Danish pensions and insurance companies have agreed on set of common guidelines about how to value unlisted assets, following pressure from the country’s financial watchdog, which described as “remarkable” the differences in the way firms current do this.
Lobby group Insurance & Pension Denmark (IPD) has now published a recommendation for the common guidelines on transparency around the valuation of the unlisted assets, under the five headings of frequency of valuation adjustments; materiality and proportionality; consistency; verification and publication.
Kent Damgaard, chief executive officer of IPD, said: “With these guidelines, we are creating clarity about how companies handle this.”
Unlisted assets had made up around a fifth of pension firms’ investment universes in recent years, IPD said, because these investments typically had more stable values than listed shares while providing higher returns than bonds.
Damgaard, said: “It’s quite indisputably in the interest of pension customers that part of their savings is invested in unlisted assets, and it’s also in the interest of the climate and society – because green investments in, for example, wind farms, are typically in that category.”
IPD said unlisted investments varied widely, and the grouping included wind turbines, energy supply, road construction, ports and airports, properties and more.
The industry group said last November that its members were cooperating via the association on the project.
The Danish FSA has had a particular focus on the valuation of alternative assets such as real estate, infrastructure and private equity – which are not listed on stock exchanges – in the last few years.
Last June, the financial supervisor launched an investigation into the ongoing valuation of alternative investments by pension providers, after the firms were hit by investment losses in other asset types as a result of the COVID-19 pandemic.
In December, the FSA expressed dismay at the way the country’s pensions sector adjusted the valuations of unlisted assets, describing the wide discrepancy between methods as “remarkable.”
IPD said today that although the rules for valuation of unlisted assets were “really good and robust”, they contained “significant elements of estimation, because no prices or prices can be observed in the market”.
In brief, IPD’s recommendations for the guidelines are:
- Frequency – all companies must have guidelines for how often unlisted assets are valued.
- Materiality and proportionality – firms must have guidelines for how materiality is to be assessed when doing the valuations, relating both to the individual customer and to the company’s total portfolio.
- Consistency – firms must have guidelines for making sure the principles and methods of valuation are consistent over time.
- Verification – companies must have guidelines for verifying the valuations made, as well as how often this testing is carried out for different types of asset.
- Publication – firms must publish on their website (in the so-called SFCR report) information on the valuation of unlisted assets in accordance with the jointly-agreed guidelines, but not in so much detail that it could be misused to speculate against the community.