Sweden’s AP Funds need to boost staffing for their alternative investment operations, with the buffer funds’ expansion into illiquid assets having been slow, according to an official evaluation.
In its 2025 evaluation of the five national pension funds published yesterday, consultancy Arkwright said: “Arkwright continues to note limited net investments in illiquid assets in the First to Fourth AP Funds, despite the possibility of allocating up to 40% of total assets.”
In the report, published last week, the firm said that between 2018 and 2025, the proportion of illiquid assets – such as direct investments in unlisted companies, infrastructure and real estate – had increased by only three percentage points, of which about 90% could be attributed to appreciation and only 10% to net investments.
The consultancy, which currently has the mandate to produce the annual evaluation of the AP Funds, also released a separate deep-dive report into the funds’ illiquid investments.
The funds – which were reduced in number to four from six at the beginning of this year in a cost-cutting reform – were given increased scope to invest in illiquid assets from 2019.
However, questions around their investment in such assets have arisen over the failed investment by the four large buffer funds, AP1-4, in Swedish green battery firm Northvolt, and problems with their investments in Swedish green steel company Stegra and the UK water company Thames Water.
“Arkwright’s overall view is that the structural gap between the funds’ resource capacity and the size of the illiquid portfolios constitutes the single largest risk in the AP Funds’ investments in illiquid assets,” the consultancy stated in the report, adding that it was referring to the organisations’ structural capacity and safety margin – not the employees’ competence and professionalism.
The AP Funds’ relatively limited organisations might limit the ability to carry out all parts of the investment activities “in a quality-assured manner”, it said, adding that this risked becoming particularly apparent when risks materialised in individual holdings.
“It is in the nature of illiquid asset classes that certain holdings develop in an unexpected direction and require extensive attention and resources from their owners”
“It is in the nature of illiquid asset classes that certain holdings develop in an unexpected direction and require extensive attention and resources from their owners,” Arkwright said.
When this inevitably happened, the firm said the funds had limited ability to do everything within new investments and existing management.
“A possible consequence is that new investments are carried out to a lesser extent, which was observed when 4 to 1 Investment’s investment in Northvolt developed negatively,” it noted.
Among its recommendations for illiquid investments, the firm said: “Arkwright recommends that the AP Funds strengthen their internal capital management organisations within illiquid assets by adding more employees.”
In its main report on the AP Funds, Arkwright questioned one aspect of the way premium pension default operator AP7 – the largest of the AP funds and the only one which is not a buffer fund for the income pension system — uses leverage.
“Arkwright believes that the current model entails management inefficiency as the leverage remains while capital is gradually allocated to the fixed income fund, which means that capital is indirectly borrowed at a higher interest rate to be invested in assets with a lower expected return,” it stated.
Noting that AP7 has now grown to SEK1.529trn (€140bn) at the end of 2025, making it Sweden’s largest individual pension portfolio – and that it was a fund with a different model from the other AP funds – the consultancy proposed developing a dedicated evaluation model for the fund: one “adapted to the fund’s mission, structure and relevant comparison groups”.
