Peder Hasslev, the chief executive officer of Sweden’s largest pension fund, has condemned the pension fund’s original decision to make the now precarious investment in residential property firm Heimstaden Bostad, and confirmed Alecta is currently trying to renegotiate the agreement’s “unbalanced” terms.
In an interview in Swedish business daily Dagens Industri (DI), Hasslev said: “This is an investment that Alecta should not have made.”
Sweden’s FSA has just launched an investigation into the investment, with Alecta’s own board already having hired lawyers to conduct its own probe into whether the investment, made 10 years ago, followed the rules.
Heimstaden Bostad, jointly owned by Norwegian billionaire Ivar Tollefsen indirectly via listed property firm Heimstaden and the SEK1.2bn (€100bn) Alecta, alongside other pensions institutions, is facing rising costs on its debt and in need of new capital.
Hasslev, who took over as CEO on 1 September, told DI that Alecta had made more mistakes in connection with the Heimstaden Bostad investment than it had on the US bank investments which resulted in a SEK20bn loss earlier this year.
The fallout from that investment failure included the sacking of Alecta’s long-term CEO Magnus Billing.
Alecta’s board said in a written statement to DI that it shared the view that the investments in Heimstaden Bostad should never have been made on the terms that were made, according to the article.
Hasslev said of the Heimstaden Bostad investment: “You can have opinions about the timing, how you entered and at what prices, but for me the shareholder agreement is perhaps the most important factor.”
He said he believed the agreement was too ”unbalanced”.
“I think we are not fully compensated for the risk we take. We have had a return and in good times it works, but I can think that we have not received a good enough return for the risk we are taking. I can also think that we have a little too little influence,” said the CEO, in reported comments approved by Alecta.
According to DI, the agreement – which has not been made public – shows Alecta owns a type of share that yields a dividend which rises as the company’s loan-to-value ratio increases, while Tollefsen is the sole owner of a share class where the dividend grows in line with Heimstaden Bostad’s property holdings.
Hasslev said Heimstaden Bostad now needed further capital injections, but that for Alecta to put in more money, the shareholder agreement had to be negotiated – talks that he said had already begun with Tollefsen and Heimstaden.
“The important thing for me is that we don’t throw good money after bad,” the Alecta CEO said.
“I am trying to do everything I can to improve the conditions, that is the way forward,” he said.
However, Alecta is nevertheless likely to end up with big losses on the SEK50bn investment.
“Given the circumstances – the economy we are in and the interest rates we have – it cannot be ruled out that there will be write-downs on Heimstaden Bostad in the billions. That’s how it is,” Hasslev said.
As to the question of how Alecta found itself with the twin high-profile investment problems of the US banks and Heimstaden Bostad, Hasslev said:
“Alecta is an actor that has delivered very well and an organisation that has been very proud, and my conclusion is that this is the explanation why we have ended up where we are today.
“It’s been going a little too well for too long, and that means that maybe you’ve become a little overconfident and taken on an investment that’s too complex – read Heimstaden – and that you’ve probably taken the idea of a concentrated equity portfolio a step too far,” the new CEO said.