Restructuring Sweden’s AP Funds for Scale and Global Impact

This article summarizes the findings of a recent report commissioned by the Expert Group for Studies in Public Economics, a standing committee of the Swedish Ministry of Finance. The report makes the case that significant efficiency gains are possible through improving the management of the buffer capital in the Swedish public pension system. The current ten year old structure was based on the assumption that competition between the four AP Funds would produce such efficiency gains. However, the anticipated gains have not been realized, most likely due to agency costs. The report proposes improvements in three main areas: governance structure, investment rules, and the creation of greater economies of scale. Its recommendations have provoked an intense debate on how Swedish national pension reserves should be managed in the future.