Data from the Danish central bank up to the end of March show the country’s insurance and pension sector put more money into unlisted shares than into listed shares over the last three and a quarter years – in a phase of increasing overall equities allocations.

Danmarks Nationalbank said in its latest statistics bulletin: “Since January 2018, the sector has invested DKK291bn (€39.1bn) in equities, of which DKK119bn was invested in quoted equites, while DKK172bn was invested in unquoted equities.”

In terms of assets under management, the insurance and pension sector in Denmark is dominated by pension provision.

“A larger proportion of the sector’s resources has been invested in unquoted equities, which accounted for almost half of the total investments in March 2021,” the bank said.

The central bank commented that unlisted equities were often less liquid than their listed counterparts, as they were more difficult to sell in the short term.

“On the other hand, unquoted investments are favourable for insurance and pension companies, because they make long-term investments and can therefore benefit from a liquidity premium as compensation for the illiquidity,” the bank said.

At the same time, it said, some unquoted equities – e.g. real estate – provided insurance and pension companies with stable and continuous cash flows.

Comparing the sector’s purchases of equities between January 2018 and the end of March 2021 to other assets, the central bank said the investors had bought DKK137bn worth of bonds in the period, and sold DKK129bn worth of foreign mutual fund investments and similar assets.

Analysis of the data showed the sector was increasingly buying equities, with allocations to these investments rising to 42% of overall assets in March 2021, up from 35% in January 2018, according to the bulletin.

In the same period, the overall allocation to bonds had fallen to 51% from 56%, the bank said, and foreign mutual fund investments and the like had dipped to 7% from 9%.

“Equity holdings are increasing concurrently with increasing pension contributions and provisions to the sector’s market-rate products, where the pension saver’s return depends on the underlying investments, and more risk lies with the individual saver,” the bank said.

It attributed the sector’s shift towards equities, in part, to the low bond interest rates of recent years, saying the sector’s equity investments had yielded a 34% return over the reporting period, while bonds had generated just 7%.

Transparency around the valuation of unlisted assets has been an issue of scrutiny over recent months in Denmark, with the country’s pensions and insurance lobby group, Insurance & Pension Denmark (IPD), publishing a recommendation for a set of common guidelines about how to value them last month.

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