Seeking Higher Returns, Sweden’s AP Pension Pushes into Private Equity

The $155 billion pension will cut bond holdings and raise caps on illiquid assets.

Sweden’s $155 billion AP pension system received regulatory approval on Friday to become more aggressive in order to meet liabilities, according to Bloomberg. Increasing its allocation to illiquid assets such as private equity while cutting down on its bond holdings are key to the new allocation, which will go into effect in July 2018, as part of a bipartisan agreement in parliament.

The move comes amid a heady fundraising environment for private equity as institutional investors become willing to take liquidity risks to navigate a low-interest-rate environment. Private equity fundraising hit a record high of $268.5 billion in 2016, marking the fourth-consecutive year that private equity fundraising surpassed $260 billion, according to research firm Pitchbook.

AP1, AP2, AP3, and AP4 will now be required to hold 20% of their assets in the safest bonds, down from 30%. The threshold for illiquid investments will now be 40% of their portfolios, scrapping a prior 5% limit on non-listed investments.  

In addition, the proposal will also erase a requirement which sees at least 10% of assets be managed externally. The pension will seek to invest sustainably without impacting the demand to deliver high returns.

“This will increase the possibility for good returns and good pensions, especially considering the current low interest rates,” the ministry said, according to Bloomberg.

The AP funds have had a return of 5.6% per year since 2001, according to Bloomberg.