The perennial problem of how unlisted assets should be valued has reared its head in Denmark. Data collated by one financial adviser on pension funds’ 2022 private equity investments has led to worries about an apparent black-box approach to valuation processes.
Nikolaj Holdt Mikkelsen’s analysis, published in December, indicates wide differences in stated private equity performance from a range of pension firms for all or most of last year. On top of that, the average return of 4.3% jars with 2022’s 30% loss on the Xtrackers and iShares private equity indices.
Did the pension funds really see such varying private equity fortunes in those economically disastrous 12 months? Or are some simply more willing to rely on confident valuations from external managers?
If, as seems likely, pension providers have different approaches to when and how they revalue their alternatives, which comprised more than the 14% of sector assets in September 2021, the main concern is fairness.
If one pension firm puts a higher valuation on its unlisted assets than another, then a customer moving their pension pot from the first to the second would take more than belongs to them, to the detriment of clients who stay put. The same unfairness happens when savers switch risk profile at the same provider, the argument goes.
But there are other reasons to be nervous. Insight into the engine-rooms of pension providers is limited, says Jannik Andersen, head of analytics and partner at Mercer Denmark. It is therefore impossible to say for sure that the valuations are being done incorrectly.
“How does the portfolio stand when adversity comes, why do you write it down, and what is the rationale behind the timing of the change in valuation? These are the kinds of questions customers, and we, would like answers to,” he says.
Rachel Fixsen, Nordic Correspondent
rachel.fixsen@ipe.com
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