DENMARK - Danish pension funds could play a bigger role in providing much-needed debt financing for smaller businesses if a new government initiative bears fruit.
As part of a package of measures aimed at improving access to financing for small and medium-sized enterprises (SMEs), the government said it was investigating ways the country's pensions funds could provide such finance.
The financial crisis has made it much harder for SMEs to borrow, with bank lending in many cases drying up.
In a statement, the Ministry of Business and Growth said: "We are starting to work on finding models whereby the financing needs of small and medium-sized businesses can match the placement needs of pensions institutions."
This latest effort to channel pension fund investment into smaller companies comes on top of two major schemes.
In 2011, pension fund pledges helped secure DKK5bn (€673m) of equity finance for SMEs via the newly established Dansk Vækstkapital fund.
And in a three-year deal struck with the Export Credit Agency (EKF) last October, PensionDanmark agreed to provide DKK10bn in financing to support exports.
At the time, the pension fund said the deal would give it a yield above government bonds for state-guaranteed loans.
In its statement, the ministry said the EKF was continuing its dialogue with other Danish pensions institutions with a view to offering them the chance to provide financing in connection with exports from Danish companies.
It said: "Some of these discussions will be linked to the established committee on corporate bonds, which is due to report by the autumn 2012."
The committee - set up at the end of last year - includes representatives from industry association Forsikring & Pension, as well as pension funds ATP and LD.
It is discussing specifically how corporate bonds could be used to finance SMEs.
In other news, investments in Sampension's traditional with-profits pension product returned 20.2% in 2011, boosted by interest-rate hedging and private equity profits.
The return is pre-tax and compares with 2010's result of 16.2%.
Managing director Hasse Jørgensen said: "The result is due, not least, to the interest-rate hedging we have undertaken, which more than outweighs the much increased demand for provisions on customers' pensions as a result of low interest rates."
Private equity investments returned 17%, while bonds subject to credit risk returned 12%.
The unit-link product made an average investment return of 4% in 2011, down from 10.8% the year before.
Across both product types, gross contributions were little changed over the year, rising slightly to DKK7.4bn in 2011 from DKK7.3bn in 2010.
Within this, however, there was a marked swing towards the unit-link products and away from traditional with-profits.
Unit-link contributions rose to DKK3.5bn from DKK2.1bn, while with-profits contributions fell to DKK3.9bn from DKK5.2bn.
Total assets grew to DKK185bn from DKK147bn in 2010.