Denmark’s Financial Supervisory Authority (Finanstilysnet, FSA) has found fault with the way both PensionDanmark and Lærernes Pension have been valuing their alternative assets, and has given each pension fund orders to make specific changes to processes.
The FSA published statements regarding both labour-market pension funds on Tuesday. It said in both cases that it had conducted an inspection in March this year of both funds regarding the ongoing valuation of alternative investments – private equity, infrastructure and illiquid credit investments.
The DKK158.4bn (€21.2bn) Lærernes Pension had around 10% of its total assets in alternative assets at the end of 2023, according to the FSA, with DKK6.3bn in infrastructure, DKK2.8bn in credit and DKK6.5bn in private equity.
Meanwhile, the larger PensionDanmark, which had DKK329.8bn in total assets at the end of last year, had 22% in alternatives, with DKK25.8bn in infrastructure, DKK17.8bn in credit, and DKK27.1bn in private equity, the FSA said.
The FSA said Lærernes Pension, the Danish pension fund for teachers, had set triggers in the form of threshold values for the level of fluctuation in liquid market indices required before it was seen necessary to adjust the values of its alternatives.
“The Danish FSA assessed that the set threshold values for measuring the risk for the company’s credit funds were too high,” the authority said. It made the same criticism of PensionDanmark.
Regarding PensionDanmark, the watchdog said it had also found that the blue-collar pension fund used a liquid composite market index for private equity investments and a broad liquid market index for infrastructure to assess the need for value adjustment.
“The company did not use other liquid market indices as part of monitoring whether there had been market movements in sub-markets, or sectors to which some of the company’s private equity and infrastructure investments were exposed,” the FSA said.
Both pension funds were ordered to incorporate more relevant threshold values for credit funds. In PensionDanmark’s case, it was also ordered to use more relevant market indices for its private equity and infrastructure investments to ensure a sufficiently frequent and fair valuation.
Based on its findings, the FSA also ordered both pension funds to strengthen their documentation of analyses, assumptions and information sources for the model for ongoing valuation for alternatives. The FSA also issued a further order to each fund relating to the control and validation of the model.
Asked to comment on the FSA’s actions, a spokesman for PensionDanmark told IPE: “We take note of the supervisory authority’s statement and we are making the necessary adjustments to address their points.”
Lærernes Pension had a similar response, telling IPE: “We have had a good dialogue with the FSA, and we expect to address the few things we need to optimise shortly.”
The valuation of alternative assets has been a particular focus for the Danish FSA for some time. A year ago, the Copenhagen-based authority gave ATP, the Danish Doctors’ Pension Fund and others, similar orders to correct procedures.
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