The Swedish government has highlighted governance shortcomings in the AP funds’ approach to illiquid investments following an external review, with further regulatory changes now under consideration.

The findings formed part of an annual evaluation of the AP funds, alongside a supplementary review examining their expanded mandate to invest in unlisted assets.

The government is expected to submit its conclusions to the Riksdag before the summer.

Swedish government minister for financial markets, Niklas Wykman, said the review would inform ongoing work to strengthen oversight of the AP fund system.

External evaluator, Mats Langensjö, noted that the AP funds had delivered strong long-term performance, with total buffer fund assets reaching SEK 2.2trn - around four times their level in 2001 - and described them as well-run investment organisations overall.

However, he warned that the funds had not built the organisational capacity required for the broader investment freedoms introduced in 2019, adding that they had been “reactive” in adapting to the new framework.

The review raised particular concerns about governance in illiquid investments, citing the structure of 4 to 1 Investments, which was used to facilitate investment in Northvolt.

Langensjö claimed the AP funds’ boards had failed to establish minimum governance and operational requirements for such structures, including independent organisations, portfolio approaches and clear capital frameworks.

He said the arrangement blurred responsibilities, with the AP funds effectively retaining control over investment decisions despite operating through a separate vehicle.

The report also pointed to the broader market context at the time, including regulatory changes, sustainability-driven investment demand and a low-interest-rate environment, which together created “a perfect storm”.

Looking ahead, Langensjö urged the AP funds to continue investing in unlisted assets but only where governance, resources and expertise were strengthened in line with the complexity of those investments.

He also stressed that boards must ensure robust governance frameworks are in place and be willing to reject investment opportunities where sufficient capacity is lacking.

Wykman confirmed that the government had already taken steps to strengthen the system, including consolidating the AP fund structure and introducing statutory competence requirements for board members.

He added that the review’s findings would now be assessed to determine whether further legislative or regulatory changes were needed, or whether action should be taken by the AP funds themselves.

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