DENMARK - Danish occupational pension fund AP Pension has invested DKK250m(E33.5m) in instruments which represent the risk element of business loans, saying the credit crunch has made it worth investors' while to "play bank".
"The credit crisis in the American property market has made it attractive to invest in business loan risk credits," the DKK28.3bn fund said in a statement.
In the fourth quarter of last year, AP Pension invested in around DKK250m in such business loan risk credits, which are loans to businesses, it said. So far, these risk credit investments have been within the Danish market, a spokesman pointed out..
"And if further attractive opportunities arise, AP Pension is ready to invest up to DKK400m in the sector," the fund said.
The sub-prime crisis in the US had made it more advantageous to "play bank" by investing in business loan risk credits, the fund explained.
"Banks and businesses that were hit hard by the sub-prime crisis are having to sell their assets in order to build capital," AP Pension said. "This goes for their business loan risk credits among other things. At the same time, the crisis has made investors nervous about buying credits.
"This has given rise to a kind of sell-off on the credit market, where prices for business loan risk credits have fallen. So AP Pension was therefore able to buy many of these business loan risk credits at a discount," it said.
Henrik Henriksen, investment strategist at AP Pension said: "We have the chance of making a profit by investing in business loan risk credits now, when prices are so low, and at the same time there is a good yield on the risk credits."
He said the fund expected a return of 10-15% on the investments
Henriksen stressed that the pension fund did not invest in something solely because it had fallen in price, but that investments should offer a good return. "But one should not necessarily walk away from sectors where there are problems," he said. "One should look for opportunities instead.
"Business loan risk credits constitute a relatively stable part of the loans market, because there is no question of loans to very indebted businesses. So we expect a good return for a relatively low risk," he said.
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