CONTROL FUNCTIONS
Governance & Control
The auditors in AP6 are appointed by the government. The auditors’ tasks include reviewing the current operations, management, the annual accounts and the annual report. In addition to the board’s own evaluation, the Ministry of Finance, on behalf of the government, carries out an annual evaluation of AP6’s operations. The evaluation examines goal fulfillment and includes sustainability work. Internal control is a central part of a well-functioning and efficient business. The board is responsible for the internal control.
The Board’s duties
The Board has ultimate responsibility for AP6’s operations and the Board’s work is governed by the Sixth Swedish National Pension Fund Act (2000:193). Within the framework of what is beneficial for the income-based pension system, AP6 is to manage funds entrusted to it by investing in the private equity market. The law states that the Board is to establish targets for the Fund’s investment activities. A Code of conduct is to provide the basis for these activities, and guidelines are to set to define investments that are to be excluded. Work procedures for the Board are established annually. The Board appoints the Managing Director who is responsible for the day-to-day management of AP6. The
division of roles between the Board and the Managing
Director is set out in the Board’s work procedures and
in instructions for the Managing Director.
The Board’s main duties are to establish the strategy for AP6, and to ensure that the Fund has effective leadership and that the accounting procedures, administration and the Fund’s financial situation in general are monitored and verified in a satisfactory manner. The Board establishes both return targets and sustainability targets for the organisation. It also monitors and evaluates the Fund’s activities to ensure that they are aligned with the goals and policies established by the Board. The Board is responsible for overall risk management and compliance. Incident reports as well as reports on material ESG events are presented at each ordinary board meeting. The Annual Report is adopted by the Board and signed by the Board and the Managing Director. The Board also signs the Sustainability Report. The Board has appointed three preparatory committees: the Risk and Audit Committee, the Sustainability Committee and the Remuneration Committee.
Internal control
Internal control is a key aspect of a well-functioning and effective organisation. The Board is responsible for internal control. The Managing Director assists the Board and, if needed, an internal auditor may examine any specific areas identified by the Board for additional scrutiny. As AP6 has relatively few employees and there is no separate internal audit unit, external consultants are engaged to provide this
expertise. The risks identified in the internal audit or in ongoing internal control processes are managed by initiating necessary activities in the process flow. The activities that are initiated or changed mainly relate to decision structures, authority and division of responsibilities, processes, control functions/duality and documentation. The Fund’s governance is summarised in governing documents, including policies, which are established by the Board of Directors, as well as in guidelines and instructions decided on by the Managing Director.
Process descriptions and system support are also in place to facilitate the practical management of day-to-day activities. Financial institutions are subject to rules issued by Finansinspektionen (FI) – Sweden’s financial supervisory authority – which include requirements with respect to compliance and risk. AP6’s activities are not under the supervision of FI. Considering the nature of AP6’s activities and that it is a relatively small organisation, these functions are divided between different units within the organisation. The compliance function is shared between AP6’s Chief Legal Officer (regulatory) and the CFO (financial reporting). The risk management function is carried out by a risk controller who reports on an ongoing basis to the Managing Director, CFO and the Risk and Audit Committee. In some cases the CEO is the risk function. If necessary, AP6 will seek assistance from external consultants on matters related to risk management. AP6 also has an external, anonymous whistleblower system that is available to all employees. Risk management is also integrated into ongoing investment activities.
2023
The Board’s evaluation
The Sixth Swedish National Pension Fund Act (2000:193) prescribes that the Board is to carry out an annual evaluation of how the Fund’s assets are managed, i.e. a performance evaluation. The evaluation report is provided to the Government at the same time as the Annual Report and Audit Report are submitted.
Audit
AP6’s auditors are appointed by the Government. The auditors’ assignment includes examining operating activities, administration, the year-end accounts and the Annual Report.
The auditors express their opinion on accounting documents and administration of the organisation based on their audit. Their assignment also includes reviewing whether AP6 follows generally accepted accounting and valuation principles and that the accounting documents prepared provide a true and fair representation of the Fund’s operation.
The auditors have also reviewed AP6’s general IT controls.
In addition to the auditors’ audit assignment, since AP6 has voluntarily chosen to prepare a sustainability report in accordance with the Annual Accounts Act, the auditors also state whether or not a sustainability report has been prepared. The auditors provide an audit report on their review and report directly to the Board at least once a year. They also provide a written report on the administration and accounting audit at which point the Board is given an opportunity to ask questions of the auditors without executive management being present. The auditors’ also provide a verbal report to the Ministry of Finance once a year.
The Government’s evaluation
In addition to the Board’s evaluation, the Ministry
of Finance, at the request of the Government, carries out an annual evaluation of AP6’s activities. This evaluation reviews performance in relation to targets and also examines sustainability efforts. An evaluation is made of all the AP funds with assistance from external consultants. The written evaluation report is presented to Sweden’s Riksdag (parliament) and it will be published when the Government adopts the AP funds’ income statements and balance sheets
for the previous year.
Return target
The return target is based on Burgiss, a market leading actor to provide data for unlisted investments.
AP6’s return target consists of:
- 90 percent of return target for the unlisted portfolio, over the last five-year period (Burgiss)
- 10 percent of return target for liquidity management (OMRX T-Bill)
Data from Burgiss is based on GP’s reporting to LP’s. At year-end 2023 around 13,500 unlisted funds with around USD 11,000 billion in market value were included in the data. AP6 has neither inflows nor outflows as the fund is closed. A liquidity buffer is required in order to continuously meet investment commitments, which may vary over time. AP6’s net return is adjusted for these conditions to obtain a fair comparison. The extent of necessary liquidity is estimated to amount to approximately 10 percent of the fund’s capital. The return target for this liquidity is OMRX T-Bill which is the internal target for AP6’s liquidity management.
Risk management
The risks in a portfolio consisting of unlisted holdings are different from those associated with listed holdings. AP6’s risk management takes place in several steps and uses models and assessment templates adapted for private equity. Risks are identified and assessed annually at an overall level. Results of the assessment are compiled to create a risk profile. Essentially all types of investment activity involve risk-taking. AP6 believes that risks associated with investment decisions must be carefully considered, manageable and possible to monitor. It is
important for AP6’s risk profile to be the result of well-informed decisions. Risk analysis
identifies the likelihood of both strategic and operational risk. This includes quantifying
the costs if a risk materialises. Operational risk is managed by having a professional
organisation, an effective decision structure and adequate support for measurement and
control systems.
