Part of the state pension system
The five AP funds (AP1-4 and AP6) are typically referred to as buffer capital and they account for approximately 10-15 percent of the pension system. Balance sheet ratios are updated each year, showing the relationship between the pensions system’s assets and liabilities. Since 2009, payments to current pensioners have been larger than the contributions paid in by employers and individuals who are self-employed. Funds are thus withdrawn each year from the AP1-4 funds to cover the payments to current pensioners. AP1-4 are equal in size. They also have the same investment rules, where investments are diversified over a wide range of asset categories. Each of these funds has both inflows and outflows to the pension system. AP6, however, is a closed fund, which means without any inflows or outflows of capital linked to the rest of the pension system.
Specialized in unlisted assets
Unlike the other AP funds, AP6 is entirely focused on investing in unlisted assets, which is different from investing in listed companies that are traded on the stock market. For those, you can literally buy and sell shares with the click of a button, via your bank, stock broker or online. The corresponding process for unlisted companies takes much longer and it requires a great deal of skill and experience. The investor role in unlisted companies requires a long time horizon, a shared understanding among owners and access to capital for making necessary investments to develop the company.
AP6 invests directly and indirectly in unlisted companies
AP6 invests in unlisted companies in two ways. Direct Investments are made by purchasing shares in an unlisted company. Indirect investments are made by investing in a fund, and then having the fund invest in unlisted companies. In the first example, AP6 obtains direct ownership in the company. In the second, it obtains indirect ownership.
Network and expertise help lower the costs
Investments in unlisted companies are time-consuming and they require special expertise in the various forms of transactions that are involved. AP6 has been involved in making unlisted investments for more than 20 years. During this time, the organization has built up an extensive network along with vast expertise and experience. This has enabled AP6 to participate in many types of investments, including co-investments and secondary transactions. Co-investments are an attractive way of investing because the costs are lower compared to indirect investments. Because of that, it lowers the average management costs for investing activities.
AP6 is a closed fund, which means without any inflows or outflows of capital linked to the rest of the pension system. At its inception in 1996, AP6 received SEK 10.4 billion. AP6 covers its own costs and the earnings from investments are reinvested on a continuous basis. At year-end 2018, the original capital had grown to SEK 34.7 billion.
Sustainability is an integral part of investing activities and value creation. Sustainability is always part of the supporting documentation presented to the Investment Committee and Board of Directors prior to decision-making. AP6 puts requirements on both governing documents and processes. The tools and methods for direct investments and fund investments differ, but for the entire portfolio the same focus is applied, with requirements on continual development and improvement. AP6 has established long-term goals for sustainability efforts for both direct investments and fund investments.
Each year a climate analysis is carried out on the holdings in the portfolio.