SWEDEN – Sweden's national buffer funds have all responded with varying degrees of dismay at the recent Buffer Fund Inquiry, headed by Mats Langensjö.

The funds acknowledged that certain improvements were necessary, but they rejected the notion the entire system needed an overhaul.

The inquiry report was submitted to Peter Norman, minister for financial markets, in August, and the AP funds and other interested parties offered their responses at the end of November.

The majority of the funds spoke in favour of the status quo, or recognised the need for some "tweaking" to the current system.

The number of AP funds has been a major issue – part of Langensjö's remit had been to arrive at a solution that had a minimum of three funds.

Seven of the nine members of the inquiry board came up with an alternative solution or a single-fund proposal, which Langensjö would also have preferred. 

AP4 said it was clear from the report that the "argument points towards a one-fund solution", making the three-fund solution presented "cumbersome".

But in a statement, Urban Karlström, chairman at AP1, said the number of funds was not the issue. Of greater importance is how asset management is governed and organised, he said.

He said it was imperative the AP funds remained independent, and that the evaluation of their performance took into consideration their long-term goals.

It also argued that their investment rules should be flexible enough to allow them to adapt to changing market conditions.

AP1 agreed that creating a Pensions Reserve Board (PRB) was a good idea "to a certain extent", but said the funds should continue to have the right to sign their own deals and make asset management decisions.

The fund also agreed to increase cooperation with the Swedish Pension Agency, and that a more clearly defined principal or capital owner would benefit the pension system.

But it took issue with the inquiry itself, arguing that the panel believed there was "just one right set of goals and one correct investment strategy".

Many of the AP funds warned that the PRB might reduce diversification, as it alone would set the three funds' performance targets and investment strategies.

This, they added, would render the funds' boards defunct, or make them equivalent to three separate investment committees.

In its statement, AP2 said the inquiry had exaggerated the difficulty the funds had had in interpreting their mandates and setting targets for their asset management operations.

"Current rules give good guidance," it added. "It is too simplistic a conclusion to say all problems would be solved with creating an authority that sets the goals for all funds."

Meanwhile, AP4 argued that the PRB would foment a "herd mentality" rather than increase diversification.

It said the Swedish Pension Agency would be in a better position to set targets and strategy goals, as it had an overview of the country's entire pensions system.

AP3 has been very vocal in its criticism of the Buffer Fund Inquiry, even before its official response came out, and its recommendations are probably the most conservative.

It points out that the current system was created through a "delicate political process with many compromises", and argues that any changes to the funds should be considered carefully. 

It also says the inquiry's proposal is complicated, and deals in unsubstantiated facts.

"The primary areas of improvement would be to introduce freer investment rules and appropriate evaluation," it continued.

"But instead of addressing these areas, the inquiry points to other problems, which are neither verified nor substantiated, such as the independence of the funds and their right to make decisions about goals and targets."

AP3 also argues that, due to market conditions, it would be inappropriate to make any dramatic changes now.

AP6, which is to be abolished in the inquiry proposal, declined to comment.

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