SWEDEN - Top Swedish pension funds are set to re-structure their entire portfolios in the wake of the introduction of mark-to-market valuation of liabilities as part of the pensions directive.

This will lead in some cases to the wholesale re-allocation of mandates to external managers.

The mark-to-market requirement comes into effect on January 1 next year, when the Institutions for Occupational Retirement Provision directive is implemented.

The head of one €1.5bn pension fund in Stockholm said: “It will be a different world with mark-to-market valuations. We are going to have to re-do everything from the start.

“Up till now the strategy has been to cover liabilities and then have the rest in equities. But going forward from January 1 that’s a totally new ball game.”

The fund currently uses eight external managers – four Swedish and four international – for Swedish, European and US mandates.

“We are going to re-do the asset allocation after the beginning of next year. We are going to be open minded to every asset class that we can use to get our optimal allocation.”

He said that manager searches were unlikely to start before the second quarter of 2006.

Gunnar Balsvik, chief executive of the €2.4bn Kåpan Pensioner scheme for government employees, said the new mark-to-market valuation would have a major impact on Swedish pension funds: “The mark-to-market valuation of liabilities is a major change, in that you can no longer make money on the bond portfolio.

“As a result, a lot of money is going to have to be managed in a different way.

“I think there is an under-estimation of the magnitude of the change. Many people think it’s going to be exactly the same as before, but I don’t think so. Because the mark-to-market of liabilities affects your bonus rate, and anything that affects your bonus rate, you have to take into consideration.”