The Swedish Equity Market

1. Assessment and initial conclusions

Abstract

This chapter provides a brief assessment and initial conclusions regarding the drivers of Swedish equity market development, focusing on six key areas: equity culture; domestic institutional investors; household investment; market infrastructure; regulatory design; and ownership engagement.

1.1. Introduction

The Swedish equity market is one of the most dynamic in Europe. It has the highest number of publicly listed companies in the EU in absolute terms and among the highest total market capitalisations, despite being the bloc’s eighth largest economy. The growth segments in particular are very active. Investor returns over the last two decades have been some of the highest in the world. Retail engagement in domestic markets is extensive. The private equity markets are also far larger than economic weight alone would suggest. This has prompted widespread interest in understanding the factors that underlie the Swedish market’s development, notably in the context of advancing the EU’s Savings and Investments Union initiative. Based on a comprehensive empirical mapping and in-depth interviews with local market stakeholders (chapter 2), this chapter makes an initial assessment, identifying six areas that have played a key role.

1.1.1. A widespread equity culture

Sweden has long fostered a culture that promotes the use of equity financing, which is visible throughout the market, from different categories of institutional investors’ asset allocations and the composition of households’ financial assets to companies’ use of market-based financing. Most of Sweden’s public pension buffer funds allocate more than half of their total portfolios to equities, with significant exposure to domestic companies. Occupational pension funds have similar allocations. Similarly, equities account for more than half of Swedish insurance companies’ aggregate portfolio, the most significant among peer countries by a very large margin, which holds for both unit-linked and non-unit linked portfolios. Investment funds are even more heavily exposed, at 69% of total assets, with nearly two-thirds of all funds by market value made up of equity funds. Households, too, hold the largest share of financial assets in listed equities among peer countries. This risk-willingness is reflected on the capital demand side, with consistently high numbers of companies going public.

This culture is the result of a set of interconnected policy initiatives and system design choices, covered below, that for decades have served to promote the use of equity markets in Sweden. Each of these policies have made distinct contributions, but it is important to emphasise that, taken together, they have also created a – more intangible but no less important than each specific measure in itself – dynamic where equity financing has become a natural choice for investors and companies alike. Over time, this has become self-sustaining, creating a virtuous cycle where broad-based interest drives market success, which in turn increases interest further and thereby cements the centrality of equity markets to the Swedish economy. This underscores the importance of a coherent, holistic and long-term government approach to capital market development.

1.1.2. A substantial domestic institutional investor base

A key aspect of the Swedish market is the size of its institutional investors, most notably pension funds. In total, Swedish pension funds manage more than EUR 800 billion in assets, well above a fifth of the EU total and over seven times more than its GDP share would suggest. This is a direct consequence of the design of the Swedish pension system. While it has had an asset-backed component (through public buffer funds) since the 1960s, and exposure to equity markets for more than fifty years, the Swedish pension system only became a substantial source of investment capital following reforms in the 1990s that moved towards a defined contribution system. Very extensive occupational pension fund coverage (90% of Swedish employees are automatically covered) has also been a major contributing factor. In addition, the development of the premium pension system has likely helped promote the growth of other institutional investors, investment funds in particular, by increasing households’ familiarity with such products.

Importantly, the introduction of new, fully asset-backed, components has complemented rather than replaced the existing system. This has allowed the fully funded part of the system to grow increasingly important over time through returns on investment. At the same time, Sweden retains a guaranteed minimum pension funded through the central government budget.

1.1.3. Policies to promote household investment

The level of retail investment in Sweden is very high. At the end of 2023, there were 3.8 million unique dedicated investment savings account (ISK) holders, in a total population of 10.6 million. The share of households’ financial assets allocated to simple currency and deposits is the lowest among peer countries. This is the result of sustained policy initiatives, both direct and indirect, by the Swedish government to increase retail investment. Direct initiatives have been implemented since at least the 1970s, some of which have provided generous fiscal incentives. For example, in the late 1970s, investments in funds were made partially deductible against income tax and returns for the first years were tax free. This was expanded in 1984 with the introduction of Allemansfonder, funds that, while not providing tax deductibility for investments, offered fully tax-exempt returns. A more recent initiative, broader in scope, is the introduction of the above-mentioned retail investment savings accounts (ISKs) in 2012. While often fiscally beneficial in an environment of low interest rates and rising asset valuations (taxation is based on the government borrowing cost plus a constant), these accounts did not offer unequivocal fiscal benefits (although as of 2025 they do, following the implementation of a tax-exempt amount). However, they do offer benefits in terms of simplified, flat taxation, where individual account holders are not required to calculate or submit any documentation themselves.

Private sector initiatives, notably the establishment of digital investment platforms/banks focused on serving retail clients, have also played an important role by offering simple interfaces and automated investment solutions. In addition, the local business press has a wide readership, providing extensive coverage of market developments, including for smaller companies, which has helped increase public familiarity with capital markets.

The fact that simplification, both from a government and private sector perspective, has been a key driver of Swedish retail investment is an important policy lesson, highlighting the possibility of stimulating household engagement even without direct fiscal benefits. Efforts to improve financial literacy, both by the government and non-profit organisations, have also helped.

