The Arkitekternas Pensionkassa has until 2012 to convince its newer members that it is a better home for their ITP savings than the big players such as Alecta or Skandia. Managing director Maritha Lindberg tells Brendan Maton how the fund plans to do it

Maritha Lindberg (pictured left) is a woman on an Olympian mission. She has four years to bring back success to the Swedish architects’ pension fund, the Arkitekternas Pensionkassa.

Success here does not mean jumping further or running faster but receiving fresh income from new members. As managing director of the SEK4.25bn (€460m) industry-wide fund, she has started to witness major reroutings of contributions and badly wants those flows to return by 2012.

In 2007 a decision was taken to divide up Sweden’s savings system for white-collar workers (ITP) among just a handful of big providers: AMF, Alecta, Skandia, Länsförsäkringar and Nordea for guaranteed returns. The same group minus Alecta but including a few others is to provide access to a wider range of mutual funds.

This was bad news for the architects’ fund and similar mid-sized financial institutions. The decision to ‘think big’, taken at national level by unions and employers collectively, means that most medium-sized funds have been deprived of a valuable flow of fresh contributions: from July last year. This amounted to 4.5% of the members’ monthly salary up to SEK3,000 and 30% of salary over SEK3,000. Worse still, from this month members of the defined contribution arrangement can transfer all their extant accrued savings to one of the bigger providers. In the worst-case scenario, this would see SEK500m depart the scheme. Such competitive openness reflects a Nordic zeal for lowering administration costs. The architects’ fund charges members of its closed defined benefit arrangement about SEK750 a year. Costs for members of the defined contribution plan are lower, according to Lindberg, but they will now be reduced in response to the new challenge.

 

Evidently, the unions and employers that have rerouted workers’ retirement savings did not judge the fund’s efforts good enough to be worth protecting. However, Lindberg describes the strategic concentration of occupational assets with a handful of big players as an attack on professional funds.

The cry might strike a chord with the heads of professional funds in other European countries, notably the Netherlands. There the retirement scheme for self-employed medics ceased contributions for many years. But in that case, it was the professionals’ own choice: a decision made - and recently reversed - in a democratic process by members.

Such a fair and popular course was not followed in Sweden. Lindberg notes with some indignation that the architects themselves did not vote for the change. She also notes the peculiarity that PP Pension, Sweden’s media fund, has a unique agreement which exempts it from national projects. PP Pension thus remained outside the ITP review.

The Olympian challenge began in the wake of an unwelcome decision.

First, the architects’ fund declared that it was discussing possible collaboration with a quartet of other retirement organisations. The four are: the industry-wide pension fund for employees in the insurance sector Försäkringsbranschens Pensionskassa (FPK); the fund of Swedbank, savings banks and other firms Sparinstitutens Pensionskassa (SPK); the Swedish Match retirement fund; and pensions administrator Bankpension Sverige. The latter does not bring any pension assets of its own to manage.

In May, Lindberg told IPE that the five were looking at a common IT platform.

The architects’ fund has also had meetings with Forca, the common administration platform owned by the Danish pension funds for teachers and healthworkers.

Second, Lindberg is keen to save money on costs of the old defined benefit (DB) section of the architects’ fund, which is closed to new members. She does not elaborate on what those measures will be, although the fund itself does not appear profligate. It occupies the third floor of an elegant building in Stockholm’s fashionable Östermalm district, the office furniture is ergonomic and stylish but that is the norm in Scandinavia and apart from the extremely secure office door, which would be more suitable for a submarine hatch or bank vault there seem few signs of excessive spending. There are also candles to light the way down the spiral staircase. Quaint but hardly costly.

 

Lindberg maintains that property in any sense of the word is not an issue. Swedish architects are not interested in overweighting their fund with the results of their own work. She says that there are lots of discussions about buildings but the management is not overwhelmed with requests to invest in certain properties. There is not a 100-strong ‘advisory’ committee here, as the Italian fund for architects and engineers must suffer, and the allocation to property is unexceptional.

