Denmark’s FSA has handed out a series of reprimands and official orders to the Danish pension fund P+, after an official inspection uncovered failings related to illiquid credit in the largest part of its overall portfolio.

The FSA (Finanstilsynet) said it found that the pension fund, which calls itself a pension fund for academics, “had not sufficiently determined the risk profile in the investment area, including the credit area, and ensured identification and delimitation of the risks that the company may assume.”

The financial watchdog said in its report published today that it was therefore requiring P+ to incorporate this point into its investment policy and guidelines, in order to ensure there was enough risk diversification.

“The Danish FSA also provided risk information, as the pension fund’s investment guidelines allow the opportunity to invest in illiquid assets of a size that may result in the investment portfolio being locked in and risk management less flexible,” it said.

The probe, carried out at P+ in August 2019, only related to the portion of P+’s portfolio which originated from JØP – the old pension fund for lawyers and economists.

The FSA said the exercise was part of a series of investigations into how various Danish pension funds were managing this asset class.

P+ was formed from the merger of JØP and engineers’ pension fund DIP in 2019.

The FSA said in the report that the part of the portfolio under scrutiny had about DKK78bn (€10.5bn) of assets, around 16.3% of which were in illiquid credit investments – mostly through funds, but with a smaller portfolio in the form of direct loans.

Altogether as a merged pension fund, P+ has nearly 100,000 members and DKK125bn, according to its website.

“The inspection included the pension fund’s organisation and processes for investments in illiquid credit, including the pension fund’s position on the investments and compliance with the prudent person principle,” the FSA said.

On its website, P+ published the FSA’s letter with the short acknowledgement: “The pension fund takes note of the report”.

According to the report, P+’s board had not taken enough of a position on the fund’s risk management model, and clearer methods and principles for calculating risks needed to be put in place.

The watchdog also said the pension fund had not sufficiently included the structural shifts that had taken place in the global loans market in its risk allocation.

The FSA ordered the pension fund to make sure risks were adequately identified for illiquid credit assets, both before the investment decision was made, and continuously afterwards – documenting this identification of risks and including it in the basis for investment decisions.

P+ was also reprimanded by the watchdog for a lack of board approval for two credit investments, one of which the FSA said it assessed to be of an unusual nature for the pension fund.

Last autumn, the pension fund was reprimanded by the watchdog for “significant deficiencies” in its IT security.

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