Buyer bias towards larger funds and managers away from newer boutiques could be one of the outcomes from an ongoing review of the PPM fund platform – Sweden’s largest – according to preliminary proposals handed to the Swedish government.
Swedish newspaper Svenska Dagbladet, for example, cites documents it has seen in which the Swedish Pensions Agency – operator of the platform on behalf of long term savers self-selecting funds into which a portion of their pension contributions are directed – proposes that funds only be allowed that have maintained a minimum of SEK100m in AUM over three years.
Funds would be required to have a minimum 36 months of return figures, and they would need to have a mark-to-market valuation of their assets. The funds would have to be available outside the PPM system, and would only be allowed to have half their AUM attributable to PPM inflows. Funds that are registered overseas but are only sold via PPM would be prohibited, and funds would be required to have a certain number of shareholders in the country in which they are registered.
According to the newspaper, the final list of changes is meant to be put before the government by June at the latest.
The points it cites regarding overseas registered funds are particularly relevant. Last year the Agency expelled three subfunds to the Falcon Funds Sicav Plc, which had attracted over SEK2bn (€209m) in PPM investments, and reported the matter to the Swedish Economic Crime Authority, because the funds were unable to pay back money to some 22,000 investors.
Because the manager and the funds were registered and authorised in Malta and passported into Sweden using EU law, there were limits to the investigation that could be carried out locally. However, in January 2017, the Malta Financial Services Authority appointed KPMG to take over control of the business and the fund assets. And on 2 March it was announced in The Hague that a so called Joint Investigation Team implementing formal cooperation between prosecutors in Malta and Sweden under EU law would pursue the case. The Swedish Economic Crime Authority then also received clear confirmation of an ongoing police investigation in Malta.
Other funds and providers that have been expelled from the PPM platform in the past six months include Allra (four funds) and Life Funds (two funds) on 16 March 2017; Fondeum Mixed Fund and GFG Global Medium Risk Fund were expelled on 22 December 2016. In all these cases the Agency has stated that the funds “are not suitable to be on the fund supermarket”.
These cases could yet end up with different outcomes from that applicable to Falcon Funds. On 23 March it was reported in Swedish newspaper Expressen that Allra is suing the Agency in Sweden’s Patent and Markets Court for ‘abuse of dominant position’. The agency has argued for the fund manager to repay some SEK16bn of assets to investors. Allra’s own website claims it has some 130,000 customers.
In its own analysis of the measures required to protect investors using PPM, Morningstar Sweden published a strongly-worded note from its chief analyst Jonas Lindmark on 23 March, arguing that Sweden needs to give regulatory authority over PPM the same sort of powers that Säpo, the Swedish Security Service, enjoys; for example, the relevant authority should exist to refuse both a fund and manager entry to the PPM platform without the need for further discussion, in the same way that the Security Service can refuse entry to the country without having to explain why. (http://www.morningstar.se/Articles/Chronicle.aspx?title=ge-ppm-samma-makt-sapo-skydda )
“The Swedish people’s need for safe pensions savings sits ahead of the finance industry’s interest in making money,” Lindmark wrote.
The cases outlined add to a list of ongoing challenges that have faced the PPM platform and its operator in recent years.
Proposals put forward last year, 2016, around redefining active choice was seen as a threat that could switch some €40bn of PPM savings into a default fund, the Swedish Investment Fund Association (Sifa) then warned (http://www.investmenteurope.net/regions/fund-could-harvest-380bn-ppm-assets/ )
In 2013, a report commissioned by Sweden’s ministries of Finance and Health and Social Affairs, addressing the first 18 years of operations of PPM, suggested that there should be a reduction in the number of funds available (http://www.investmenteurope.net/regions/swedendenmarkfinlandnorway/sweden-considers-limiting-fund-choices-on-ppm-platform/ )
In 2012, research by Sifa found that 90% of Swedes had insufficient knowledge about the rebates system in effect on funds listed on the PPM platform (http://www.investmenteurope.net/regions/swedendenmarkfinlandnorway/swedish-investors-fail-to-pick-up-sek2bn-in-rebates/ )
And in 2011, the Swedish government had to address the issue of robotic mass switching being pursued by intermediaries on the platform. While it did not change the law, it effected changes via the platform operator, the Swedish Pensions Agency (http://www.investmenteurope.net/regions/swedendenmarkfinlandnorway/no-change-in-law-on-funds-switching-in-swedish-pension-system/ )