Harry Flam, who was a director at AP 1 from 2001 to 2006, also wants the funds to switch to 100 per cent passive management and to stop investing in the Swedish equity market, which he believes is too expensive and too susceptible to political interference.

“Merging the AP funds will save SKr1bn a year,” says Mr Flam in a discussion paper. “And moving to passive management would save a further SKr1bn. It is now clear that in 2001 when the number of buffer funds was decided upon, it was done so under false pretences and that the funds have opted for a costly management model that hasn’t yielded any significant returns – the system needs to be reformed”.

Mr Flam’s criticism coincides with the release of the government’s annual report on the AP funds. The report found that the funds’ returns over the last five years have been satisfactory and competitive, although the management costs for some of the funds needed to be looked into.

Hans Lindberg, chief strategy officer at AP 3, rejects Mr Flam’s assertions. He told nrpn: “Criticism of active management is based on an old-fashioned view of economics. Yes, merging the AP funds would definitely save on administrative costs, but it would create other problems.”

The current system was set up in order to avoid the dominance of any one fund so that the funds could invest without significantly affecting the Swedish market.

”Competition among the funds is a good thing,” adds William af Sandeberg, managing director at AP 1. “The AP funds have a good and comprehensible mandate. Not everyone can beat the index, but sophisticated managers can. With the right competencies and experience, active management can generate better returns.”

The government’s AP funds report, based on findings from Wassum Consulting, concludes that although significant resources have been put into active management, it has not necessarily yielded better returns. While AP 1 and AP 3 have beaten their comparative indexes in the five-year period, AP 2 and AP 4 have underperformed.

“The evaluation has not been able to conclude with any certainty that the funds’ style of active management after costs has contributed positively to performance from 2002 to 2006. But this doesn’t mean that one or two of the funds hadn’t succeeded,” Mats Odell, Minister for local government and financial markets, told nrpn.

The AP funds averaged returns of 7.4 per cent a year during 2002 and 2006. The report has now been handed over to parliament.

CL

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