Denmark’s financial watchdog has reprimanded pensions firm Danica for the way it values its alternative investments, telling the DKK400bn (€53.6bn) pensions firm it must use a wider variety of indices as reference, and be less accepting of the fund managers’ own valuations of the assets they manage on behalf of Danica.
The Danish Financial Supervisory Authority (Finanstilsynet, FSA) last week published its report on an inspection it carried out in February into the ongoing valuation of alternative investments at Danica – a subsidiary of Danske Bank – which included a number of official orders to correct procedures.
The inspection concerned Danica’s processes for valuing private equity, infrastructure and illiquid credit investments – which the FSA said made up around 7.5% of the firm’s total investment assets at the end of 2024.
The FSA said it found that Danica used liquid composite market indices for private equity, infrastructure investments and credit investments to assess the need for value adjustment – but did not use other liquid market indices to monitor whether there had been movements in sub-markets or sectors to which some of the company’s investments were exposed.
It also criticised Danica for only initiating the valuation process on a specific day of the week, rather than at the time when changes occurred in the liquid markets and threshold values were breached.
“The Danish FSA assessed that this does not sufficiently ensure a timely assessment of the valuation of the company’s alternative investments and the need for a possible value adjustment,” the watchdog said.
Among other criticisms, the FSA said it had found that Danica did not check fund managers’ valuations enough, or check whether the data and assumptions they used in their valuation models were reliable and relevant.
“The Danish Financial Supervisory Authority has ordered Danica to establish methods and processes that ensure sufficient ongoing control of the fund managers’ valuation,” the authority said.
Danica acknowledged the FSA’s report on its website, providing a link to it alongside a statement that the firm had no comment about it.
The censure handed out to Danica is the latest in a series of reprimands the Danish FSA has given pension funds on this issue.
A year ago, PensionDanmark and Lærernes Pension were told to correct their alternatives valuation processes, and in December, the FSA set out new expectations on how supervised entities should handle their valuations of such assets.
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