The premium pension is to change from having a large fund square with over 500 funds to around 200 to 250, procured funds. There is no doubt that it is a big deal for the fund companies, but the question is what kind of consequences it might have in general.
It will to be around 30 different categories that are procured for the new fund square (today there are 33 including the state preselection AP7). Who all these will be has not yet been announced, but the procurement for actively managed Nordic funds with large and medium-sized companies and small companies, respectively, will be announced next. Previously, the Nordics constituted a fund category.
Part of the the procurements have started and decisions on allocation have been made in the category “actively managed European equity funds with a focus on investments in large and or medium-sized companies”.
The procurements ongoing now are the categories that hold passively managed global and European funds. Of course, large outflows are always difficult for a manager to manage, but these funds are very likely not the ones that will be hit the hardest when the PPM supply shrinks.
The consequences for individual funds, and the unit owners who remain, of being excluded from the Premiepensionen’s fund market depends on how large a proportion of the managed capital comes from the PPM system and on what type of fund it is. The more liquid assets, the less potential impact on other shareholders.
The fund savers who are left behind are the ones who have to foot the bill. A fund manager manages inflows and outflows by buying and selling shares and this in turn causes costs to affect the existing unit owners. It can be brokerage and spreads between buying and selling rates, for example.
About a share has poor liquidity – and if a large number is to be sold in the market – it can create selling pressure on the price, not only at the time of sale itself, but also before, as potential buyers can take advantage of the situation to buy at a lower price.
Thus it seems Swedish small company funds and corporate bond funds are the ones that can be affected the most – given that they are large in PPM, that is. That way, corporate bond funds probably won’t be as affected, as few of them have a significant stake in PPM as Placera may experience.
Rather will it will probably be small company funds whose exclusion will mean the more complicated processes – and the greatest risk of it affecting other shareholders and affecting individual share prices.
It is the fund company who is responsible for ensuring that it turns out well for all shareholders in the fund.
“In the simplest ones in these cases, we just place a sell order and receive money according to the normal trading cycle,” says Erik Fransson, head of office at the Stock Market Board.
Erik Fransson
“Then it can be such that in some cases we are a fairly large customer of the fund company and then we may think that there are alternative solutions than selling everything on one board. We can be flexible and, for example, split sales orders into several smaller parts.”
The implementation itself of the sale is carried out by the Swedish Pensions Agency’s fund trading unit. They are also the ones who will have the dialogue with the fund companies about how the sales should take place.
Erik Fransson do not believe that the switch to a smaller number of procured funds will have particularly large effects on the market.
“You should remember that what is sold must also stay in the same market.”
But don’t you think that there could be a certain type of stocks and bonds that are sold and then not bought to such an extent if only the best quality funds remain in the system?
“There it is again the fund managers, who must make an assessment of how to do it in the best possible way. It is their responsibility to have a fund that is sufficiently liquid, and if you are unable to execute a fund order, it is the responsibility of the fund company to make this clear and we will see what we can do from our side.”
It is not the first time a large number of funds will disappear from PPM’s fund market. In stage 1, around 300 funds were liquidated whose PPM capital was transferred to AP7 Såfa.
“Then we had certain processes that went on for several months,” says Erik Fransson.
“So there is a habit of dealing with this. It’s nothing new then, we previously canceled funds that had billions in the system. It is also something that happens all the time in the market when large insurance platforms reallocate capital.”
Place thinks generally, as a fund saver, you should be careful with Swedish small company funds that are too large.
Fondtorgnämnden cannot answer if there will be approximately the same number of funds in each category. Should there be as many as the category that has already been procured, there will be around six small company funds left – this should be compared to the current 14 whose combined value amounted to close to SEK 38 billion at the turn of the year – and that is only the PPM capital.
But then shall it is added that 90 percent of the PPM money is still with the six largest funds in the current situation.
*AUM as of 31 December 2023
“For us shopis about finding a balance between the legal requirements in order to achieve the best possible compromise in each individual category,” says Viktor Ström, communications manager at the Stock Exchange Board.
Viktor Strom
“A bit simplified can be seen as that fewer funds in a category generally provide a lower price, higher quality and increased controllability, while more funds provide increased freedom of choice and better capacity.”
Small company funds which have grown and become very large tend to invest in larger and more liquid companies, which means that you may not get the exposure to smaller companies that you intended. It could thus raise the question of whether it is at all reasonable to have a Swedish small company fund in one’s PPM savings.
How will the capital from excluded funds, whose savers do not actively choose new funds, be distributed?
“It will to be an even distribution among the procured funds,” says Erik Fransson.
How much does return history matter?
“Very little, we do not start from top lists. However, we use the history to see how the manager manages the portfolio and if the manager actually creates added value or is just in a sector with a higher risk premium. We recognize that even the best manager will not always deliver excess returns.”
Between the procurement opportunities will last a maximum of twelve years, but the first contract period is six with an option to extend.
“We have a review responsibility after the procurement is complete, so we will continuously review the funds and ensure that the quality is equally high throughout the contract period.”
