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IPE special report May 2018

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AP2 positive as Sweden revives parts of shelved buffer fund reform

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Sweden’s second national pension fund AP2 says it is positive about the idea of the government changing investment regulations for the country’s pension buffer funds.

Financial markets and consumer affairs minister Per Bolund has said he would go ahead with a new proposal on rules regarding sustainability and investment.

Asked about Bolund’s intention to free up investment rules for the buffer funds, Ulrika Danielson, head of communications at AP2, said the fund was positive about the prospect of such change.

“It’s positive if the investment regulations for the AP funds are changed as the return levels we have had historically will become increasingly difficult to achieve with the [current] applicable regulations,” she said.

At the end of 2015, wide-ranging plans to reform Sweden’s pension buffer fund system – including closing two of the five funds – were shelved because no agreement could be reached among the many groups and individuals involved.

In a recent interview with Swedish newspaper Svenska Dagbladet, Bolund said the structure of the four main AP buffer funds would remain, but the government would go forward with the part of the reform that focused on increased demands for sustainability and free investment.

A spokeswoman for Bolund confirmed the minister’ plan for a new proposal, but said it had not been introduced yet.

A cross-party parliamentary pensions group has also agreed to work on the sustainability rules and some of the rules for investments, she said. These proposals should be completed by autumn of next year – by the time of the next Swedish general election, which is to be held on or before 9 September 2018.

Although many of the proposals contained within the now defunct AP buffer fund reform came in for sharp criticism from the AP funds themselves, they have since been vocal about the need for more regulatory leeway in their asset allocation – which was part of the reform.

In February, AP1’s chief executive Johan Magnusson warned it would be hard for the pension fund to keep producing current levels of return given the AP funds’ mandatory 30% investment grade fixed income allocation.

Hans Fahlin, CIO of AP2, said the AP funds all felt the investment regulations – which only permit the funds to have 5% in private assets, except real estate – were outdated and should be changed.

Fahlin said AP2’s risk-taking should be controlled in a more nuanced way.

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