The e1.2bn Stockholm-based Sparinstitutens Pensionskassa (SPK) for employees of Sweden’s savings companies, had traditionally been very typical for a Swedish institution in its asset allocation – with in-house execution of domestic equities and bonds.
Five years ago, however, the fund carried out an examination of its equity and bond contents. An evaluation was made of all the possible ways to set up the fund, including for the first time an examination of the possibility of looking abroad. The fund came to the conclusion that firstly the overhead cost of the fund’s investment should remain low – meaning outsourcing instead of an escalation of staff. Independence was also considered to be a key element, meaning the use of at least two managers on each mandate for the fund.
The fund put into place a process whereby the managers would first be screened and then the remaining managers would be evaluated. A manager’s investment process would have to be understood in detail with every step in the investment process to be documented.
One of the main questions the fund began to ask itself was whether the manager had the prerequisites for good future risk adjusted performance. A process of yearly follow-ups on this element was then put into place. Furthermore, a greater focus was applied to the process of internal risk control and administration structure. Would a fund manager be able to detect and signal dangers in the internal day-to-day handling of the investments to the fund? The fund made the decision that if a manager was not prepared to be fully transparent then it would not be included in its roster.
A system of fund discretionary mandates was also initiated with investment made into publicly traded mutual funds, but with a discretionary relationship and support. The fund decided that if these two elements were efficient then they could accept the statutes of the fund.
A decision was taken to look at discretionary mandates, only when the scheme was of a critical size to be able to do so. Discussions were taken with individual managers over whether it would be more cost effective to use segregated or pooled funds, however.
In tandem with the new investment approach, the fund also introduced a new centralised portfolio control and measurement system, which included centralised custody and compliance monitoring. A monthly internal evaluation of key ratios and trends in risk and performance compared to the peer group in the proprietary system was another element added to the regular checklist.
Likewise, SPK began pursuing what it terms an “active” approach with its investment managers – meeting with all the managers at least three or four times a year. The fund decided that since it was employing the managers to run the assets then the fund would make the effort to travel to them.
At these meetings the fund manager is shown its performance figures and key ratios from SPK’s systems. The manager is also presented with the matched pair manager’s data and the differences are discussed in an open-minded manner. Managers are then cross-examined to ascertain how the differences came about. If SPK is not satisfied with the results then a discussion is initiated to focus on what can be done. If this doesn’t help then both parties are pushed by the knowledge that a new manager could be appointed shortly if there is no improvement. The information gleaned from such meetings is used to create an increased learning curve within the scheme.
The relationships are used to provide a flow of inputs for ideas and special studies (ALM studies etc) that can be put together in a more structured way. This is applied in both the allocation and administration areas.
A board conference is also held annually where managers present their yearly performance, as well as an educational piece to the board members. Ahead of the conference, board members are updated on the managers themselves using proprietary analyses on every manager and mandate. In the interim, the board is also given a monthly reporting package with a one-page overview on each manager and mandate, together with totals and rankings.
In terms of admin developments, the fund keeps a constant eye on developments in the market and enters into discussions with peers as a possible way of taking the next step and upgrading its structure.
SPK is presently looking at integrating all of its reporting – custody, performance measurement, compliance control and enlarged peer group analysis, attributions and book-keeping – into a real-time system that can be delivered to the desktop, a move which it says would allow it to focus on the decision-making.
At present, the analysis, optimisation and day-to-day operations are externally handled. Asset allocation and performance measurement and control are done internally. The fund dubs itself a small efficient organisation with a high degree of control and above market benchmark returns for the past five years.
A breakdown of the fund’s investments gives equity allocation at 34%, fixed income at 63%, real estate of 2% and cash of 1%. The country allocations are Sweden 87%, Europe including the UK at 9%, US 2% and Japan 2%.

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