Swedish buffer funds AP2 and AP6 are against a proposal to consolidate the two funds into one fund, with the latter warning it risks a “significant reduction” in unlisted shares in the buffer fund system.

Both buffer funds have published their responses to the Review of the buffer funds consultation, which closed last week.

Several reforms to the buffer funds were made by the Swedish Ministry of Finance’s departmental adviser, Tord Gransbo, who was tasked with investigating and proposing measures to modernise and streamline the overall management of the buffer capital.

One of Gransbo’s proposals involved winding up AP6 and transferring its operations and capital to AP2. However, his preference is for maintaining AP6’s current organisational structure but integrating it into the wider buffer fund system. Currently, AP6 is an outlier to the system, specialising in unlisted investments.

“The Sixth AP Fund has not been integrated into the buffer fund system. It is high time that this happened,” he said in his review.

Following the closure of the consultation, AP6 said that although it “essentially agrees” with the analysis and conclusions presented in the memorandum, it is against the consolidation of the two funds.

Instead, it is supportive of the “main alternative” – integrating AP6 into the buffer fund system without changing the organisational structure, with the justifications given in the memorandum.

“The memorandum's conclusion on the negative effects of transferring the Sixth AP Fund's operations and capital to the Second AP Fund is shared by the Sixth AP Fund, whose unique expertise will not be utilised in the desired way. The changes that would be required to implement the proposal have not been analysed and investigated in the report,” the fund stated.

“A merged fund will lead to a significant reduction in the proportion of unlisted shares in the total buffer fund system. The costs in terms of foregone returns are significant and do not benefit the income-based old-age pension scheme. The measures required to address the negative effects are a substantial change in the legal text regarding objectives, risk level and investment rules, as well as an organisation to ensure the competence to manage the Fund's largest asset class, illiquid assets, in particular private equity.”

Gransbo considered four proposals on the possible consolidation of the buffer funds. Regarding the Stockholm-based buffer funds (AP1, AP3 and AP4), Gransbo was in favour of winding up one of the funds, leaving just two, stating that the “advantages outweigh the disadvantages”. However, he did not state which funds should be wound up, instead saying it would be for the government to decide.

In its response, AP2 said that the proposals regarding certain administrative procedures and the composition of the board are “reasonable and therefore supports these proposals, with the exception of the proposals regarding the accrual of costs”.

However, it is also against the consolidation or increased collaboration between the AP funds, for both the ‘Gothenburg and ‘Stockholm’ funds. It believes that these proposals have not been sufficiently analysed in the report and that the memorandum has “crucial shortcomings” in this respect.

“The Second AP Fund questions the premises on which the investigator's proposals concerning the Gothenburg Funds are based,” AP2 said.

“In light of the above, the Second AP Fund rejects the proposals for consolidation or increased cooperation between the AP funds, both in Stockholm and Gothenburg. At the same time, the Second AP Fund proposes an alternative approach to integrate the Sixth AP Fund into the buffer fund system in a more appropriate manner,” it concluded.

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