Swedish pension system could increase alts exposure

Proposals suggest removing limits on unlisted securities and raising exposure to illiquid assets.

Four of Sweden’s AP pension funds, representing around $153 billion of assets under management, have received proposals to increase their exposure to private equity in a bid to maximise long-term returns.

The revised rules, which would affect APs 1-4, would scrap limits on unlisted securities and allow for up to 40 percent exposure to illiquid assets – ie, private equity, real estate and infrastructure – Jan Radberg, head of private equity at AP1, told PEI.

They would also cut the minimum requirement for interest-bearing securities with low credit and liquidity risk from 30 to 20 percent.

The four AP funds will also be required by law to practice responsible investment and ownership, as well as promote sustainable development without compromising their high returns. The proposals, which would come into force on 1 July 2018, will remove the need for external management, according to a statement.

“We have very good performance from the asset class so if the proposals are approved by the parliament then I think we will probably do more private equity, but how much more has not yet been decided,” Radberg said.

AP 1 had SKr14.6 billion ($1.7 billion; €1.5 billion) invested in private equity funds at the end of 2016, representing 4.7 percent of net assets and earning annual returns of 7.6 percent, according to an annual report. The fund has previously committed to the $2.69 billion Oaktree Opportunities Fund VIIIb and the $230 million Edelweiss' Special Opportunity Fund.

The second AP fund, which has committed to TPG’s Rise Fund and the Mid Europa Fund IV, had a private equity allocation of 4.97 per cent as of 31 December 2016, earning a 17.9 percent return that year.

AP 3 had SKr10 billion invested in unlisted shares, such as private equity, in December 2016, while the fourth fund had around SKr7.8 billion invested in alternative assets, representing 2.3 percent of assets. The former has commitments to EQT VII, while AP 4 has agreed to invest in EQT Mid Market Europe.