SWEDEN - Swedish buffer fund AP3 is stepping up its efforts to persuade the Swedish government to lift restrictions on pension fund investments in infrastructure.
In the SEK224.9bn (€24bn) fund's annual report, CEO Kerstin Hessius claimed the scheme needed to become an "innovation leader". She cited the "rapidly increasing supply" of investment methods, instruments and new asset classes, and intensifying competition for prime investment opportunities.
"Our investment rules look increasingly outmoded," she said. "As such, they impede our ability to find new and improved investment alternatives. Seven years ago, the rules and regulations governing the AP funds were cutting edge; today they are outdated.
"The conclusion is that the boards of the AP funds need to be given greater freedom to exercise operational responsibility than they have at present."
The third of five buffer funds in Sweden's national pension system, AP3 concentrates its infrastructure portfolio in privately funded primary assets - such as schools, roads and hospitals - because these offer high, stable returns over a 30—40-year timeframe and better risk diversification than liquid assets.
However, rules set by Sweden's parliament limit the state's buffer funds' investments in illiquid assets. Swedish legislation categorises infrastructure as private equity, which carries a 5% maximum.
Alternative assets, including real estate and infrastructure, have returned SEK7.3bn since the fund was launched in 2001. Last year it diversified its real estate portfolio with investments in two European funds. It is currently scouting potential investments in Asia and North America, aimed at a target of 50% of its real estate portfolio overseas
"Reaching the target will take time - but we've made a start," said AP3 communications manager Christina Kusoffsky Hillesöy.
AP3's private equity portfolio has a target return of 15% and its target annual real estate allocation is 10%, compared with 4% inside the overall portfolio.
Kusoffsky Hillesöy declined to comment on the scheme's chances of raising the government's ceiling on infrastructure investment.
"We can't be as active in infrastructure as we'd like to," she said. "We said in our annual report last year that we hoped the government would look again at the current restrictions but the regulation is based on a five-party agreement and that isn't something that changes from one day to the next."