The Danish Financial Supervisory Authority (FSA, Finanstilsynet) has criticised the way private equity investments are being handled by two pension funds managed by PKA, and imposed official orders for them to correct procedures.
Both funds – the State Registered Nurses and Medical Secretaries Pension Fund (Pensionskassen for Sygeplejersker og Lægesekretærer) and the Social Workers, Social Pedagogues and Office Staff Pension Fund (Pensionskassen for Socialrådgivere, Socialpædagoger og Kontorpersonaler) – received near identical letters from the FSA following inspections the watchdog had carried out in October and November last year, where the focus had been on private equity investments.
The two pension funds had total assets of DKK202bn (€27.1bn) and DKK113bn, respectively just before the inspection, the FSA said, and remarked in the letters that the funds – which are among four labour-market pension funds run by PKA – had “significantly larger” allocations to private equity than the average for the pensions sector.
While the Social Workers, Social Pedagogues and Office Staff Pension Fund had 16% of its assets in private equity, the State Registered Nurses and Medical Secretaries Pension Fund had a weighting to the asset class of 15%, according to the letters dated 15 April.
The FSA said to both funds that it had found their boards’ investment policy and guidelines were not sufficiently indicative of investment in private equity.
“This entails the risk that the pension fund makes investments and assumes risks contrary to the board’s wishes,” it said.
Because of this, the authority said it was ordering the boards to ensure that investment policy and guidelines defined to a greater extent the desired risk profile for investments in private equity, and laid down clear instructions for the executive board’s powers to make private equity investments.
The boards also had to ensure more clarity about investment strategies and approaches as well as the extent to which funds, funds-of-funds and individual investments could be invested – and the extent to which co-investments could be made, including which investments had be approved by the board, the FSA said.
It also demanded the pension funds’ boards ensure more clarity about how ESG considerations were integrated into private equity investments, and how ESG risks had to be identified, assessed and handled.
Among other orders the FSA imposed on the pension funds, it also told the boards to assess again whether there were enough employees and skills to handle the pension fund’s investments in private equity.
A spokesman for PKA told IPE: “Naturally we take note of the injunctions and adjust our procedures accordingly, but aside from that we don’t have any comments.”
Denmark’s FSA has long focused on procedures, risk, valuations and skills associated with pension funds’ alternative assets including private equity.
Two years ago it demanded Industriens Pension, which had a 14.4% allocation to private equity, consider whether it needed more staff to handle the asset class.
