Sections

Lawmakers criticise 'unsustainable' costs at Sweden's AP funds

Related Categories

Management costs at Sweden’s AP funds have come in for heavy criticism after the country’s parliament argued a nearly 10% year-on-year increase in fees was unsustainable.

A report by the Riksdag’s finance committee said it had been “highly critical” of costs across Sweden’s buffer fund system for a number of years, and that costs had reached SEK1.8bn (€196m) in 2015, an increase of SEK149m compared with the previous year. 

The criticism came after the Swedish Social Insurance Inspectorate earlier this year criticised the funds for their lack of fee transparency, a charge the four main buffer funds strongly rejected, arguing they were both transparent and cost-efficient.

The parliamentary report noted that, once performance-related fees were included, the overall cost of managing the SEK1.2trn in assets across the AP fund system stood at SEK2.2bn last year.

Parliamentarians said that, while a recent change to the way performance-related fees for unlisted assets are captured had seen a downward revision of overall costs, it argued cost transparency was still lacking.

They called for further revision of the way costs are recorded in time for next year’s annual statements in an effort to improve transparency.

Comparing costs across the funds, the report notes that AP2 has the highest overall management costs of 0.18%, which includes performance-related costs, compared with just 0.11% at AP4, amounting to an overall difference of SEK200m.

Costs increased by nearly 10% over the last four years, the report adds, an increase it deems unsustainable.

Lawmakers urged the AP funds to reduce costs by collaborating with each other, boost returns and strengthen confidence in the buffer fund system.

The Swedish government last year abandoned plans to reform the buffer fund system after a backlash from the funds, employer groups and others who argued that the changes risked “political micromanagement” of AP fund assets.

The funds themselves argued that the estimated SEK50m in savings identified as part of the reform, which would have seen the closure of one of the buffer funds and the merger of private equity vehicle AP6 into AP2, would have been far outstripped by the costs associated with transitioning to the new arrangement.

Read IPE’s recent interview with Tomas Franzén, chief investment strategist at AP2

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

Begin Your Search Here