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AP7 chief backs calls for illiquids investment permission

The chief executive of AP7, one of Sweden’s national pension funds and the default provider in the premium pension system, has called on the government to change its investment rules and allow investment in real estate and infrastructure.

In its response to the government’s pension system reform proposals, which were put out for consultation in December, AP7’s chief executive Richard Gröttheim said: “As AP7’s managed capital grows, it becomes increasingly important to review how AP7’s investment rules can be modernised and streamlined, with a view to making a good default option even better.”

Increased opportunities to invest in assets suitable for long term pension savings would make it possible to build a more diversified portfolio less dependent on the development of global equities, he said.

“Investments in real estate and infrastructure could increase risk diversification and lead to a better pension product,” Gröttheim said.

His words echo comments from the pension fund’s chairman Bo Källstrand when he wrote to the cross-party Pensions Group last autumn on behalf of the fund’s board at an earlier stage in the reform process.

Under its current investment rules, AP7 is not allowed to invest in illiquid assets, such as infrastructure and real estate.

Data from the pension fund’s recently released annual report reveal its assets under management increased by more than 25% in the course of 2017.

Assets under management grew to SEK430.7bn (€42.2bn) by the end of 2017 from SEK343bn. Its leveraged equity fund, which makes up the bulk of that, returned 17.7% after 2016’s 16.5%.

AP7 attributed the increase in total managed capital mainly to inflows into its funds during the year and positive development in global equity markets.

Capital inflows grew to SEK35.2bn in 2017 from SEK23bn in 2016, while capital outflows, mainly in the form of premium pension transfers out, fell to SEK4bn from SEK6.2bn.

Under the proposals in the current draft form of the pensions reform, the number of savers with their money in AP7’s Såfa balanced pension product will increase significantly.

The 17.7% return on the equity fund, which currently has an official leverage degree of 135%, was 0.3 percentage points lower than the benchmark index, AP7 said in its annual report.

Global stock markets rose 12.2% in 2017, it said.

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