Swedish buffer funds face tougher governance requirements on illiquid investments
Sweden’s minister for financial markets explains the reforms which his government is planning on pursuing to the way the country’s pension funds invest in illiquid assets (Reuters/Marie Mannes/File Photo)
Niklas Wykman, Sweden’s minister for financial markets, says the government will pursue further reforms governing how AP funds invest in illiquid assets, while also announcing changes to the funds’ boards aimed at strengthening expertise.
Alongside governance changes, Wykman says the government will also look at how success of the buffer fund system is measured, following this year's consolidation of fund assets into the $50bn AP2 (Andra AP-fonden), the $61bn AP3 (Tredje AP-fonden) and the $61bn AP4 (Fjärde AP-fonden).
"We have to do what is right in the long term and which, in different contexts, protects public finances, taxpayers' money and, in this case, not least the money of pensioners, which ultimately matters when it comes to our pension system," Wykman explains.
Illiquid asset management has been a particular concern for the government, following AP funds' failed $620mn investment in battery maker Northvolt, which filed for bankruptcy in early 2025. This was overseen by 4 to 1 Investments, an investment company that was jointly owned by the first four AP funds (AP1, AP2, AP3 and AP4).
Wykman says consultancy Arkwright, which was commissioned to review the funds' illiquid investments, found "inadequate governance" in the ownership of unlisted assets. He adds that it appears "there was a great deal missing around [the Northvolt] investment [for it] to be considered good".
Funds were given greater leeway to invest in unlisted assets from 2019, when it was decided that the AP1-4 buffer funds could hold up to 40 per cent of their total assets in illiquid investments. Since then, assets held in illiquid investments in the system rose to $53bn in 2025 from $32bn.
“It may seem strange that there have been no statutory competence requirements on boards, not least in the area of asset management. And such rules are now in place”
However, "complementary reforms" are needed to facilitate the expansion of illiquid investments, Wykman says.
"It's a different kind of skill and ability required to [manage illiquids]," he says. While information around public markets is available widely in the business press, illiquid markets lack access to widely reported information, requiring "other types of competency requirements or [an] ability to comply with this", he adds.
Stronger fund management boards
Measures to strengthen the funds' exposure to illiquid assets include examining the regulatory framework for venture capital investments and the structures through which AP funds collectively own these assets.
Currently, AP funds must hold illiquid assets through investment companies as regulations prohibit direct ownership. Those restrictions do not apply to real estate.
But the government has also strengthened the competency requirements for members appointed to the buffer funds' boards to ensure they have appropriate expertise in asset management.
"It may seem strange that there have been no statutory competence requirements on boards, not least in the area of asset management. And such rules are now in place," Wykman says.
Niklas Johansson has been appointed by the government to head up AP2, while Magdalena Wahlqvist Alveskog has been named as chair of AP3, and Hans Lindberg as chair of AP7.
Wahlqvist Alveskog previously served as chief executive of Handelsbanken Fonder within the Handelsbanken Group.
"We can state that, with the new chairs elected, there is no chair left who was involved when we took these decisions on [4 to 1 Investments]," Wykman says.
He adds that AP funds should be able to take on illiquid investments, especially as public markets have waned in importance relative to a larger universe of opportunities in private markets.
If funds could only make listed investments they would be consigned to a shrinking market, "which would probably not be the best way to use [pension system] money", he says.
But he adds that "it has been our judgment that the regulatory framework needs to be reviewed and clarified" over the ownership of illiquid assets.
Measuring success after consolidation
The government will also review the process for evaluating the success of the buffer funds following consolidation of fund assets.
At the beginning of 2026, funds from the private equity-focused AP6 were subsumed into the Gothenburg-based AP2, while AP1's assets were split up between Stockholm-based AP3 and AP4.
Wykman says the pension system's consolidation needs to be compared alongside other international systems to ensure funds are operating at an appropriate scale.
He says: "Fund management requires skills that cost money, and if you take an international look, you can see that the Swedish AP funds are relatively small."
He explains that once the AP funds 1-4 were allowed to increase their exposure to illiquid assets, AP6's special mission to invest in private equity and early venture capital had become less significant. But consolidation will also make it easier for the government to regulate fewer large funds.
Solid fund performance
AP funds met their return expectations last year. The buffer fund system gained $13bn after costs in 2025, a 6.2 per cent return, with total assets at the end of 2025 standing at $230bn.
The government says the performance reflected strong stock market gains and was marginally higher than the average annual returns of 6 per cent since the modern buffer fund system was introduced in 2001.
AP funds also met their long-term return targets and supported the wider pensions system with a $2bn asset transfer last year, around $1bn higher than the transfer made in 2024.