AP7, Stockholm, and the Swedish occupational pension company AMF, Stockholm formed a joint venture when AP7 acquired a third of the city block Urban Escape, as it is working to make additional investments in private markets.
The pension fund owns 33% of the joint venture but has an option to increase its share to 49% during the next 18 months, an AP7 spokesman said.
The joint venture invests in real estate in central Stockholm.
"With our long-term perspective as a pension fund, illiquid investments suit us well and enable better risk spreading," said Per Olofsson, AP7's acting head of asset management, in a news release Monday. "This requires collaborative partners with the same values and long-term approach as AP7's, which we have found in AMF."
The 900 billion Swedish kronor ($88.5 billion) pension fund will be adding strategic asset allocations to real estate and infrastructure for the first time thanks to amendments approved by the Swedish Parliament in November that became effective Jan. 1.
The mandate for the pension fund's investments in illiquid assets, such as real estate, private equity and infrastructure, was increased to 20% from 10%.
As a result, AP7 plans a target allocation to real estate of up to 8%.
"We will invest within real estate abroad also to achieve diversification," the spokesman said.
AMF said in a separate news release Monday that the deal is strategically important because it creates scope for "future acquisitions and urban development projects."
"The investments we have made in the area have meant a good value development for our pension savers, and at the same time have contributed in a tangible way to an important part of Stockholm's heart becoming a more attractive, appealing and lively place," said Katarina Romberg, chairwoman of AMF Fastigheter's board and head of alternative investments at AMF, in the news release.