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AP funds in competition

Management of Sweden’s pay as you go pension system is undergoing a major restructuring due to finish by the beginning of next year. According to Richard Grottheim, executive vice president at the seventh AP fund, the new structure will pitch four identical funds managing a total of Sek560bn (E66.2bn) against
each other.
Previously Sweden’s PAYG pension was run though the specialist AP Funds numbered one to six. Unlike the last system where each fund had specific investment approached, the new funds will have matching investment profiles and will go head-to-head with one another.
Under the new infrastructure already set up, the original AP funds one to three, specialising in fixed income have merged to produce the new AP fund number one. The original fourth fund, specialising in equities, has kept the same name and the old fifth fund, also an equity fund, becomes the third. Under the old approach, the sixth fund invested in private equity and will continue to do so but as a separate entity. Sweden’s government is setting up a new second fund.
According to Grottheim the government made the decision to restructure over two years ago and
the shift should create a more
stable system.
Government legislation specifies the new funds should appoint some external managers but not to the same extent as the seventh fund. The four funds are carrying out asset liability studies and they should take delivery of their first assets at the beginning of next year. Monies from the original funds one to five are being lumped together and split four ways giving each of the new funds approximately Sek140bn at the outset. A 70% equity limit is imposed on the four new funds.
Some have criticised the reform saying a competitive structure is wrong for a government pillar one system.

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