Sweden’s central bank has warned that the government’s proposed overhaul of the AP buffer fund system could hinder their ability to invest in infrastructure and real estate.
The intervention by Riksbank came as AP6, devoted to private equity investments and set to be merged with AP2 under the reform proposals, called for its 20 years of “expertise” to be appreciated as operations transferred to the other buffer fund.
Riksbank backed large parts of the proposals, drafted by the cross-party Pensionsgruppen, and said the establishment of a National Pension Fund Board to oversee the system was justified.
It also conceded that deciding on benchmarks against which to measure performance and setting risk targets might be warranted.
It warned, however, that more detailed government control of investment procedures – by the introduction of the new board, which would see a principal granted ownership of all assets – could compromise the funds’ freedom.
The bank’s comments came after the four main AP funds claimed the system’s overhaul ran the risk of “political micromanagement”.
The bank also argued that too narrow a focus on costs could hamper the system’s ability to invest in unlisted assets, and that the funds should not be forced to sell assets too quickly.
It said any sale of assets should be gradual, arguing that, if any reallocation were conducted slowly, it would not risk financial stability – an area the bank is responsible for monitoring.
AP6, in its own response to the consultation, backed the shift to a prudent-person approach.
It said the removal of the quantitative investment rules governing the funds to date could increase the freedom to pursue investments providing better risk-adjusted returns.
The fund also agreed with the idea of greater collaboration among AP funds on unlisted asset holdings, and backed collaboration that would go through a single centre of competence based at one of the remaining AP funds.
It suggested the funds could coordinate their investment activity by establishing a joint investment committee, and called for the expertise built up over the last 20 years at AP6 to be fully utilised when establishing the new unlisted team at AP2.