SWEDEN - Hewitt Wassum Investment Partners, the Stockholm-based investment consultant, has criticised the investment restrictions imposed in the country's AP pension-buffer funds, as creating unwanted and irrational investment decisions.
In particular, Hewitt Wassum has slammed regulations governing the default fund managed by AP7, in an annual evaluation report of the AP fund system, commissioned by the Swedish Ministry of Finance.
AP7 is the state option within the PPM system, in which Swedes can invest 2.5% of their pension assets. AP7 has a fund which can be selected by members within this system but also has a default fund, known as the Premium Savings Fund, for those who do not make an active choice.
In the report, Hewitt Wassum says the rules which stipulate AP7's default fund should be managed with a strategy based on a "low risk and with a correlation to the average asset allocation of all the other PPM funds" does not necessarily create the best long-term pensions portfolio, which is the aim of investing in a pension.
"If this rule was abolished, the results and return of the default fund could be compared to a strategic goal and an investment strategy set with the aim to achieve the best possible pensions portfolio, rather than be compared to the average PPM investor," said Hewitt Wassum in its report.
The report questions the logic and rationality of such restrictions, particularly as the other fund managed by AP7, which can be actively selected, has more liberal investment rules.
"Do individual investors within PPM make the most rational decisions?" Hewitt Wassum queried, adding it might perhaps be better to leave the investment strategy of the default fund to the professionals running the fund, instead of having to pay attention to the level or risk, and asset allocation compared to the funds within PPM.
Hewitt Wassum also believes all the funds, not only AP7, would benefit from more liberal rules which would increase diversification and spread risk.
The AP funds, which have assets totalling almost SEK980bn (€105.5bn), had prescriptive investment rules set by the government when the system and funds were reformed in 2000.3-05]