In fact, after years of good performance, exposure has been reduced to 6% of total assets. Is that wise? An allocation to domestic property of up to 40% explains why PP Pension has outperformed most commercial Swedish insurers and pension funds over the medium term. The media fund’s five-year performance was 10.2% to the end of 2007. The architects’ fund, in contrast, achieved 7.9% over the same period. Most of the big names in insurance, such as Skandia and those now responsible for running white-collar pensions, lie somewhere between the two. Folksam’s five-year annualised average, for example, is 6.1%.

Lindberg is content with the returns achieved since she joined the fund in 2001. On paper, there have been several bold moves, including early forays into hedge funds (which will soon account for 13% of assets), swaps as a counterparty and a
passive global equities mandate that incorporates socially responsible criteria. Last year the fund hired Carlson to run an Asian small cap mandate.

Hedge funds are a good place to begin, as the picks here are a source of pride and the fund is therefore willing to see them manage up to 15% of assets in future. Lindberg recalls that the first investments were made with Brummer Partners 10 years ago. “When we started to invest in hedge funds, we wanted managers that we knew,” she says.

That proved sage policy as the market-neutral, fixed-income based Nektar fund, founded separately by Kent Janer and Klaus Jantti but nurtured within Brummer, has been the architects’ funds (and many other investors’) best performer since 1998. The architects’ fund also invest in Eikos, a long-short equity fund focussed on the Nordics and Baltics, plus Helios, Brummer’s own multi-strategy vehicle.

The fund has 15% in domestic equities passively run; 15% in global equities, also passively run by with State Street Global Advisors but with SRI overlay provided by local consultancy Ethix SRI Advisors.

Should there be more in equities? Lindberg is typically frank: “Maybe we should have taken more risk but that’s not the tradition in Sweden. People here don’t put more than 50% in equities.”

Perhaps thinking of the success of hedge funds as much as long-only equities. Lindberg rues the fund’s foreign allocation. “Maybe we should have kept more in Swedish equities,” she says.

Actions speak louder than words. Rather than raise equity, the fund has plumped for two more hedge funds, one UK-based and the other US global. This means there will be six hedge funds managing 12% of total assets. Lindberg points out that the fund, therefore, has a kind of separation of alpha and beta because the skill-based returns are expected from the hedge funds while the equities are passive.

On a global scale, Lindberg’s chief worry is the crisis in the financial sector. She notes that last year Swedish labour market agreements saw wage rises in excess of 3% but she feels domestic companies are strong and both oil and food inflation will be brought under control this year. The credit crunch is another matter and tactically, the fund is waiting on the sidelines to see how equity markets fare in the short term.

Caution manifests itself in a number of ways.

First, there is solvency risk: an issue of supreme importance since Sweden’s move to a market-based evaluation of funding two years ago. That year, the fund entered into swaps with Nordea and Barclays Capital (Nordea recently also began working with the fund across a variety of tasks, including asset-liability modelling, derivatives and foreign exchange). To increase duration, one major contract is a 15-year note at 4.72%. The fund also has swaptions in case it slips into the ‘amber zone’ of the new regulations’ traffic light system. Solvency was 163% at the end of 2007.

There is also perpetual currency risk to consider. The Swedish krona is not a major force on world money markets. It might be unlikely to suffer the kind of fierce battering by speculators experienced by Iceland recently, but neither is its influence about to increase. So the architects’ fund hedges half of its total foreign exposure via four separate hedges.

Third, and most intriguingly, the architects’ fund currently has 17% of its total assets in short-term bonds. This is a big treasure chest waiting to be better deployed and its spending depends greatly on prospects for equities. It will be the role of the fund’s investment committee trio - Lindberg, former head of equities at AMF Pension Mats Guldbrand and new recruit Lena Hagman, an economist who joined in April -  to choose when and where to reinvest this money.

In a conscientious, transparent society like Sweden’s, investment performance matters. Ordinary workers have the right to know where their savings are going. Yet only exceptional performance is likely to make a significant difference to the big issue: the architects’ fund’s chances of winning back new members’ contributions.

Whatever happens in 2012 when that opportunity arises, the fund has all the contributions from members born before 1978 to look after. This is the legacy DB scheme. But Maritha Lindberg’s determination to maintain a larger fund is symptomatic of the trend towards consolidation among retirement institutions. In order to not lose out to established first-tier providers, mid-sized schemes believe they have to combine with each other and somehow re-emerge as first-tier providers themselves. In pension provision, small is no longer beautiful.