Denmark’s largest commercial pension provider, PFA, has been reprimanded by the country’s Financial Supervisory Authority (FSA) for failings in the way it manages its alternative investments, such as private equity, credit and infrastructure.
PFA, which manages some DKK725bn (€97.5bn) of assets, said the Danish FSA had carried out an operational inspection of its alternative investments from 16 to 25 March 2021, and based on that, the firm had received five official orders to correct procedures.
The five areas concerned were PFA’s strategic approach to alternative investments and risk management; risk profile and limitation of risks; credit policy; measurement of risks and monitoring and reporting, PFA said in a statement.
The Copenhagen-based firm said it would prepare a report on how it would comply with the FSA’s orders.
Kasper Ahrndt Lorenzen, PFA’s group chief investment officer, said: “We are convinced that PFA has a good and solid setup for alternative investments, where we have strong in-house competencies and processes in the area.”
The pension provider had built up an alternative investments portfolio which had generated a 51% return over the past five years, he said.
“In connection with operational inspection, we have had a good and constructive dialogue with the Danish Financial Supervisory Authority,” Ahrndt Lorenzen said.
PFA noted the orders from the FSA, he said, and had already implemented them, or was in the process of doing so.
According to the FSA, PFA had DKK51.9bn in alternative investments at the end of 2020, with DKK19.1bn of that being part of the firm’s average interest rate pensions business and DKK32.8bn belonging to the market-rate side of its operation.
It said PFA’s alternative investments had increased to approximately DKK50bn at the end of 2020 from around DKK12bn five years before.
In asset allocation terms, this shift in the alternatives weighting was to 7.7% from 2.8%, the FSA said.
Regarding the official order on PFA’s strategic approach to alternatives and risk management, the FSA said in its statement that it had told the firm to make sure investment guidelines contained “relevant controllable frameworks for risks regarding concentration risks for large investments managed by selected partners, as well as sufficiently controllable frameworks for risks for alternative investments”.
The background for this, it said, included a finding that PFA’s investment strategy allowed for relatively large investments, and that one such investment had proved to be loss-making.
At the beginning of this year, PFA confirmed it had made a loss of DKK3bn on a loan to Irish aircraft leasing firm Nordic Aviation Capital three years before.
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