore adopted a short-term, low-risk investment strategy, despite the fact that the expected return will be lower than with long-term investments and by taking increased risk.

The fundamental principles regarding long-term investment do not preclude TONO from allocating part of its capital base to the purchase of real estate, which shall also meet the need for the commercial premises required by the undertaking.

TONO does not use active managers. This is because TONO largely invests its capital in index funds, which have low management costs and low risk.  With such a portfolio, the expected excess return from active management will not exceed the additional cost of active management.

Management parameters and objectives 

TONO’s asset management shall be guided by the following:

• The target risk profile shall be very low.
• The objective for the expected return is to preserve the inflation-adjusted value of the capital assets and to achieve the highest possible return consistent with a low risk.
• TONO has adopted a short-term investment strategy to ensure a good and fair allocation of revenues each year.
• When selecting investments, the approach shall be based on a conservative underlying position.
• The investment portfolio shall only include traditional asset classes, such as shares, bonds, the money market, property and term deposits or ordinary cash at bank.
• Shares shall only be utilised in periods with particularly low historical values, and shall be presented to TONO’s Board of Directors before investments are made.
• When investing in commercial property, the intention must be that parts of the property shall be utilised by the undertaking.
• The requirement for low risk shall take precedence over the requirement of return.
• The part of the portfolio that consists of fixed-income securities shall be divided between at least two managers in order to minimise management risk.
• The part of the portfolio described above shall be allocated across at least five products, emphasising the funds with the lowest risk within each class.
• Up to 25% of the portfolio may be invested in funds with slightly higher risk to increase returns, but never in funds that have more than medium risk within their class.
• Up to 25% of the portfolio may be invested in fixed-income securities with a maturity of more than six months (duration).
• The average maturity of the entire portfolio shall not exceed six months.
• All aspects of risk shall be considered. This applies to credit, interest rate, asset management, liquidity and currency risk.
• Investments shall not be made in individual shares.
• If the fund has foreign securities in its portfolio, they shall always be hedged against currency risk.
• Within each class, the proportion of foreign securities shall never exceed 25%. Foreign funds shall not account for more than 25%.

The portfolio may be constructed subject to the external limits set out in the table below:

Management and interest rate risk

Based on the portfolio that TONO constructs, the two main risk factors are management risk and interest rate risk. We therefore address the most important criteria related to this risk assessment.

1. Choice of managers

Asset managers shall be able to document that returns in the funds they manage have produced good results over time. The asset managers shall be competitive and selected on the basis of qualitative and quantitative criteria.  Ethics and sustainable development shall also be taken into account when assessing management and product selection. In addition to this, transaction and management fees shall be emphasised in the assessment.

2. Interest rate risk

Both the money market and bond portfolios are exposed to interest rate risk. Fluctuations in interest rates cause the prices of fixed-income securities to rise or fall. The longer the maturity of the underlying securities, the greater the change in value. In order to limit this risk, an upper limit for average duration will have a mitigating effect on interest rate changes.

Code of conduct and sustainable development

TONO shall endeavour to adhere to a strict code of conduct wherever possible. This means that we only select investments that are transparent, so that we can verify our claims to a certain extent.

In society, considerable emphasis is placed on all business activities being sustainable. The area of sustainable management is also constantly evolving. TONO will emphasise this in the selection of investment objects, and we will also request quality-assured data related to sustainability considerations.

Management, monitoring, and control

The CFO shall always present proposals to change the composition of the portfolio to the CEO if:

• the decision is made to appoint managers not previously engaged;
• the decision is made to invest in products not previously included in the portfolio.

When presenting the quarterly reports that include comments, a simple presentation of the status of the investments and a confirmation that the applicable framework conditions and guidelines have been followed shall be provided.

Each year, TONO’s Board of Directors shall assess the management in relation to the strategy.