Denmark boosts regulator's funding to police alternatives

The Danish government is ramping up the funding of its regulator to boost its oversight of pension funds’ increased investment in alternatives, amid concerns about the risks involved in infrastructure, project financing, and other areas.

The Ministry of Industry, Business and Financial Affairs said it would give the Danish Financial Supervisory Authority (FSA or Finanstilsynet) around DKK2m (€269,000) a year to be used to reinforce its efforts in this area.

Brian Mikkelsen, minister for industry, business and financial affairs, said: “The government will strengthen the regulatory supervision of pension companies and particularly their alternative investments.
”

He said he would seek parliament’s approval to increase the FSA’s resources as early as this year.

“It is a significant element in the government’s policy of ensuring trust and confidence in the Danish pension system,” Mikkelsen said.

The ministry said that interest among Danish pension funds in alternative investments had increased in the past few years. This was because of low interest rates, and the fact that pension firms were trying to get the best possible return on savings for their customers.

“But alternative investments are typically more complex and risky than more traditional investments,” it said. “Because of this, there are greater demands on pension funds’ understanding and management of risks, when they get more involved in this area.”

The FSA has expressed concern about the general level of skills needed within pension funds when it comes to alternative investments.

A spokesman for the regulator said it had been worried about the funds’ skills in relation to due diligence, risk management, ongoing investment management, and valuations.

At Finanstilsynet’s pensions conference earlier this month, director general Jesper Berg highlighted pension funds’ lending activities within this context.  

Last August, the FSA said it was investigating the lending activities of a few pension funds and life insurance companies, including their real estate-related project financing, in order to see whether their willingness to take risks differed from that of the banks.