Alecta, Sweden’s largest pension fund, has owned up to massive investment losses from its holdings in three US banks after Silicon Valley Bank (SVB) collapsed on Friday, followed by Signature Bank yesterday, but defended its strategy of having a relatively concentrated equities portfolio.
The startup-focused California-headquartered SVB was hammered by a run on the bank after it announced a $1.75bn (€1.63bn) capital raising last Wednesday, and US authorities shut it down two days later.
Amid plummeting share prices of other banks, New York-based Signature Bank officially failed on Sunday, with the Federal Deposit Insurance Corporation (FDIC) then taking control of it.
Alecta, which is known for its strategy of having relatively few stocks in its equities portfolio, was the fourth-largest shareholder in SVB.
In all, its losses on SVB, Signature Bank, and First Republic Bank amount to SEK14.5bn or €1.27bn, according to today’s statement.
The now SEK1.2trn (€105bn) occupational pension provider made a statement this lunchtime admitting it had lost around 1% of its total managed capital after writing down its holdings in SVB and Signature Bank to zero – following the FDIC taking control of both banks.
It said: “Alecta’s financial position remains very strong and solvency, i.e. the relationship between assets and future liabilities, is high, 203% as of March 10, 2023, after the value of Silicon Valley Bank and SignatureBank is set to zero.”
Reporting 2022 results a month ago, Alecta said its solvency ratio was 218% at the end of last year.
The Swedish pensions heavyweight said today that it had started investing in SVB in June 2019, and made its last investment in the fated bank in November 2022, with its total investment having amounted to SEK8.9bn before the bank’s demise last week.
Regarding Signature Bank, Alecta said those investments had kicked on in January 2016, with the final investment made in July 2022, and that total investment in that bank was SEK3.2bn.
But regarding overall equities returns so far this year, the pension fund said: “Alecta’s portfolio of listed shares has, after writing down the value to zero in Silicon Valley Bank and Signature Bank, as a whole in 2023 increased by just over 3%, which corresponds to SEK16.5bn as of March 10, 2023.”
The lost value in the American banks would only affect its customers’ pensions to a small extent, Alecta said.
“For customers of the defined-benefit product, mainly born in 1978 or earlier, future pension payments are not affected at all by the return on capital.
“For ITP customers with a defined contribution pension, the impact will be small,” Alecta said in the statement.
The return on the defined-contribution product Alecta Optimal Pension in 2023 through to 10 March, including write-downs by the US banks, was 1.4%, it said.
However, Alecta has also made a huge loss on a third US bank – First Republic Bank, a US regional lender.
The Swedish firm said it had invested SEK9.7bn in this bank, but that the market value of that holding only amounted to SEK7.3bn at Friday’s market close – implying a €207m loss on the investment for Alecta.
Shares in First Republic Bank crashed 67% in today’s trading in the US, according to Reuters, with trading in the stock then being halted.
Alecta said its equities investment strategy, which covered 40% of total managed capital, was based on a long-term perspective and a concentration on approximately 100 companies, in which the firm was a significant owner.
“This has served Alecta’s customers well, with very high cost-efficiency and a return that has averaged around 10.5% per year over the last five years for the equity portfolio,” the pension provider said in its statement.
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