The head of Danish pension fund management firm LD Funds has said that despite the depleted resources its new holiday fund is now set to have, the fund will still be able to have a good investment strategy.
Earlier this month, politicians decided to give Danes early access to three of the five weeks of holiday allowances that had been due to be managed by LD Funds until their retirement – in a bid to boost the economy in the wake of COVID-19 restrictions.
The decision means the holiday fund – LD Feriemidler, one of the two funds LD Funds manages – is now to have total assets of around DKK40bn (€5.4bn) rather than the approximately DKK100bn originally envisaged.
In a question-and-answer column on the Copenhagen-based manager’s website, LD Funds chief executive officer Dorrit Vanglo responded to a question on whether her team could still have a good investment strategy given the sparser resources coming to the fund.
“Yes, I think we can,” she said.
Firstly, Vanglo pointed out, the idea had never been that the holiday fund would receive the entire DKK100bn to invest, but only the proportion of that sum volunteered by employers.
Under the plan – which is the result of Danish holiday law being aligned to EU rules – firms are allowed to retain the holiday allowances, with their liability in that case becoming a loan from LD Funds.
“Secondly, it should be said that the money is put on top of the resources in our other fund, Lønmodtagernes Dyrtidsmidler,” she said.
“And if they say we are getting DKK40bn paid in, then the asset total will be larger than it ever has been in the entire history of Lønmodtagernes Dyrtidsfond,” said the CEO.
Apart from this, Vanglo said LD Funds had set itself up in such a way that costs were very dependent on how much money it had under management.
“This means costs will be lower the less money we have. So we can easily manage cost-effectively,” she said.
Vanglo was also asked if LD Dyrtidsmidler – a declining fund based on cost-of-living allowances granted to workers in 1980 – would be able to survive if a decision was made this autumn to pay the rest of the holiday allowances out as well.
She answered that in that situation, things would be the same as they had been a few years ago before the new opportunity of the holiday fund had even arisen.
“So we would continue on the basis that the cost-of-living allowances have been on for 40 years now, and then it would be clear that at some point the assets would become so small that it made no sense to maintain an independent administration anymore,” she said.
At that point, Vanglo said, the firm would have to look at how to shut down.
“But that is not relevant for the next couple of years at least,” she said.