The largest of Sweden’s huge national pensions buffer funds has welcomed this week’s approval by lawmakers of the second step in the liberalisation of the funds’ investment rules, but said it will take its time to pile on the freshly-authorised extra allocation to unlisted assets.
Niklas Ekvall, chief executive officer of Stockholm-based AP4, said: “It is very positive that the Riksdag has now decided on this second step in the modernisation of the AP funds’ investment rules.”
The bill, entitled “Some further changes to the investment rules for the First – Fourth AP Funds” (Vissa ytterligare ändringar av placeringsreglerna för Första–Fjärde AP-fonderna), was passed by the Swedish parliament on Wednesday by 307 votes to 26 against.
All parliamentary parties backed the latest batch of changes to the mandate for AP1-4 except the Left Party (Vänsterpartiet), which is not part of the governing coalition.
Ekvall said one consequence of the first step in the rule-change process, which took effect in 2019, had been that the four main AP buffer funds had more scope for unlisted investments.
“This second step is primarily focused on giving the AP funds greater flexibility in terms of investment forms for these unlisted investments, with the aim of creating even better conditions for long-term and cost-effectiveness,” he said.
The new investment rules stretch the AP funds’ leeway on unlisted direct investments by raising the ceiling on the level of voting rights they may have in a venture capital company to 35% from 30%, and allow such venture capital companies to invest in illiquid loans and make direct investments in unlisted companies.
In anticipation of the new rules, AP4 said that in the last few years it had bolstered its resources and expertise in alternative investments, and that over time, these investments would further improve the return and risk profile of its portfolio through long-term stable and real cash flows.
“However, the build-up of the unlisted portfolio will take place cautiously and gradually over several years, and great emphasis will be placed on identifying the right business opportunities and being able to account for every single investment on a solid basis,” Ekvall said.
He cited Polhem Infra, which was set up by AP1, AP3 and AP4 last year, as an example of an unlisted investment the funds had made.
The joint venture is to make long-term investments in sustainable infrastructure in the Nordic countries, for example in renewable power generation, energy storage, energy distribution and digital infrastructure, he said.
The newly approved investment rule changes will come into force on 1 May.
AP4 had SEK418bn of assets at the end of 2019, more than any of the other three main state pension buffer funds.