Stockholm (NordSIP) – A review of the Swedish buffer fund system was launched at the end of 2023, in order to find ways to modernize and streamline the administration of the Swedish buffer fund system.

    The results of the review, were published and presented to the public on June 17, 2024, and include four alternative or complementary proposals on the consolidation of the AP funds: (i) The consolidation of AP6 into AP2, based in Gothenburg; (ii) AP6 remains as an independent fund but is integrated into the buffer fund system; (iii) consolidation of AP1, AP3 and AP4 into two funds, based in Stockholm; and (iv) increased cooperation between AP funds.

    The review also provided two added proposals on the membership of the boards of the AP funds: (v) that the statutory competence requirement for board members should be clarified; and (vi) that the number of members in the boards of the AP1, AP2, AP3, AP4 and AP7 should be reduced.

    “Public funds must be used and managed as efficiently as possible. The cost of the entire public sector administration must be kept down, without compromising on quality. This also applies in the area of ​​financial markets. Effective management of the buffer funds increases pensions in the long run,” says Minister of Financial Markets Niklas Wykman.

    Pros and Cons

    The focus of the proposal on AP6, stem from the fund’s expertise in private markets. The proposals concerning AP6 focus on the “better utilization of the Sixth Swedish National Pension Fund’s specialist expertise in high-return unlisted shares”.

    The Review also considered the pros and cons of the two possible approaches to AP6. It noted that consolidating the fund would allow for economies of scale, which increases cost efficiency. “But the mission of the consolidated fund will over time lead to the reduction of the portfolio of unlisted shares – buyout and venture capital funds/co-investments. This is likely to lead to a decrease of unlisted shares’ share in the buffer system,” AP6 noted.

    The merger of AP1, AP3 and AP4 into two funds would similarly lead to economies of scale and increased efficiency, but the review noted that the process is “complex, with considerable direct costs and significant risks – which must be taken care of – in order to not risk lost returns during implementation.” The alternative of increased cooperation between the stockholm funds would include sharing support administrative functions but increased cooperation instead of consoliation would not lead to the same economies of scale in asset management.

    The changes would take place in July 2025 and 2026.

    Review Proposes Consolidation of Sweden’s AP Funds