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Sweden's AP funds win more freedom to invest in real estate

Sweden's AP funds for public pensions will be allowed to put more money into alternatives such as properties and infrastructure starting from the middle of next year. A Swedish government minister promises better returns for the state pension system's buffer funds. 

Per Bolund, Swedish Minister for Financial Markets | Photo: PR

Modernization and more freedom to invest in unlisted assets. This is the essence of the new regulations set to come into force next year for Sweden's public pension funds – the AP funds.

The new rules, presented by a task force — the Pensions Group, or Pensionsgruppen — will include measures making the funds subject to fewer requirements than they are today. For instance, under the upcoming regulations, a smaller minimum percentage of the funds' capital – 20 percent compared to the current 30 percent – will have to be placed in interest-bearing securities such as bonds.

"This increases the opportunities for good returns and positive pensions, particularly in light of the current low interest rates," states Swedish Minister for Financial Markets, Per Bolund, in a press release from Sweden's Ministry of Finance.

Meanwhile, the idea has been proposed to put 40 percent of the capital in illiquid investments, such as real estate or infrastructure.

In its report, the Pensions Group has included calculations showing how much in returns pension savers have missed out on since 2013 under the current regulations.

Where listed equities have generated returns of an average 6.9 percent, and bonds along with similar securities delivered 5.1 percent, alternative investments have given a combined 12.3 percent. Looking at the subsets of this type of investment, real estate has produced between 19 and 27 percent annually, while hedge funds have generated between one and 14 percent, according to data supporting the proposal to allow a higher percentage of alternative investments.

Unlike their Danish counterpart ATP, Sweden's AP funds consist of six different pension funds. The new rules apply to the first, second, third, and fourth AP funds, according to the press release.

English Edit: Gretchen Deverell Pedersen

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