The private market for Swedish pension funds has historically been quite regulated. Until 1995 Swedish life insurance offices had tough restrictions as to how investments were made.In effect, the pension funds were obliged to buy low interest bonds issued by the state or by building societies.The result of this was quite similar portfolios and naturally similar returns.

One of the restrictions was that the total guaranteed level, (ie 4 % annual interest rate), had to be invested in bonds. In 1995 new legislation was introduced, enabling fund managers to invest more in equities. Now 25 % of the guaranteed value of a policy can be invested in equities, but with restrictions.

- With the 1995 legislation the total possible equity share is in the vicinity of 50 % of the total market value of the portfolio. But there are other obstacles. The investments covering the guaranteed liabilities have to be made on the EEC market, which means that, for instance, American or Asian equities are not allowed. Equities from these markets are counted on our free quota, says Lars Florén of Wasa.

But even if 50% were the maximum share allowed, many insurance companies keep the equity portfolio lower than. One reason for this is tradition, the former rules were in effect until 1995. Another reason is that a short term dip in stock market values and lower returns cause a dip in sales.

In order to keep yearly bonuses at a steady level, the investments policy is cautious. All managers are watching each other and if one started to expand the surplus funds in order to save up to be able to smooth results over the years, this would necessarily affect the yearly bonuses in the short run. This is presumed to affect the sales as the bonuses are used in marketing.

So the equity share of the portfolios could be somewhat higher for the fund managers, but few dare to make the shift. Some of the offices also claim they are close to the legal limit and thus claim no change is possible. The customers, ideas of change is already showing in the sales charts. In 1997 the sales of unit-link pension schemes exceeded by far the new sales made by the traditional mutual life offices. And the majority of the new unit-link insurance money was directed to equity funds. And if this trend continues long term, Swedes will shower the stock markets of the world with kronor in the years to come when state pensions, service pensions and private unit-link pensions all seek the higher yields expected from equties. Mikael Nyman

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