Hedging into controversy

Stockholm-based pension fund KPA's interest rate hedging programme has put it at the vanguard of solvency risk management in Sweden - but unsophisticated local media has mistaken its prudence for a speculative punt on interest rate derivatives.

"Miss-speculation in interest rate derivatives destroys KPA's returns," was the headline that greeted the pension fund's finance director, Michael Kjeller, as he picked up a copy of Swedish insurance industry magazine, Pensions Nyheteerna, in October last year. This was the latest in a series of negative events to hit the fund that provides pensions for municipal workers, following its massive expansion since the turn of the century.

A period of plunging returns from the equity markets following