SWEDEN Trends and Developments Contributed by: Björn Wendleby, Rico Benavides, Per Josephson and Stellan Koch, Harvest Advokatbyrå AB
FTN, a governmental agency, was established with the sole purpose of procuring and providing quality assurance for funds to be made available for active selection. The procedure comprises a range of procurements, somewhat mirroring the AUM allocation over different fund types. Ramp - ing up towards the end of 2024 and continuing into 2025, the authors see larger procurement classes being announced, among them actively managed global equity funds with a primary focus on investments in large and mid-cap companies (approximately SEK200 billion under management, with 14 funds to be procured) and actively managed Swedish equity funds with the same primary focus (approximately SEK96 bil - lion under management, with ten funds to be procured). Effects of procurement A tougher environment for smaller fund companies To qualify for the FTN procurements, there have been – among others – certain thresholds for fund company size. A highly discussed criterion has been the total AUM of SEK5 billion, effec - tively ruling out smaller fund companies. The frustration of the smaller fund companies camp has not been reduced by the majority of win - ning tenders to date being funds from larger fund companies, such as those associated with the larger Swedish banks. The ever-increasing costs and complexity of reg - ulatory requirements, in combination with los - ing out on FTN procurements, may give rise to the continued consolidation of the smaller fund company sector or a shift in business strategy towards new opportunities outside the premium pension system. It should be noted that even when a smaller- sized fund company successfully retains its
presence in the premium pension system, pro - curements give rise to downward price pressure on the management fees. Indeed, in procure - ment selection, the management fee is a factor later reflected in the distribution agreement with the Swedish Pension Agency ( Pensionsmyn - dighete n). Larger fund management companies having synergies on other fronts (eg, net interest synergies within bank groups) may even intensify the price competition, effectively coming down hard on the revenue of smaller-sized fund com - panies with high premium pension system expo - sure. Thus, it can be expected that the ability to refine offerings will be key for the players in the lower AUM segment; otherwise, consolidation trends may continue. Financial stability in relation to the shifting of procured funds within the premium pension system Concerning the funds currently available in the premium pension system that do not submit tenders or lose out in the procurement process, the Swedish Pension Agency (the registered unit holder for the premium pension) will have to redeem its units from losing funds, shifting the assets to procured funds. There is specu - lation on the effects this may have, where the regulator has taken the “one buyer but also one seller” approach, not factoring in that losing and winning funds may have different portfolio expo - sures within the procured sector. Others have raised the alarm regarding a possible temporary “hailstorm” in the market come “shifting day”. In terms of financial market stability, the Swed - ish Financial Supervisory Authority (SFSA) has strongly implied that fund companies losing out in the procurement process should main - tain close contact with the Swedish Pension Agency to discuss flexibility in the wind-down procedures.
441 CHAMBERS.COM
Powered by FlippingBook