Danish labour-market pension fund PenSam has been handed several official orders by the Danish FSA (Finanstilsynet) to correct procedures around its private equity investments – which make up 6% of its DKK173bn (€23.2bn) total assets.
In an inspection in January, the Copenhagen-based financial watchdog found shortcomings in the pension fund’s documentation of ongoing monitoring and assessment of the private equity portfolio’s performance, and also criticised the pension provider for not validating the assumptions used in its private equity valuation model.
PenSam responded to the statement from the FSA in simple style, saying on its website: “PenSam Pension has taken note of the orders.”
In the FSA’s announcement released today, it said it carried out an inspection of PenSam Pension insurance company in January this year, where the focus was on private equity investments.
The statement on PenSam’s private equity investments was one of several statements it was making in connection with its inspections focusing on private equity, the watchdog said.
“The inspection included the company’s organisation and resources, investment strategy, investment processes and ongoing valuation of investments in private equity,” it said.
Among criticisms made, the agency said it found PenSam had not set clear requirements for the handling of fund managers’ periodic reports and performance statements – as well as for the ongoing dialogue with fund managers.
It also said there were shortcomings in PenSam’s preparation of the return/risk ratio for the individual fund investments, as the company did not take enough account of the underlying risks in the investment funds in the calculated risk premiums – e.g. leverage, currency and liquidity risks.
While acknowledging PenSam had implemented a new valuation model to ensure that the quarterly valuation of private equity investments took place at fair value, the FSA said the firm had not validated the assumptions, data basis and assumptions used in the valuation model.
According to the FSA, at the end of 2021, PenSam had DKK10.8bn of private equity investments, corresponding to 6.1% of its total investment assets. At the end of November 2021, PenSam’s PE portfolio consisted primarily of buy-out investments divided between a few managers and to a somewhat lesser extent, venture investments.
PenSam had total assets of DKK173bn at the end of 2021.