Danish FSA raps ATP and other pension funds over alternatives valuation

Denmark’s financial watchdog has ordered ATP and other pension funds to change their processes around the revaluation of alternative assets such as private equity, infrastructure and illiquid credit.

The Danish Financial Supervisory Authority (FSA, Finanstilsynet) announced this afternoon that it had carried out a series of inspections into how frequently several pension funds under its supervision were conducting ongoing valuations of their unlisted investments, and the resulting individual reports show it has issued all with official orders to correct the way they do things.

Alongside ATP,  the Danish Doctors’ Pension Fund (Lægernes Pension); P+, the Pension Fund for Academics; Sampension and three independent pension funds it runs – the Pension Fund for Architects & Designers; the Pension Fund for Agricultural Academics and Vets, and the Pension Fund for Technical and Diploma Engineers were all criticised in inspection reports and official orders.

The FSA said that ATP, life insurance companies and other firms had to have processes and methods that ensured the valuation of their alternative investments was continuously carried out at fair value – a requirement the watchdog said it had referred to in its report ‘Pensions sector – Continuous valuation of alternative investments in 2020’.

“This implies that the company ensures necessary value adjustments take place sufficiently quickly and frequently,” the FSA said.

“The company must have valuation processes that support this, e.g. in the event of relevant market movements and significant changes in the risk picture,” it said.

Following its probe into alternatives valuations, the Danish FSA at the end of December 2020 called it “remarkable” that there was such a wide discrepancy between the valuations individual pension funds arrived at.

More recently, after analysis by independent adviser Nikolaj Holdt Mikkelsen in January this year revealed wide differences in a range of pension providers’ stated returns for private equity, the FSA said there was further to go on alternatives valuations and that it would focus on this issue particularly in future inspections.

The FSA has now given ATP, the DKK686.7bn (€92bn) labour-market supplementary pension fund, two orders regarding the frequency of the valuation processes and the adequacy of risk measurement.

The assets in question comprise a significant portion of ATP’s assets, since the pension fund had around DKK30.5bn of infrastructure investments at the the end of 2022, some DKK26.2bn in credit and about DKK45.4bn in private equity, according to the FSA.

The FSA said in its report on ATP that while it found the pension fund had established processes and methods for the ongoing valuation of alternative investments, it did not consider those processes sufficiently ensured that there was an ongoing valuation of the company’s alternative investments at fair value.

ATP had set limits in the form of threshold values for which fluctuations in liquid market indices were required before the company analysed the need for a value adjustment, the authority said.

“The FSA assessed that the set threshold values for measuring the risk for some of the company’s alternative investments were too high and did not reflect the risk on the liquid market indices used,” it said.

In response, Kim Johansen, group director and chief risk officer at ATP, said: “We believe that our methods and frequency of valuing alternative investments are appropriate in relation to ATP’s business model and investments, but we take note of the orders and are well on our way to implementing measures accordingly.”

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