STOCKHOLM, Sweden - Money managers are concerned the fees they will earn from managing money for Sweden's nationwide pension scheme will be too low for them to profitably participate in the E5.5 billion ($5.9 billion) fund.
International and domestic money managers said fees will be too small to cover the administration costs involved in selling funds through the Premium Pension Authority, or PPM, which recently introduced the controversial fee structure and will administer the national pension system from autumn of 2000.
Sources said low management fees may mean only low-cost passive and fixed-income funds will be offered through the PPM as international equity and actively managed funds may be too expensive to market.
"The fees are too low and I don't know if we will apply. We are not an index manager," said P.O. Ost, head of institutional marketing for Carlson Investment Management AB, Stockholm.
It is likely that only Swedish retail mutual funds with existing marketing and distribution networks will be able to afford to manage the pension money at the proposed fee levels, said Peter Lindgren, senior vice president-marketing and business development in Europe for PIMCO Global Advisers (Europe) Ltd., London.
International managers such as Nomura Asset Management UK Ltd., London; PIMCO; Brandes Investment Partners Ltd., Geneva; Foreign & Colonial Management Ltd., London; and Fidelity Investments, Boston, are keen to be included in the first list of approved funds. Local and international managers have until the end of November to register with the PPM to be in the first wave of funds that will be allowed to be market to Swedish investors.
But PIMCO's Mr. Lindgren said the group would only apply once it had a good look at the fee scale.
"You have to look at the complete picture with all the custodian and administration costs. PIMCO would not do business that it would make a loss on," he said.
From late next year the PPM will replace Sweden's current pay-as-you-go state pension system and will channel individuals' pension payments into the funds of their choice. The initial E5.5 billion pool of money is expected to increase every year by E2.2 billion.
Money managers will not know the identities of the individual investors in their funds and will effectively manage the money on behalf of the PPM.
While it may seem like an institutional mandate, money managers will have to provide marketing and performance information and trading facilities to Swedish investors in the same way a retail fund would.
The PPM has drawn up a complicated sliding scale of discounts it will demand on manager fees.
A firm managing money for the PPM can expect to retain 40 basis points in fees on everything up to E8 million; and above that level, charges will be subject to a 25% discount by PPM. For example, a manager charging a fee of 100 basis points will receive 40 basis points undiscounted, and the remaining 60 basis points will be reduced to 45, for a total fee of 85 basis points.
For assets over E35 million, the manager can claim 35 basis points in addition to the 40 basis points he gets for the E8 million he manages. But PPM will give itself a 65% discount off any charges above the 35 basis point level.
The fees for managing small portions of the PPM funds were within expectations, but the discounts charged on fees for the larger pools of assets were at the upper end of what the market had been hoping for, said Peter Dencik, director of Singer & Friedlander Investment Management Ltd., London.
He suggested the PPM distinguish between the costs of managing different asset classes, as there are large cost differences between running a fixed-income and a small-cap stock fund.
"The PPM has been dictating the price level and they have not been listening to the market," said Ola Bjorkmo, head of asset management for Ohman Asset Management, Stockholm. Nonetheless, Ohman plans to register with the PPM in order to increase its profile among Swedish retail investors.
Mr. Dencik said his firm was looking for distribution partners that would include Singer & Friedlander funds as part of a boarder portfolio to be sold to PPM members. The current fees do not justify the administrative burden of providing information to individual investors by itself, he said.
PPM director general Hans Jacobson said the organization was willing to renegotiate the fees, depending on how many money managers applied to be registered and what types of strategies they were prepared to offer.
"If we find the supply of funds is too low and of poor quality, it is very easy to increase the fees, but let's see what happens," he said.
Local managers have proposed keeping the discount-free fee between 30 and 50 basis points but allowing the PPM to claim a 50% discount on costs above that level.
Swedish fund managers have been very critical about the fees but, given the amount of assets involved, it would be "suicide" for them to stay out of the system, added Mr. Jacobson.
