Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Print
July 12, 1999 01:00 AM

DRAMATIC CHANGE: $6 BILLION WILL BE FARMED OUT AS SWEDES RESTRUCTURE STATE FUND

Joel Chernoff
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    STOCKHOLM, Sweden -- Roughly 50 billion Swedish kronor ($6.2 billion) will be up for grabs by money managers under a proposal to revamp AP Fonden, the giant state pension system here.

    The restructuring would lead to a dramatic change in investment strategy for the 744 billion kronor ($91.6 billion) funds, liberalizing investment rules and requiring at least 10% of assets be run by external money managers.

    The AP funds are heavily weighted toward Swedish bonds. The assets are almost entirely internally managed.

    If adopted by Parliament, the changes likely would result in much higher allocations to equities and foreign securities.

    The proposed changes are designed to increase returns and spread risk for AP Fonden, according to a government statement.

    "It's very much a step in the right direction," said Andreas Lehmann, managing director of global sales and marketing for Merrill Lynch Mercury Asset Management, London.

    "What you're seeing is a developing market but a great opportunity for Sweden to leapfrog that and get into best practice quite quickly," said Eric Steedman, a principal in the international consulting practice at Watson Wyatt Worldwide, Reigate, England.

    The proposed reform is part of a radical overhaul of the entire Swedish pension system, including formation of funded corporate and public funds.

    As part of a complex budgetary process, a total of 258 billion kronor will be transferred to the state budget from AP Fonden to help finance the changes, said Ole Settergren, head of the social insurance department of the Ministry of Health and Social Affairs, Stockholm. The effect will be to reduce AP Fonden to about 520 billion kronor.

    Under the proposal to restructure the state pension system, five of the AP Fonden's six funds would be consolidated. They then would be reconstituted into four equally sized funds of about 125 billion kronor each with a common set of investment rules. The proposal, if approved, would become effective Jan. 1, 2001.

    The restructuring of the five funds would radically affect their investment capabilities. Currently, the funds, while covering the same workers, are structured to invest in different asset classes. (The sixth fund, with 12 billion kronor almost entirely invested in Swedish private equities, would remain separate.)

    The combined funds 1-3, which hold the vast majority of assets, are 95% invested in fixed income, almost all Swedish government bonds. The balance is invested in real estate. The fund is switching its direct real estate investments to indirect holdings. It is also seeking to hire a manager to run a $100 million U.S. investment-grade bond portfolio.

    AP Fonden 4, with 89 billion kronor, and AP Fonden 5, with 14 billion kronor, are almost entirely invested in equities, most of which are Swedish stocks.

    Fixed-income investments would comprise a minimum of 30% of assets for each of the four funds. Total foreign currency exposure would be capped at 40%, up from 10% now for the combined 1-3 fund. However, there would be no investment limits on the underlying assets. There would be no restrictions on overall equity investments, although the minimum bond requirement effectively would cap stocks at 70%.

    However, the rules would limit each fund's investments in domestic stocks to no more than 2% of the total market capitalization of the Swedish Stock Exchange. At current values, that would cap aggregate domestic equities at 190 billion kronor. This limit addresses the sensitive issue of how much influence the funds would have on the domestic market.

    Money managers also will have the opportunity to gain assets under the broader overhaul's new individual account system.

    Starting in the fall of 2000, a portion of employer and employee contributions to the state system will be diverted to individual accounts within the newly created Premium Pension Authority, known as the PPM. An initial influx of 34 billion kronor will kick off the new system. Future annual cash flows are estimated around 20 billion kronor for the first 10 years.

    Individuals will have the choice of selecting money managers through the unitized system administered by the PPM, creating a potential bonanza for both domestic and foreign money managers.

    The accounts of those who do not choose a manager will be handed to a newly created AP fund, which will pursue a low-risk investment strategy for those clients. However, new proposals also would permit individuals to select the new AP fund, and for those clients, the fund could take a more aggressive approach.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize

    Reader Poll

    August 10, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Can Sustainable Labeling of Financial Products Prevent Greenwashing?
    Hedge Funds 2.0: Back to the future
    Is there a mid-cap gap in your DC plan?
    Why pursue direct lending in the core middle market?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit