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Richard Gröttheim

“If anyone is still thinking about selling shares, it’s too late.”

Equity-based pensions are already a familiar concept to Swedes. In addition to having 16 percent of their gross salary paid into a pay-as-you-go system as is also standard in Germany, a further 2.5 percent is allocated to a capital markets product. This can be an investment fund from a private provider approved by the Swedish government. Yet if someone does not opt for one of these funds, their money is automatically placed in “AP7 Såfa”, a standard option consisting of an equity fund and a pension fund. “Såfa” means “sofa” in English and is precisely what its name suggests – a pension product that allows savers to sit back and relax. That is because each individual’s personal risk level is gradually adjusted from the age of 56, with the bond portion of their pension rising as the equity portion falls.

At Lupus alpha Investment Fokus, Richard Gröttheim, CEO of AP7, explained how the fund skilfully steers some EUR 80 billion of assets under management through the markets. In principle, the equity fund’s strategy is simple: it invests in around 3,000 companies worldwide based on the conviction that it is “not afraid of a few potholes in the street”. After all, the equity markets are always subject to exaggerated movements, both upwards and downwards. “It will be another bumpy ride in the markets again next year,” said Gröttheim, “but if anyone is still thinking about selling shares... it’s too late.” With an almost indifferent air, he added: “Investing globally means losing a little here and gaining a little there.”

All in all, this cool-headed Swedish approach is paying off, with AP7 Såfa generating a return of 11.6% p.a. over 20 years. Gröttheim does not understand why Germany did not adopt a similar approach long ago. The fund’s robust returns are also due to Gröttheim’s enthusiasm for active management, as in his experience there are segments such as Japan or small and mid caps where alpha can be generated.

The Swedes have their own way of defining sustainability, saying that problematic companies are also part of the solution. Steel production, for example, is extremely coal-intensive, but does that mean we should no longer invest in steel companies? Absolutely not! If a company is actively and credibly searching for solutions, AP7 is prepared to invest in it. The same applies to the oil industry. According to Gröttheim, “we will still need these companies for the next 20 to 30 years. If they are part of the transformation and invest in green energy, we’ll buy them – and there are some good examples of where we have done just that.” Yet the Swedes can also be strict, having “named and shamed” around 100 companies on a public black list for breaching international conventions.

Interview with Richard Gröttheim

In an interview, Richard Gröttheim discusses the Swedish AP7 pension fund’s investment strategy and gives his capital markets outlook for 2023 – including the biggest risks to the market.