Swedish Pensions Go Under the Knife | Chief Investment Officer

(August 21, 2012) — The Swedish pension system is set for an overhaul as a government-led report has recommended a series of measures to make it run more efficiently and maintain good investment returns.

Five of the six AP funds, which were created to act as a buffer that could cover Sweden’s pension payments should the government’s coffers fall short, were the subject of the report. In total, the five funds manage around €105 billion. AP7 was not examined.

The report recommended the number of funds to be cut from five to three and questioned the efficacy of AP6, a dedicated venture capitalist fund aimed at Swedish companies.

It recommended massive changes to the structure and management of assets.

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“The current assets of the Sixth AP-fund and the assets of the current First-Fourth AP-funds will together constitute the Pension Reserve Fund’s capital and be managed by the new agency, the Pension Reserve Board,” the report said. “The investment activities will be managed by three fund boards with identical mandates and the Sixth AP-fund’s assets will form part of one or more of these three funds.”

Instead of the current arrangement where each fund sets its own investment particular strategy, the report recommends a more uniform approach.

“Responsibility for the asset management of the pension reserve fund will lie with three independent and autonomous fund boards within the agency. The agency’s governing board will establish the investment objectives and mandates, which means that the funds will be managed and evaluated based on the same objectives and will be delegated identical investment mandates. Within the given mandates, it will be the fund boards’ responsibility to manage the funds prudently to achieve the highest possible returns. The fund boards may also instruct a securities intermediary or other capital manager to manage the fund’s assets.”

The funds are also set to change how their investments are made, the review stated.

“Current quantitative investment rules will be replaced with a prudent person principle, which means that it will be the fund boards’ task to, on the basis of risk limits and required rate of return, determine the assets and asset limits based on the chosen classification. The introduction of the prudent person principle presupposes the implementation of the inquiry’s other proposals concerning clear objectives and effective governance.”

The Swedish three-pillar pension system has been hugely influential and has been used as a template to countries starting up their own retirement structures.

The review was conducted by Swedish pension industry veteran Mats Langensjö and was called for last year by Peter Norman, the minister for financial markets, who had previously led AP7.

For the full report, click here.

(August 21, 2012) — Lars Rohde, CEO of Danish pension giant ATP, has been appointed chairman of the country’s central bank, as the fund reports another set of impressive half yearly results.

Rohde is to join the bank at the start of February as head of the three-member board of governors, the institution announced today, succeeding Governor Nils Bernstein who is set to retire.

Bernstein said: “Lars Rohde is a great choice for [the Danish Central Bank]. [He is] an experienced man who is highly respected and [has] in-depth knowledge of national bank operations. I want to congratulate Lars Rohde on the appointment and [wish him] good luck with the job.”

Rohde has been at the helm of ATP since 1998 and has overseen much of its transformation into an alpha-seeking, risk managing, public sector quasi-hedge fund.

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ATP‘s investment return for the first half of the year was just over DKK4.4 billion ($740 million), the institution said, due to positive results from four of its five risk classes. The equity and credit risk classes were the top performers.

“The European debt crisis continues unabated, and H1 was generally marked by great financial market uncertainty. Low interest rates also present a challenge for a pension provider such as ATP, and against this backdrop, we are satisfied with the results,” Rohde said.