Executives at Sweden's AP funds have welcomed changes to the way they may invest, including an increase in illiquid allocations.
The new rules, effective Jan. 1, will see a modernization to the investment guidelines for APs 1, 2, 3 and 4, which collectively have about 1.4 trillion Swedish kronor ($154 billion) in assets.
"We think it's good that the (Swedish Parliament) has decided on new investment rules for the AP funds and it's good for Sweden's pensioners," said a spokeswoman for the 345 billion kronor AP2, Gothenburg.
She said what it means for the portfolio is not yet known, with the board of the pension fund deciding in December on the strategic portfolio for 2019.
The new rules, approved and announced late last month by the Swedish Parliament following a proposal by the country's government, will see changes across asset classes:
Funds may invest up to 40% of portfolios in illiquid asset classes, up from 5%.
The allocation to fixed-income securities with a high credit rating has been reduced to a 20% minimum of the portfolio, from at least 30%.
Funds no longer will be required to invest at least 10% of assets with external money managers.
Tobias Fransson, head of strategy and sustainability at the 367 billion kronor AP4, Stockholm, said, "At AP4 we are very positive about the modernization of the investment rules. This is necessary to give the AP funds the conditions for modern asset management that can generate the best possible returns at the lowest possible cost. The changes will give the AP funds greater flexibility to fulfill their mandate, which will ultimately benefit today's and tomorrow's pensioners."
The Swedish government's website also said a new goal has been introduced for the AP funds to manage assets "in a way that contributes to sustainable development."
The plans are four of six funds in Sweden that manage the assets of the national retirement system. Established in 2001, APs 1, 2, 3 and 4 are the buffer funds, from which the government withdraws capital if there is a deficit in retirement payments. Capital is transferred into these funds if there is a surplus.
AP6, Gothenburg, is also a buffer fund but is frozen, with no new assets flowing into or out of the fund; it also invests only in unlisted assets. AP7, Stockholm, is a defined contribution plan.
Mr. Fransson said that also under consideration is the opportunity for direct infrastructure investing, illiquid credit and co-investment in unlisted companies.
"This is currently being reviewed by the Ministry of Finance and a proposal is expected to be presented before Christmas," he said in an email.
Of this further consideration, AP4 executives are positive since this kind of "modernization … would give the AP funds greater opportunities and the necessary tools to make long-term, sustainable and cost-effective investments in unlisted assets."
AP4 will implement the changes gradually over several years. "We will put great emphasis on ensuring that every individual investment can be made on solid grounds," Mr. Fransson added.
AP2 will publish documents related to the fund and changes early next year, with implementation also set for 2019.