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IPE special report May 2018

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Sweden rules out merging AP schemes for now

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SWEDEN – The Swedish government has dismissed for the time being a suggestion to merge the four biggest AP buffer funds, worth a total SEK626.5bn (€68.4bn), as a cost-cutting measure.

Swedish local government and financial markets minister Sven-Erik Österberg has told the press that a merger of AP1, AP2, AP3 and AP4 is “not being considered at this stage”.

Österberg was referring to a government-sponsored study conducted by accountancy firm KPMG which looked at the schemes’ expenses. This year the government will base its evaluation report of the buffer funds on this study.

The minister conceded that the report had highlighted high costs in the management of the funds and told the press that government will keep “a close look” at them.

Costs in the future might be capped and the government could demand “more co-operation” between them.

The cabinet’s stance will become clear when the government’s annual evaluation report is published in late May.

This year it is the funds’ costs rather than their performance that will take centre stage, explained finance ministry official Lars Gavelin.

The issue of costs was first tackled a couple of years ago, when the government checked the funds’ annual reports and information in the public domain for clues on their spending patterns, Gavelin said.

But the analysis that followed was not thorough enough, especially in the field of private equity, so the government commissioned KPMG following a parliamentary request last autumn to involve an independent expert.

KPMG has suggested the creation of a benchmark comparing the funds with some European counterparts and an evaluation of the “cost structure” compared with industry benchmarks and possible cost-cutting measures.

As floating the idea of a merger, KPMG has also put forward measures that would not imply a drastic change, like out-sourcing the internal management of assets, Gavelin explained.

“The report does not contain any sort of proposals, it is just a report,” he continued.

The government will still consider the issue of performance with a report prepared by Hewitt Wassum Investment Partners. Parliament is set to discuss the funds in the autumn session.

KPMG was unable to comment. AP4 declined to comment, while AP3 spokeswoman Pernilla Klein was not contactable. A spokesman for AP2 said: “For us it is business as usual. If the government changes the rules we will adapt.”

Nadine Viel Lamare, spokeswoman for AP1, said the fund has a wait-and-see stance. “This is a political decision, involving the five major parties. We don’t really know what the outcome will be like,” she commented.

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