Sweden’s SEK1trn (€113bn) AP Fund system could pool all of its unlisted investments into a single vehicle, a government minister in charge of its overhaul has suggested.

Erik Thedéen, state secretary in the country’s Ministry of Finance, said the proposed abolition of two of the five existing funds in the wake of 2012’s Buffer Fund Inquiry could either see three funds with identical investment approaches established, or the launch of a fund targeting “costly” investments such as real estate and infrastructure.

Discussing the cross-party Pensionsgruppen’s proposals, Thedéen said: “When it comes to how we would organise the costly investments, if you like, and namely the unlisted [assets] or infrastructure, then this proposal opens up for two solutions.

“One is to have three exactly similar funds that could organise the cost investments between them. They could own a joint vehicle for taking care of the cost of investment.”

The minister cited the AP Funds’ joint ownership of SEK87bn property firm Vasakronan as an example, albeit an imperfect one, of how such an approach could be structured.

“The other alternative is two of the funds have exactly the same mandate – they cannot invest in things other than listed equity and bonds,” he said. “And the third fund should be devoted to the costly investments – infrastructure, real estate, private equity – and direct investment in companies.”

Thedéen said the system’s current exposure to real assets – which, in the case of AP2, includes stakes in farmland, as well as real estate across the four main buffer funds – was an “anomaly”, as the current quantitative investment guidelines were prescriptive when it came to minimum weightings for unlisted, listed and fixed income holdings, but not real estate.

“Generally speaking, compared with some other funds, they have a lot in listed equity and a lot in high-liquidity bonds. That’s why I think we will have more of a shift to less liquid assets,” he said.

The current AP system, which consists of AP1 to AP4 and AP6, sees the first four oversee a diversified portfolio consisting of real estate, equity, fixed income and alternatives, while AP6 exclusively invests in unlisted companies in Sweden and the greater Nordic region.

Thedéen has previously said that it was important for the reformed system to have sufficient room for manoeuvre, and not be restricted by a new reference portfolio, planned as a performance benchmark for the reformed system.