Danish labour-market pensions administrator PKA wrote down the value of its private equity investment in troubled tyre recycling company Genan to DKK250m (€33.6m) in the first half of this year — about DKK750m less than the amount it originally invested of around DKK1bn.
The write-down effectively wiped out PKA’s return on its entire private equity portfolio in the period, according to first half figures provided by the company.
At the end of June, PKA’s private equity portfolio — which amounts to around 6.3% of total assets— was valued at DKK11bn, and at the same level as it was at the end of December.
The pensions administrator said that if Genan had been excluded from the private equity portfolio, the investments would have returned around 8% for the six-month period.
Around 25% of the private equity portfolio is made up of direct holdings with the rest in funds and funds of funds.
Overall, PKA reported a return on investments for the five pension funds it runs of DKK10.7bn for January to June, equating to 6% — up from the 0.3% in the same period last year — despite the write-down.
Total assets rose to around DKK190bn as a result of the profit, it said as it published the interim reports of the five healthcare and social sector funds.
Peter Damgaard Jensen, chief executive of PKA, said: “Interest-rate hedging has had a positive effect on the return and when we combine that with good profits on equities, it has gone up to an even higher level.”
The result took account of the write-down of Genan’s value, he said.
“There has been a certain amount of focus on this individual investment, so it is very good to be able to show that in spite of this write-down, we have done well on the financial markets and delivered a good return for our members’ pensions,” he said.
The private equity portfolio had produced good results over the last 10 years of 11% a year, Damgaard Jensen said.
“PKA’s private equity investments have grown strongly, both in funds and direct infrastructure, and that has been a focus on ensuring a professional set up to manage these investments,” he said.
He said the results showed that this had been successful.
PKA has come in for criticism from the Danish media over its handling of the investment in Genan.
The pensions group made most of the investment back in 2007, saying its then 45% stake in the tyre-recycling company suited its desire to get involved in the environmental sector.
However, serious financial problems at the company surfaced earlier this year, resulting in PKA taking almost full ownership of Genan to save it.
It lifted its stake to 97% last month, by taking over all the shares owned by the company’s founder and major shareholder Bent Nielsen.