SWEDEN - The chief executive of one of Sweden's buffer funds has said the closure of two AP funds is by no means a foregone conclusion of an ongoing system review, launched by the government last year.

Speaking to IPE following the announcement that AP3 returned -2.5% in 2011, chief executive Kerstin Hessius said the 11 years since the fund's inception had not been "a very good period", being bookended by the dotcom bubble and sovereign debt crisis.

"At the same time, we have outperformed the income indices - against which pensions are indexed - so in practice we have contributed to the Swedish pension system, even if we have underperformed long-term Swedish bond yields," she said, referencing AP3's 1.7% annualised return after inflation, compared with the 2% government bond yield over the same period.

Asked about a review of the AP fund system, announced by the government last year, she speculated that the future number of buffer funds would be "dependent on how much we grow and pay out" over the next few years.

The review said the number of buffer funds should not fall below three - with AP1 through AP4, as well as AP6, being assessed by a committee chaired by former Aon managing director Mats Langensjö.

"From that perspective, you could say that maybe they will close down two funds, but it is a very open question, as you have to identify a problem first," Hessius said.

She also argued that the AP funds were "quite" cost efficient and seemed to think the issue of cost was being over-stated as an area for the review to examine.

"If you look at the AP funds, the average costs for the funds is less than 15 basis points, very low for a well-diversified pension fund," she said.

"The cost-efficiency problem is a little bit exaggerated. Nonetheless, it is a very good idea that they conduct a review."

AP3, which invests based on a number of risk categories rather than employing a more traditional portfolio approach, saw only its credit and inflation risk categories produce a positive return last year.

It said its equity investments, which fell by more than 10% in value, contributed -5.3% to its overall return, despite accounting for more than half of assets under management.