Two of the main buffer funds in Sweden’s state pension system have welcomed a proposal giving them extra room on ownership in order to provide pandemic-hit companies with new capital, but say the time limits being put forward are too restrictive.
At the end of June, the Swedish Finance Ministry published draft legislation temporarily changing the investment rules for AP1-4, raising the cap on votes the individual funds may hold in any single listed company in Sweden to 15% from 10% – provided the extra equity was acquired via a new share issue.
In its response to the consultation, which officially ended yesterday, AP4 said it was positive about the proposal, but that the measures should start sooner than envisaged and last for longer.
It said that apart from supporting the companies the AP funds invested in directly, capital injections facilitated by the new rules would also feed through into benefits for other firms such as partners and subcontractors, which may also be challenged by COVID-19.
The SEK403bn (€38.7bn) fund said the negative effects of the pandemic were already great and the need for capital likely to be significant in the coming months.
“It is therefore unfortunate that entry into force can only be expected to take place as late as 1 November 2020,” the fund said.
AP4 also said that because the pandemic’s consequences were likely to be not only extensive but also prolonged, 30 June 2021 was too soon to end the ownership extension.
“In order for the provision to have the desired effect, it is therefore proposed that the period for the application of the amendment be extended to at least 30 June 2022,” the pension fund said.
Meanwhile, AP1 – while also declaring itself generally positive about the proposals – took issue with the length of time that the funds would be permitted to hold onto extra capital that exceeded the normal 10% ceiling.
In the draft legislation, the funds would have seven years in which to unwind these holdings.
“The proposed period for divestment seems quite long, but the fact that holdings under the temporary rule are limited in time at all means that in the worst case AP1 would risk having to sell in an economically unfavourable situation and thereby harm the return,” it said.
Because of this, the fund said it proposed having no time limit on investments made under the temporary rule.