SWEDEN – Fund managers of the Swedish state pension buffer funds, AP1-4 and 6, are not compensated in line with industry practice, according to a study carried out by consultant William M. Mercer for the Swedish Ministry of Finance.

The consultant says that if the basic monthly salary of SEK50,000 (e5,400) and the annual bonus cap of 6 months salary is not raised it is likely that the managers could leave to join commercial investment houses.

“ While we can understand the attraction of the challenge of these new funds for investment professionals, with the focus on hands-on investment management and an absence of bureaucracy compared with the mega-financial institutions of today, at one point money does talk,” says the report by Divyesh Hindocha and Johan Sidenmark at Mercer.

At the same time, however, the authors say they understand the ‘spirit’ of public service in the country and the possible advantage from having worked at one of the funds in the light of future employment prospects.

Hindocha and Sidenmark also believe the intention of the government in setting up a number of competing funds to generate ‘healthy’ competition to minimise risk and increase returns would be better accomplished by a clear linkage between value creation and remuneration, including short and longer term incentives.
“ The opposite risk in the absence of this linkage is that all the funds will basically revert over time to a peer group average,” say the authors.