The questions:

1. The traffic light supervisory system. How has its adoption affected your fund?
   
   
2. What challenges are you currently facing in trying to generate sufficient returns for your fund members?
   
   
3. Are there any particular asset classes that you do not invest in but find interesting?
   
   
4. Are you looking to allocate more of your assets overseas. If so, why, and in what particular asset classes?
   
   
5. The Goldman Sachs Commodity Index has jumped up by almost 11 per cent over the last two months and by 80 per cent over the last three years. Many pension funds across Europe are making their first allocations into the asset class. Are commodities something you are considering?
   
   
6. Do you find consultants useful and in which areas of investments do you / would you consider using them?

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Gunnar Andersson,
managing director,
KP Pension and Försäkring

1. We are very confident with our financial situation and the traffic light supervisory system has confirmed that view. However, the new system has also given us an opportunity to investigate our risk situation more. As a consequence we have turned more to fixed income investments with longer duration than we used to.
   
   
2. One of our main concerns is interest rates. With an inflation rate of approximately 1 per cent and guarantees of approximately 3 per cent, we are facing a situation where yields cannot be expected to reach the same levels as before. We can also look forward to a situation in which we have to invest an even larger part of our assets in fixed income, which will also give rise to lower yields in the long run.
   
   
3. No, given the constraints of our financial situation we always try to maximise the yield of the portfolio and therefore already use all the asset classes that we find interesting.
   
   
4. No, we are active overseas investors and have no intention to take our allocation in that field any further. In 2005 9.59 per cent of our total portfolio was invested in foreign equities.
   
   
5. No, commodity investments are not a part of our risk profile.
   
   
6. Yes, we use consultants in some areas, especially for advice on more technical matters in which we do not have in-house knowledge. We also seek the advice and help of consultants regarding analysis of different investment opportunities.

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Gunnar Balsvik,
president,
Kåpan Pensioner

1. Since the traffic light supervisory system was launched in January this year we have adopted a slightly longer bond duration and shifted some of our equity exposure to equity calls. Instead of direct holdings we also use some swaptions.
   
   
2. Many see the recent correction in the price of equities as a negative development. But we do not think this is a major problem. Regardless of the recent volatility, equities will generate healthy returns in the future. Fundamentals in the field have remained good, and overall global growth rates seem very positive.
   
   
3. We have considered private equity but decided not to invest in it. Private equity is a tricky asset class. Investor must know the field well and for a small player like us getting access to the best funds and finding talent is demanding. Furthermore there seems to be too much capital in the sector. Our preferred investment routes at the moment are equity calls and low-fee structures instead of high-fee options.
   
   
4. We have no plans to change our geographic allocation in the near future. Approximately 50 per cent of our equity investments are foreign.We have overexposure to emerging markets and underexposure to the US. There is more interesting growth potential in the emerging markets. The US markets, on the other hand, are very dependent on the local economy.
   
   
5. We are considering investing in commodities but have not made any concrete decision yet. We are not sure which way is best to invest in the asset class: directly or through equities that have underlying commodity exposure. It seems that the more interesting way to take commodity exposure is through the equity route, which involves less volatility.
   
   
6. We do not use consultants at all as we have not seen any need for them. We have internal expertise in a variety of issues and prefer to do, for example, manager selection independently

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Jack Junel,
managing director,
Försäkringsbranschens Pensionskassa

1. So far the adoption of the traffic light supervisory system has not affected our fund much. We are comfortably in the green light area. We try to do our strategic asset allocation based on our own goals rather than the traffic light system, which we use as a check.
   
   
2. For a long time we have gained from falling interest rates and have consequently had good returns from investments in long bonds. Now we foresee a different pattern. Investing in long bonds at low rates with the risk of rising interest rates is not particularly attractive. Good alternatives are hard to find. We will probably diversify into more complex asset classes like structured products and hedge funds.
   
   
3. Certainly, we find hedge funds and structured products interesting. The possibility to generate reasonable returns at low risk by combining different hedge fund strategies is one of the alternatives we are looking at.
   
   
4. At present we have 17 per cent of our assets invested outside Sweden and feel content with that for the time being. Evidence shows that there is a lot of correlation between different geographic regions and so we prefer to diversify in other ways.
   
   
5. No, we have other preferences than commodities. We prefer to look at more traditional asset classes and financial products that are based on them. Commodities are not an area where we feel at home.
   
   
6. Yes, we gladly use consultants when choosing fund managers. When we enter into the hedge fund industry we will certainly use a consultant to guide us. We do not have any research capacity and need the knowledge of consultants to follow managers daily.

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Tomas Lindstrand,
CEO,
PP Pension

1. We are matching liabilities better than before. We have built an additional system to keep the red light at bay by hedging our equity portfolio and buying swaps to prolong our bond duration. If we find out that we are getting close to a red light situation we will hedge our entire portfolio. But if we discover that we have a comfortable solvency margin we will scale that back and take more risks.
   
   
2. The challenge is to avoid long money when prolonging the bond when the interest rates are going up. Equity and property prices have gone up a lot in the last years. We hedge our equities, reduce our exposure to property and move to hedge funds and maybe also private equity.
   
   
3. As mentioned above, we are observing the development of hedge funds, private equity and currency markets. We are interested in all of these asset classes as a means to diversify our portfolio, which at the moment does not include any alternative assets.
   
   
4. We are not planning to increase our foreign exposure in the near future because it is already notable. At present 85 per cent of our equity portfolio is invested outside Sweden. Approximately 6 per cent of our equity holdings are in the emerging markets
   area.
   
   
5. We are not considering investing in commodities at least for the coming two to three years. This is because the development of commodity prices has been fast and has involved a lot of volatility. Good past performance also keeps us away from the asset class for the moment.
   
   
6. We find consultants useful and use them in searching and selecting investment funds mainly on the equities side. For ALM studies e use the services of investment banks.