Swedish pension fund chair faces dilemma after $2bn US bank losses

The biggest victim of last month’s US banking crisis comes from an unlikely location: Sweden.

The Scandinavian country’s largest pension fund Alecta fired its chief executive on Tuesday after a bet on niche US banks went spectacularly wrong, leading to $2bn in losses and a huge blow to its reputation in a nation where trust is foremost of all virtues.

Alecta, consistently ranked Sweden’s best-performing pension fund, has pursued a strategy of concentrating its equity portfolio on a few, large investments — about 100 at the last count. But three of them were US lenders that collapsed last month or whose shares plummeted.

The pension fund was the fourth-largest shareholder in Silicon Valley Bank, the fifth-largest in First Republic Bank and the sixth-biggest in Signature Bank. The losses prompted an outcry in Sweden, where Alecta manages $100bn of assets for 2.6mn savers, and where pressure from local media often leads to executive bloodletting.

The fund’s chair, Ingrid Bonde, faced one of the biggest dilemmas of a glittering career that has included stints at the top of Sweden’s financial regulator, its debt office, and three of its biggest companies.

Should she chalk up the loss of less than 2 per cent of the fund’s assets as part of the risk-reward dynamic of a hitherto successful investment strategy, or respond to the public outrage and bring in fresh leadership to replace Magnus Billing as chief executive?

“It was a very difficult decision,” she told the Financial Times. But in the end, she and Alecta’s board decided: “The loss has decreased trust among customers. There is a need for new management in order to restore that trust.”

Trust is crucial to the Nordic model, and losing it is often fatal in Sweden whether in business or politics. Customer outflows from Alecta might only have risen modestly — in the first quarter of this year it had 7,000 requests compared with 6,000 in 2022 — but the questions in the media continued even after the fund ousted its head of equities last week.

In particular focus was Alecta’s decision just before the crisis to boast publicly about selling out of two Swedish banks, including famously conservative Handelsbanken, and instead invest in SVB, Signature and First Republic.

“The management has looked at what the potential is for these companies and has decided to sell out of two of the banks in favour primarily of US niche banks,” Carina Silberg, head of governance, told financial daily newspaper Dagens Industri four days before the US financial turmoil began in earnest.

Alecta said the decision to sell out of Handelsbanken and Swedbank in the summer of 2022 was unconnected to its investments in the US lenders, which began in 2016. But as it divested from the two Swedish lenders — it retains stakes in two others, Nordea and SEB — it upped its stakes in Signature in July and SVB as recently as November.

“You have to deserve trust every day,” said Bonde. She has plenty of experience. She was head of Sweden’s main financial regulator between 2003 and 2008 after being deputy head of the national debt office. She was also chief executive of pension fund AMF and finance director of airline SAS and utility Vattenfall.

The Swedish regulator is now examining Alecta’s US banking investments as well as its large holding in Heimstaden, a property group seen by analysts as vulnerable to rising interest rates.

Bonde — who also chairs pharmacy chain Apoteket and special purpose acquisition company tbd30, is deputy chair of telecoms group Telia and sits on the boards of outdoor machinery maker Husqvarna and security services group Securitas — offered to resign several times in recent days. “When these things happen, you have to ask yourself,” she said.

But the rest of Alecta’s board wanted her to stay and made her acting executive chair while they search for a permanent replacement to Billing. Deputy chief executive Katarina Thorslund is doing the job on a temporary basis.

One Swedish director who has worked with Bonde said she brought energy to the boardroom, “is attentive to other views around the table”, while being “very pragmatic and quick to find solutions and game plans for matters that need to be dealt with”.

Bonde has further big decisions to take for Alecta, which she said would “very intensively revisit what type of asset management we should have for the future”. The choice, she added, would be continuing with the concentrated portfolio that has led to the best returns for occupational pensions in Sweden over five, 10 and 15 years, or go for a more “index-linked” approach.

One possibility, she suggested, might be to vary the strategy between countries. Alecta has already reduced its risk from large stakes outside Sweden, particularly in the US where it has big holdings in companies such as Microsoft, Alphabet, and retailer TJ Companies. The review has “to be done very carefully”, Bonde added, saying she hoped its main conclusions would be complete before the summer.

“We have had a very successful equity management profile — it has delivered great returns to our investors for many years,” she said. “We now need to look at the balance between improving returns and restoring trust.”

In Sweden, as Billing found out, there may be only one winner from such a choice.