The phases of the procurement process

The laws that govern the authority and the future procurements aim to create a reliable range of funds of high quality. The procured funds on the new fund platform should be suitable for the system, cost-efficient, sustainable, controllable and of high quality. The premium pension system and the fund platform should be characterized by freedom of choice, where the saver has the option to choose the level of risk and investment strategy. The interest of the savers is the main focus when the new fund platform is procured.

This means higher requirements on both funds and fund managers that take part in the procurement process. With focus on high-quality investment processes, the reliability and the investment results will be improved. A strengthened monitoring process will also enable the quality to be maintained over time, where controllability is crucial for a successful monitoring process, both before and after the procurement.

The procurement process is designed to procure, evaluate and ensure high quality in the most suitable funds for the platform. A holistic method is applied throughout the process, that will be conducted in project form. Participating members from all three units will evaluate the submissions, ensuring the process from both a quality and a reliability perspective. The final result is a product of the competence and work of all units.

1. The design phase

In the first phase, the different categories are analyzed; the range and the quality on the platform today, market trends, the availability of funds, investment strategies, the suitability for the platform, among else.

2. The preparation phase

The RFP is designed together with other parts of the government authority, such as legal and the Swedish Pension Agency’s trading unit, the Investment due diligence team and the Operational due diligence and monitoring team. The qualification criteria and award criteria will be decided by the Board, after which a notice for the procurement is announced.

The Procurement material - the RFP

In the RFP, questions will be asked that aim to ensure transparency and availability of data and information, which constitutes qualification criteria and award criteria. It will be an extensive and detailed material to answer, with the purpose to ensure the quality of the fund manager’s organization. As soon as a notice of the procurement is announced, it will be published on e-Avrop.

To be able to ensure a correct evaluation based on the legal requirements, it is very important that the material submitted is of high quality, well written, correct and completed:

• Even if you as a fund manager do not intend to participate in the first procurement, download and look through the material to gain an understanding of the procurement process.
• Answer all questions to enable a fair evaluation.
• Answer the questions correctly – not based on ambitions or expected future accomplishments.
• Everyone in the organization affected by the questions should look through them, to anchor the information on the organization submitted in the material.

3. The procurement phase

The procurement phase is initiated by the first qualification phase, where only the fund manages meeting the criteria will pass on to the next step. After this, the evaluation phase is initiated, where an extensive qualitative and quantitative analysis is conducted.

Quality is a word that is emphasized in the law on the Swedish Fund Selection Agency. In the preparatory work, emphasis is placed on the fact that no support in research has been found for past performance being a guidance of future returns and the quality of the funds. The government is therefore of the opinion that thorough analysis of both funds and fund managers is needed to be able to determine the quality of the funds.

When quality is evaluated, the Swedish Fund Selection Agency’s focus will among else be on these four areas:

• Investment philosophy: The investment philosophy should be clear and describe how the fund manager works to create added value. The philosophy must be adopted by the entire organization and must be reflected in your daily work.
• Investment process: The investment process describes how the work has been done, where each step and their order should be described – all the way from idea to portfolio construction. Who that does what, and with what mandate should be described, as well as proof of discipline, structure, repeatability and that the process is implemented in practice as it is described. All members of the organization should be prepared to take part of the process.
• Investment resources: The investment resources describe who does what in the portfolio management. Here, not only the fund manager and the deputy fund manager are should be described, but also the wider team and the firm wide resources that the fund manager can draw upon. The organization, diversity, turnover, talent management, and the culture are evaluated.
• Investment results: Performance is not an indication of future returns, but it will be a receipt that the processes of the fund manager work – that they will be able to deliver on what has been described.

During this evaluation, a lot of quant analysis is done, to verify the work that has been done and has been submitted to the Swedish Fund Selection Agency throughout the process.

The final step of the evaluation is an interview phase, which consists of a meeting on site at the fund manager’s office.

After the evaluation process a final decision will be made by the Board on which fund managers will be awarded fund agreements, and an award decision will be made public via e-Avrop.

4. The implementation phase

After the award decision is made public, the implementation phase begins. Together with the fund managers and internal teams, such as legal and the Swedish Pension Agency’s trading unit, the government authority will start preparing for the transition to the new, procured platform.

5. Monitoring

The monitoring of the funds on the platform will be initiated as soon as the procurement is done. The law stipulates that the term of the fund agreements cannot be longer than twelve years, but the term of the fund agreements can be shorter.

Like on the platform today, a breach of contract can lead to termination of the contract. Making sure that the funds maintain high quality will be monitored more extensively than today – a decline in the quality that the fund manager initially showed at the time of the award can lead to a terminated contract. External factors can also create a need for a new procurement of a category.