DENMARK - Pension fund FSP has revealed it made a €50m loss on a structured finance investment that involved subordinated loans to the employers of its own members.
The pension fund, which covers employees in the financial services industry, said it was making the statement in response to press items about its larger investments.
It stressed that all its investments were in strict compliance with the rules of the Financial Business Act.
"This means, among other things, that all business cooperation is based on open market conditions," it said.
The fund said it invested in a structured credit deal called Amalie 1, which was offered by JP Morgan in the spring of 2007.
The investment was part of FSP's business cooperation with its member companies, and the deal included subordinated loans to 17 Danish banks.
"FSP foresaw, unfortunately, neither the financial crisis or that a number of Danish banks would be impaired and, therefore, be taken over by the Financial Stability Company," it said.
The Financial Stability Company is the state agency that winds up distressed banks.
The scheme said: "As this sad development also included some of the FSP's member businesses that had borrowed through Amalie 1, FSP has therefore had an overall loss on the investment of €50m."
However, this amount had been partly offset so far by the interest payments received of over €22m, it added.
It said information about the case had already been published in its annual report and discussed at the 2011 AGM.
The pension fund defended its investment decision, saying the strength of pooled investments and FSP's risk diversification proved their worth, in that positive investment returns on other investments are able to offset the losses that result from a long-sighted investment horizon.
FSP has total assets of around DKK22bn (€3bn).
Meanwhile, labour-market fund Bankpension - which also operates in the financial services sector - said it would never have got involved in such a deal.
Niels Erik Jakobsen, chairman of Bankpension's board of trustees, said in an article in financial daily Børsen: "We have a policy of not investing in subordinate capital in member banks.
"We are very careful and have sent a clear signal to everyone in our circle that we will not subscribe to subordinated capital."
Jakobsen, who is a management board member of Denmark's Jyske Bank, said the pension fund did not make direct investments in member banks.
"This is because we don't want questions to be asked on whether we are looking after the members' interests or those of the banks," he said.
In other news, pensions institutions PKA and PBU announced a DKK500m joint investment in an emerging markets fund.
Describing the deal as a "groundbreaking public-private cooperation", the funds said the money would be invested in a new fund, IFU Investment Partners.
It said the investment would improve the opportunities for Danish companies to "share in the growth in Asia, Africa and Latin America".
Michael Nellemann Pedersen, PKA's investment director said: "If the Danish business community is to participate in future growth, firms need to be present in emerging markets in developing countries.
"The same applies to pension funds. With the new fund, we are therefore contributing both to strengthening Danish industry and securing a reasonable return for our members."
The fund is managed by IFU - the Industrialisation Fund for Developing Countries - which was set up to promote economic activity in developing countries in collaboration with Danish trade and industry.
PKA said the fund would provide venture capital for private sector projects established in conjunction with the IFU, on top of the typical 30-40% total funding the IFU puts in.
The new partnership was groundbreaking because it was the first time pension funds invested directly with IFU and Danish companies in developing countries, PKA said.
PKA manages five pension funds in the healthcare sector, and PBU is the labour-market pension fund for education practitioners.
Leif Brask-Rasmussen, managing director at PBU, said: "An investment like this fits in well with PBU's investment strategy for developing countries."
The cooperation with IFU was appropriate because the organisation was the most experienced Danish investor in those countries, he added.