The AP Funds – Mandate and Role in the Pension System
Sweden’s First to Fourth National Pension Funds (AP1–AP4) are government agencies managing part of the public pension capital. They serve as a buffer in the pension system: in times of surplus, money is allocated to the AP Funds, and during deficits, capital is drawn from them. Their mission is to manage tax money intended for public pensions with a long-term perspective and responsibility, regardless of market conditions.
Legislation also states that the AP Funds must not engage in industrial or economic policy – their objective is to generate maximum returns for pensioners within a given risk framework. The law explicitly prohibits AP1–AP4 from directly investing in unlisted companies. They may only invest indirectly in such companies – for instance, through external private equity firms, provided those firms have the necessary expertise and decision-making authority. AP6, which has a broader mandate, chose not to invest in Northvolt.
Northvolt – From Industrial Star to Bankruptcy
Northvolt was founded in 2016 by former Tesla executives with the aim of building Europe’s largest battery factory and becoming a strategic lithium-ion battery supplier for electric vehicles. The company quickly gained attention and political backing as a climate-friendly Swedish industrial venture. Billions in public funds were injected through loans, guarantees, and subsidies from the Swedish Energy Agency, Vinnova, the European Investment Bank, and more.
Major industrial players like Volkswagen, BMW, and Scania joined as investors. In June 2023, a private equity round totaling $2.75 billion included $400 million from the AP Funds through 4 to 1 Investments. Despite this, Northvolt was plagued by delays and cost overruns. By the end of 2023, production was just a fraction of what had been promised.
In late 2024, Northvolt filed for Chapter 11 protection in the U.S., and in early 2025, the company was declared bankrupt in Sweden. Thousands of jobs were affected, and the value of investments, including those by the AP Funds, was written down to zero.
AP Funds’ Investment in Northvolt
Between 2021 and 2023, AP1–AP4 invested SEK 5.8 billion in Northvolt via their jointly owned company 4 to 1 Investments, a limited partnership. This structure enabled what would otherwise be a prohibited direct investment in an unlisted company. While AP Funds argue that the setup complied with regulations, critics question whether this was a legal technicality used to circumvent the spirit of the law.
Notably, AP6, which is allowed to take higher risks, declined to invest. Meanwhile, 4 to 1 Investments had no staff and was governed by a board composed of personnel from the AP Funds themselves. This raises questions about whether the funds essentially handpicked Northvolt and used a shell company to bypass investment restrictions.
Rules Governing Unlisted Investments
Swedish pension law mandates that AP1–AP4 may only directly invest in listed securities. Unlisted investments are only allowed indirectly via third-party-managed funds or private equity companies. The intent is to ensure that high-risk decisions are made by professionals outside the state pension system, thus protecting pensioners’ savings from politically motivated or speculative bets.
Regulatory changes around 2020–2022 allowed more flexibility but emphasized that risk decisions must remain with independent entities – not managed internally by the AP Funds.
Bypassing the Rules?
Investigations by Swedish media, including SVT, revealed that the AP Funds acquired a shelf company and set up 4 to 1 Investments just weeks before their first Northvolt investment. At the time of the investment, the firm hadn’t even registered its name with the Swedish Companies Registration Office.
With a board made up of AP Fund employees and no operational independence, critics argue the arrangement defies the intent of the law. Parliamentary Finance Committee chair Edward Riedl (Moderate Party) stated it “feels like an attempt to bypass legislation.” Others claim the AP Funds had little room for thorough analysis or due diligence.
The AP Funds maintain that everything was done transparently and according to the rules. However, the lack of external oversight and the use of a technically legal – but ethically questionable – structure have sparked fierce debate.
Legal and Ethical Implications
Legally, the Northvolt investment sits in a gray area. While technically allowed, the structure likely violates the spirit of the law, which aims to separate high-risk investment decisions from state pension administrators.
Ethically, the use of pension funds for speculative ventures is controversial. While some argue that supporting green industrialization is worthwhile, others believe it’s inappropriate to use retirement savings for such purposes, especially when entire investments are written off.
Analysts also question whether the AP Funds have the expertise to evaluate complex, unlisted startups. Concerns over illiquid holdings and the inability to recover value during downturns add to the worry.
Risks and Consequences for Pensioners
The total loss of SEK 5.8 billion represents about 0.3% of the combined AP1–AP4 assets. The Swedish Pensions Agency has stated the loss will have a negligible effect on pensions. However, the greater danger lies in lost trust and the potential normalization of such high-risk strategies. If more speculative investments fail, taxpayers or pensioners may ultimately bear the cost.
Moreover, associated companies and local economies affected by Northvolt’s collapse also suffer – a ripple effect with longer-term economic consequences.
Political and Public Reaction
The fallout led to a parliamentary hearing where all four AP Fund CEOs were questioned. Riedl again criticized the setup, while opposition members questioned whether such speculative ventures aligned with the AP Funds’ core mission. Some editorials described the investment as a gamble with pensioners’ money.
While the AP Funds argue they acted responsibly and transparently, the public has received few answers. The debate underscores a broader issue: should state pension capital be used for industrial policy at all?
Conclusion
The Northvolt affair has exposed a major gap between regulatory intent and institutional practice. While not illegal per se, the AP Funds’ actions challenge ethical norms and financial prudence. They also raise concerns about governance, oversight, and mission drift. Parliament may now seek to tighten rules to prevent similar scenarios. For Sweden’s pensioners, the financial impact is limited – but the trust deficit may be harder to repair.
By Chris...
Add comment
Comments