Sweden’s $18B Asset Management Tender, and Why It Matters

Transparency, sustainability, and cost: these are among the most important requirements for a massive fund management tender currently under way in Sweden.

The Swedish state pension system last week launched a search for asset managers to take on approximately SEK54 billion ($5.2 billion) worth of mandates for European and global equity index tracking funds.

The search is overseen by Fondtorgsnämnden (FTN), the Swedish Fund Selection Agency. This agency is responsible for curating and regulating an investment fund platform that forms part of Sweden’s compulsory state pension system. Citizens contribute a percentage of their income and can choose what funds their money is invested in.

What is it looking for?

FTN is procuring only UCITS funds denominated in US dollars or Swedish krona. It is seeking to balance cost efficiency of the fund selection platform with quality, sustainability, freedom of choice for savers, and “controllability”.

Funds must comply with minimum sustainability standards, such as the exclusion of controversial weapons manufacturers and companies that violate international conventions. Index funds must track an approved index under the European Union’s Benchmarks Regulation.

In 2024, FTN will tender for an additional $13.3 billion worth of mandates, including for global bond funds, active Nordic equity funds, and passive and active Swedish equity funds.

Asset managers applying to the platform must pay a fee of SEK18,000 ($1,700) to cover FTN’s costs. They will also be charged a quarterly platform fee. This will range from 0.005% of the manager’s platform assets for funds “with low complexity”, FTN says, to 0.015% for funds with “normal complexity”.

Fees may be adjusted in future to ensure they cover FTN’s costs, while the agency is also subject to regular review to ensure it is operating efficiently.

How it works and why it matters

This is FTN’s second tender for new funds. In June, it opened up for active European equity funds with mandates worth an estimated $12 billion. This process closed in October and the approved managers will be revealed in the first quarter of 2024.

By 2025, it expects to tender for more than $100 billion worth of mandates, making it one of the most active allocators in the world over the next two years.

As well as the sheer size of the operation — the entire “premium pension system” is worth more than $190 billion — the mandates are significant because Sweden is overhauling its state pension fund platform in the wake of several controversies.

One example was a Malta-based fund series that attracted an estimated $230 million worth of investments, at least some which was through the Swedish state-run platform. The funds were later removed from the platform amid accusations of conflicts of interest and fraud.

This triggered a review of the system that was launched in 2017. The review recommended a new regulator be set up to approve and oversee fund options on the platform — this is FTN’s function.

It aims to increase the overall quality of investment options for Swedish citizens, which it hopes will lead to improved investment returns and better overall retirement outcomes.

The old platform had more than 800 fund options with a relatively low bar for asset managers wishing to participate in the system. The new-look platform, once the procurements are complete, is expected to be streamlined with higher standards for asset managers.

Alongside the fund platform, Sweden also has AP7, a giant default fund for savers who do not make an active choice. At the end of 2022 this had approximately $102 billion in assets under management.