The latest batch of changes to the rules on how Sweden’s mighty AP funds can invest took a key step through the legislative process on Thursday, but according to one of the funds – they still do not go far enough.
The government announced on 21 November that it had submitted a proposal to the Law Council on amendments to the investment rules for the First to Fourth AP Funds – which serve as buffers for the Swedish state pension – to give an additional boost in their ability to invest in illiquid assets and increase cost efficiency further.
Per Bolund, Minister for Financial Markets, said: “With these proposals, we will further improve the regulatory framework and increase the AP funds’ opportunities for higher returns and for more long-term sustainable investments.”
The government summarised the main investment rule changes in the 50-page proposal entitled “Some further changes to the investment rules for the First – Fourth AP Funds” (Vissa ytterligare ändringar av placeringsreglerna för Första–Fjärde AP-fonderna), saying that:
- It should be made clear that AP1-4 may make joint investments in unlisted companies through unlisted “riskkapitalföretag” (holding companies for unlisted investments), and that they may not assume the operational management responsibility for them. The limit on the voting share the funds may hold in these companies is increased to 35% from the current 30%.
- The four funds should be allowed to make side investments in an unlisted company together with a fund in which they have invested, and which has also invested in that company.
- The funds may retain a holding exceeding 10% of the voting rights of all shares or other shares in the company when listing real estate companies or holding companies for unlisted investments.
- The funds shall be allowed to invest in bonds and other receivables that are not issued for general trading, indirectly through investments in mutual funds or holding companies for unlisted investments, and may grant loans to real estate companies and unlisted holding companies for unlisted investments that they hold shares in.
The amendments are intended to take effect on 1 May 2020, the government said, adding that the Pensions Group, with representatives of the parties behind the pension agreement, had supported the proposal.
Responding to the proposal’s passage to the Law Commission, Niklas Ekvall, chief executive officer of AP4, said: “The changes in relation to the memorandum are steps in the right direction to give the AP funds investment rules that are comparable to other international investors.
“However, they are not as far-reaching as the Fourth AP Fund has recommended, for example regarding the possibility of investing directly in infrastructure companies, of co-investing with other institutional owners in unlisted companies and having a maximum ownership interest in holding companies for unlisted investments of 50%,” he said.
The SEK391bn (€36.9bn) pension said it believed the proposals to lift the ceiling on ownership interests in these holding companies to 35%; the opportunity for such holding companies to invest in illiquid credit and the opportunity to make direct investments in unlisted companies alongside venture capital funds provided better conditions for long-term and cost-effective investments.
This, AP4 said, would ultimately benefit the pension system.
The draft legislation presented on Thursday follows on from a major law intended to modernise the buffer funds’ investment rules, which was approved by parliament a year ago, but which met with calls for more changes.