AP7, the largest of Sweden’s national pension funds, is poised to upskill in preparation for investing in real estate and infrastructure now that the bill to expand its investment options has reached the final parliamentary stage.

Richard Gröttheim, chief executive officer of the SEK967bn (€93.4bn) pension fund, told IPE Real Assets: “We have a plan for getting ready to invest in new asset classes that we will implement during the next six months.

“It will involve some extra, but very interesting, work for the organisation,” he said.

As the provider of the Såfa default option within the premium pension system, AP7’s regulations are being changed as part of a broader reform of the premium pension system - Sweden’s first-pillar system of individual pension accounts.

The government finally submitted its bill on the AP7 changes to the Swedish parliament (Riksdag) in late July, tabling the motion for 26 September. That is the date when parliament officially re-opens following the 11 September general election in Sweden.

The essential elements of the bill are changes to AP7’s investment rules, expanding the opportunities to invest in illiquid assets, the introduction of a sustainability goal and clarification that AP7’s goal is the same as that of the premium pension system in general.

The latter point is spelled out by the government as a stipulation that the default option should be “a high-quality pension savings scheme that provides a secure pension” - meaning it should give a non-guaranteed return clearly higher than the change in the income index, and that in the payment phase, the return target should gradually become less important than predictable and stable payments.

“We need to build up a competence and resources for investing in real estate and infrastructure,” Gröttheim said.

“We also need to have the administrative infrastructure to be able to undertake those investments,” he added.

The new law is scheduled to come into force on 1 January 2023.

The AP7 CEO said the final shape of the proposal was very much in line with what the pension fund had been asking for.

“The main reason for why the new investment guidelines are good for our savers is the opportunity to diversify the portfolio further,” he said, adding: ”That will give us a better risk-adjusted return, and with the same return target you will have less volatility in the return going forward.”

“We are very happy that AP7 will be able to create an even better product for our savers with this proposal, and that we will be able to allocate more money to green investments in those new asset classes,” Gröttheim said.

The sustainability goal that AP7 is now getting requires the fund to be managed “in an exemplary manner” in that regard, according to wording of the proposal.

Financial Markets Minister Max Elger said when the bill was being finalised by the government in July that AP7’s new sustainability goal would contribute to the climate transition.

“The first to fourth AP funds, which now already have corresponding sustainability goals, have been pioneers in combining high returns with responsible investments,” Elger said.

AP7 is the odd one out among Sweden’s national AP pension funds because it is not a buffer for the income pension - the main element of the state pension alongside the smaller premium pension.

To read the latest edition of the latest IPE Real Assets magazine click here.