AP6 still sees merit in Swedish pension consolidation

Sweden’s Sixth National Pension Fund still believes consolidation would have been the ‘best idea’ for managing its unlisted assets.

AP Fondon 6, the Sixth Swedish National Pension Fund and the only fund in the Swedish system dedicated to unlisted investments, still believes in the benefits of asset consolidation despite the government’s decision in December to cancel pension system reform.

“We did believe in coordination and cooperation concerning unlisted investments and we still believe it would have been the best idea for asset allocation,” AP6 spokesperson Ulf Lindqvist told Private Equity International. “Maybe coordination or cooperation will happen in the future, but the plan for now is to carry on as before.”

The fund did not make any specific preparations ahead of any proposed merger, but “we were mentally prepared,” Lindqvist said.

Under the proposals abandoned in mid-December following criticism from Sweden’s central bank and opposition parties, AP6 and an unnamed fund would have been closed and AP6’s assets would have been merged with AP2. The proposals also included raising the ceiling on investments in unlisted assets from 5 percent to 30 percent across all AP funds.

“We were very positive and we still are regarding the proposal to coordinate investment opportunities and unlisted investments. This is an asset that benefits from scale. The bigger the better. You can lower costs and get better access to better deals and more interesting investment opportunities if you have enough financial weight,” Lindqvist said.

AP6 has the advantage of pursuing both direct and fund investments, is active in co-investments and has a team of investment analysts that can assess opportunities, he noted. “There is increasing deal flow that comes from an organisation’s ability to do both direct and fund investments. This would have been an advantage in the new system.”

When asked if there were any new proposals on the table, Lindqvist said: “We have continued discussions – as every AP fund has – with the owner, the ministry of finance, but regarding changes in the AP funds system, that is totally a question for the owner.”

AP6 is an evergreen fund with SEK 23.6 billion ($2.8 billlion; €2.5 billion) of funds under management at the end of 2014, according to its latest annual report, with 46 percent invested directly in 30 companies, 27 percent in funds and 27 percent in liquid funds.

Its direct investments are focused on mature companies with growth potential primarily in Sweden, then the Nordics and some northern Europe, according to its website. In 2014, these included investing alongside EQT VI in data provider Bureau van Dijk and with HgCapital in software and financial services provider Visma, according to its annual report.

Its fund investments include in EQT VII, Silverfleet Capital Partners II, Bridgepoint Europe V and Carlyle Europe Partners VI, according to PEI Research & Analytics.

The fund reported a return of 6.5 percent in 2014.

As it stands, the existing AP funds will continue as they have been and AP6 will continue according to its strategy refined in 2011, Lindqvist said. “We have been building a new portfolio and we will keep investing directly and through funds. We do a lot of co-investments to lower our costs. We are constantly looking for interesting opportunities. Today there is a great demand for investments in private equity. You have to maintain a disciplined investing agenda and be cautious about your choices.”

In late December it sold its 40 percent stake in Volvofinans Bank to Volvo Car Corporation, which already held 10 percent in the car finance and leasing company, for an undisclosed amount. That followed the listing in April of Swedish eye-tracking company Tobii Technology Company on Nasdaq Stockholm in which AP6 held a stake of around 7 percent.

The closure of two of Sweden’s six funds was first considered in 2011 and subject to an inquiry in 2012 that recommended merging all funds into one vehicle. Proposals for pension reform were published in June last year, including to merge AP6 with AP2, and subsequently dropped following a meeting of the Pensionsgruppen, during which the committee of government and opposition party representatives failed to reach an agreement, according to reports.