Aiming to establish Sweden’s best fund selection team
Several changes are underway at the Swedish premium pension scheme, including plans of potentially starting to select funds rather than having an open architect structure. Nordic Fund Selection Journal speaks with Christian Lundström, head of fund selection and compliance unit at the Pensions Agency, to learn more.
In his new role as head of fund selection and compliance unit at Pensionsmyndigheten, the Swedish Pensions Agency, Christian Lundström has ambitious plans and wants the team to become recognised as the best fund selection team in the country. In addition to the tougher demands on funds listed on the premium pension platform announced this summer, there are also plans under investigation to only include a smaller number of selected funds, which should give the fund selection team a more prominent position.
”Our ambition is to build the best fund selection team in Sweden and considering that we have the biggest platform, I don’t see why we shouldn’t reach that. Especially as the second step of the changes to the system gets implemented,” says Christian Lundström, referring to the proposal under review about selecting funds rather than having an open platform.
With some SEK 1200 billion (EUR 116 billion) in assets, the Swedish premium pension scheme is one of the biggest fund platforms in the world. It currently holds some 820 funds from 100 fund companies. This is, however, about to change. In order to stay on the platform, all fund companies will need to re-apply and comply with a new agreement. After the new requirements come into force, such as a minimum of SEK 500 million in investments in each fund from investors outside of the premium pension platform and a minimum of three years of relevant and representative track record for each fund, the Pensions Agency estimates that there will be some 500 funds left.
“There is a big interest in the upcoming changes, which is natural given our size and growth,” says Christian Lundström, who was appointed to the role in May and previously worked as a fund analyst at the insurance company Folksam and as a fund-of-fund manager at Carnegie Investment Bank. The new unit, which will be responsible for reviewing all the applications that are expected to come later this year, currently have eight members of staff but the team will be temporarily expanded to close to 20 before the end of the year until the bulk of the applications are reviewed and managed.
With the new agreement in place, the relationship between the Pensions Agency and fund companies will also become clearer. “The old cooperation agreement made it difficult for us to put demands on fund companies and that is now changing,” Christian Lundström says.
The selection and compliance unit is currently fully focused on the new regulation and making sure it can handle the applications that are expected to arrive later this year. There is, however, a step two on the cards, which could see the current open platform being transformed into a procured system where funds on the platform would be selected following a tender process. Mikael Westberg, head of legal at the Pension Agency, has been appointed to review the second step and will come with a proposal by November 2019. The ambition is that a new system for the premium pension savings should be in place in 2020.
Apart from reviewing applications in the first step of the transformation of the premium pension scheme, Christian Lundström’s unit will also be responsible for the ongoing monitoring of the funds on the platform. “We will have both quantitative tools that will help us monitor all funds but we will also have thematic reviews and we hope that the industry will work with us on this,” he says.
He adds that the Pensions Agency aims to be as open and transparent as possible towards the industry. “We want to help the industry,” he says. “We’re asking for a lot of information in the new applications and we want to make sure that the industry understands what they need to do. Our aim is to do the best job possible for individual pension savers and at the same time, not make it too difficult for the industry. It wouldn’t be good for savers if all funds disappear because the requirements are too tough.”
A big change in this first step is the introduction of new sustainability requirements. All fund companies must be signatories to the PRI but the Pensions Agency will also introduce a new system to highlight funds that are deemed to be sustainable. For this, it will use the help by an external partner that will be procured in the near future.
When asked about the most fun part of the new job so far, Christian Lundström highlights the fact that it is a dynamic working place with a lot of interesting people. “I think everyone feels that we’re part of something historic and that we’re doing something good for society. If we’re able to lower the cost and/or improve the performance of the funds in the system, it will mean a lot of money for a lot of people,” he says.
// Changes to the premium pensions fund platform
At the end of May, the Swedish Parliament decided to introduce legislative changes to establish a safe and sustainable premium pension scheme. The new rules mean that all funds on the platform need to re-apply and must meet the new requirements for inclusion. The first step in this process took place at the beginning of June when the Pensions Agency sent out notices of termination of all existing cooperation agreements. Some of the new requirements are:
- A minimum of SEK 500 million in investments in each fund from investors outside of the premium pension platform
- A minimum of three years of relevant and representative track record for each fund
- A minimum of three years of relevant fund management activity by the fund and investment manager
- New minimum requirement for sustainability in the management of the funds
- Acceptance of a new code of conduct, assessing suitability for the premium pension platform
- Ongoing monitoring and reporting
The last day for application to ensure a seamless transition from the current agreement to new fund agreement is December 28. Funds that have not submitted an application by the last application date will be deregistered. A fund, whose application has been rejected, will also be deregistered.