High levels of household investment naturally also follow from policies that are not directly related to capital markets. For example, early and widespread digitalisation of Swedish government services (notably for personal identification) has supported both simplified taxation and the emergence of digital-only investment platforms. More broadly, extensive social security protections may allow for a greater risk appetite by households when it comes to financial investments, since they reduce the need for a financial safety buffer held in low-risk assets (such as bank deposits) at the individual level.

1.1.4. Equity market infrastructure and funding ladder

Two aspects of the Swedish equity markets are particularly notable: the availability of funding at all stages of development (from start-ups to large caps) and the flows between these different types of funding.

Firstly, it is not just the regulated public equity markets that are sizeable, but the entire equity market ecosystem. The growth segment of the public markets is particularly active. Nearly two-thirds of all public companies in Sweden are listed on a growth market (MTF) and in the last decade roughly four out of every five new listings have been on these segments. However, in absolute terms, the MTF markets remain small, representing no more than 2.5% of total Swedish market capitalisation, and net listings have been negative since 2023. There is also significant activity outside of the public markets. Swedish companies are consistently overrepresented when it comes to private equity fundraising, investment and divestment in Europe.

Secondly, there do not seem to be any missing links or bottlenecks in the movement between different types of funding. Since 2013, an average of 45% of all new listings annually on Swedish regulated markets have been companies that were already listed on a local growth market. This can in part be attributed to initiatives by stock exchanges to promote graduation to the main segments. For example, similar to the London Stock Exchange, major Swedish exchanges mandate the appointment of external advisers for growth companies that help them comply with the requirements associated with going and staying public.

A potential reason for investor interest in Swedish MTF-listed companies relates to investor protection regulation. In many areas, Swedish regulation does not significantly distinguish between companies listed on different venues, generally extending the scope of EU law applicable to companies listed on regulated markets to MTF listings as well. This includes, for example, regulation on takeovers, related party transactions, share issuance and say on pay. While imposing greater compliance requirements on smaller companies, this may also give investors greater certainty about their legal protection on different markets, possibly increasing interest in MTF investments, while simultaneously making the step from an MTF to a regulated market less dramatic from a company perspective.

Flows between different segments are not restricted to the public markets. There is also significant movement between the private and the public markets. In recent years, the most common type of divestment (29% of total value) of Swedish portfolio companies by private equity firms has been public listing. That is by far the highest among peer countries, where sales to another private equity firm is instead most common, and nearly four times the aggregate European figure.

1.1.5. Regulatory design

Swedish capital market law has a unique structure that puts it somewhere in between a common and civil law system. While the Companies Act provides a general framework and set of rules, the detailed rules governing Swedish equity markets are not laid out in legislation but is instead delegated to a number of bodies such as the Swedish Securities Council (Aktiemarknadsnämnden), the Stock Market Regulation Committee (Aktiemarknadens självregleringskommitté) and the Corporate Governance Board (Kollegiet för svensk bolagsstyrning). These bodies are funded by key market actors and have been established in co-operation with the legislator, meaning they have statutory mandates that can make their rulings legally binding. Market participants note that this structure provides Swedish equity market regulation with flexibility and rapidity, allowing it to move in step with market developments, as well as giving the market access to cost efficient and rapid dispute resolution.

1.1.6. Active ownership engagement, shareholder control and minority protection

The Swedish corporate governance model is heavily focused on shareholder control. Company law places control firmly with the shareholder majority, and there are virtually no matters on which the general meeting cannot make binding resolutions or give the board and management directions with respect to, including immediate dismissal. A notable mechanism is the nomination and appointment process for the board of directors. The Swedish Corporate Governance Code stipulates that board member nominees be proposed by a committee, comprising major shareholders or their representatives, that is appointed by the shareholders at the general meeting. This contrasts with practices in many other countries, where nomination committees are usually formed as subcommittees of the board. It should be noted that the far-reaching control given to a shareholder majority in Sweden is balanced with strong levels of minority protection and minority shareholder rights.

This model presupposes active engagement from company shareholders, the culture of which is widespread in Sweden, with controlling shareholders often playing an important role. The country also has a number of significant family-controlled investment firms that hold large, often effectively controlling, stakes in a diverse range of major companies across different sectors of the economy. These controlling shareholders exert substantial influence over strategy and corporate governance, commonly facilitated by the prevalence of dual class share structures which have been in use in Sweden since the 19^th century. Some market participants argue this has allowed them to build an industrial expertise that, coupled with a long-term investment approach, may have contributed to development of local markets more broadly. Sweden’s largest private equity company, for example, has its roots in one of these firms. Importantly, the investment firms are typically publicly listed themselves, giving them a dual role as investors and issuers that serve to align their interests with the development of domestic capital markets.

Other institutional investors, too, are often highly engaged. Pension fund representatives, for example, have noted that their participation in nomination committees and the possibility of actively influencing the general governance of their portfolio companies shape their assessment of investment risk, enabling higher allocations to domestic equities. Notably, Swedish institutional investors have formed an association (Institutionella Ägares Förening) with the explicit purpose of facilitating engagement in regulatory matters and system development.