ATP, Denmark’s largest pension fund, was given a number of official orders by the country’s FSA to correct failings related to the management of its illiquid credit investments, according to a report released on Friday.
The Danish FSA (Finanstilsynet) said it was reporting on an inspection carried out back in February 2019, as part of a series of investigations the official body had been doing into how Danish pension funds were managing this asset class.
The probe focused on ATP’s investments in illiquid credit, for example investments in loan portfolios, including the pension fund’s attitude towards this type of investment and its compliance with the prudent person principle, the watchdog said.
ATP – which runs the population-wide labour-market supplementary pension scheme – managed around DKK785bn at the end of 2018, with illiquid credit investments making up 2.3% of this, according to the FSA.
Most of ATP’s illiquid credit investments were held via funds, the FSA said.
Of the seven official orders to correct matters that were issued, one required the pension fund to ensure that the supervisory board’s guidance documents contained sufficient identification and limits to the risks that ATP wanted to take in the illiquid credit area.
This was one of several orders handed out in relation to identification and delimitation of risks in the investment segment.
The FSA also said it found ATP had not adequately included the structural shifts that had taken place in the global loan market in its asset allocation, and it gave the pension fund an official risk notification in relation to this.
The financial supervisor also ordered ATP to put a clear framework in place for credit assets and a set of controllable limits for counterparty risk in general.
ATP, which had DKK936bn of assets under management at the end of September, responded to the report by pointing out that the critique related to activity which was more than two years old, and that some of the required changes had already been made.
“The inspection concerned investments made in the period 2015-2018 and the risk policies, guidelines and investment processes in force at the relevant times,” ATP said in a statement.
“Since the inspection almost two years ago, ATP has made a number of adjustments to ATP’s risk policies, guidelines and investment processes and assesses that some of the issues pointed out in the report have now been rectified,” the pension fund wrote.
On 8 January, the FSA published a similar report, including official orders, for the Danish pension fund P+.
That report related to illiquid credit in the part of the portfolio originating from JØP – the old pension fund for lawyers and economists, which has now been merged with engineers’ pension fund DIP to form P+.