Major pension funds in the Nordic region are taking a flexible approach to dividend decision-making at companies they invest in, saying they well understand if cash-strapped firms retain shareholder payouts given the COVID-19 crisis.

Authorities in Sweden and Denmark have spoken in the last few days to say some commercial enterprises should not be distributing dividends under current circumstances.

Henrik Olejasz Larsen, chief investment officer of Sampension in Denmark, told IPE that ordinarily, his pension fund favoured the expansion of companies it invested in, expecting them to turn to the pension fund and other shareholders when they need new capital, while also returning excess capital to the owners.

“But when times are uncertain for companies – as they are now, with some even unsure whether they have access to their customary bank facilities – then we fully understand if they decide to suspend their dividend payment,” he said.

However, in that case, Sampension would expect firms to explain why they are withholding the dividend, and name the conditions under which they would resume the payout, he said.

“That is what we would expect of them and I’m sure they will get the best market reaction if they are clear about these strategies,” the Sampension CIO said.

Asked for its attitude to dividend distribution from companies it invested in – particularly local ones – the country’s largest pension fund ATP said firms had to think carefully.

Henrik Olejasz Larsen, Sampension

Henrik Olejasz Larsen, Sampension

“In the present circumstances we believe that paying dividends or making share repurchases should rely on a thorough and a very careful assessment by each company as to financial capacity,” Claus Wiinblad, head of Danish equities told IPE.

“However, in general we fully understand that currently most companies are cancelling their dividends,” he said.

At the beginning of this week, the director general of the Danish FSA (Finanstilsynet), Jesper Berg, said the watchdog believed the banking sector should avoid reducing its capital base right now by paying dividends or making share repurchases.

“This is in light of the great uncertainty surrounding the economic development of COVID-19,” he said.

The FSA was in ongoing talks with credit institutions about their capital planning, he said.

“Last week we wrote to a number of the largest banks to convey our view on currently postponing distribution decisions until they have a clearer picture of the financial consequences of the crisis in both the short and the long term,” he said.

Over in Sweden, Per Bolund, the minister for financial markets, said in a weekend radio interview that it would be highly irresponsible for companies to take part of the government’s different support packages while at the same time giving stock dividends to shareholders.

If they did so, he said, the government would set conditions for receiving support.

AMF, Sweden’s second-biggest pension fund, told IPE it shared the view of the Swedish FSA (Finansinspektionen) that it was important now to safeguard a stable supply of credit to households and firms, and to maintain good resilience in the system.

“No dividend payment should be allowed to risk this,” a spokesman for the firm said, adding that this was very important for AMF both as large Swedish owners and investors.

But it was down to individual boards to prepare proposals to annual general meetings on any dividend payments, he said.

“The board of directors has the best available information to decide whether dividends payments is possible right now without risking the long term success of the company,” he said.

“The board of directors has the best available information to decide whether dividends payments is possible right now without risking the long term success of the company,”

Spokesman at AMF

If the board concluded it was possible, and AMF agreed, then he said the firm would probably support such a proposal.

At Alecta, chief executive officer Magnus Billing said his firm’s mission was to manage occupational pensions and thereby create as much value as possible for its customers.

“At the same time, as a social actor, we must help to alleviate the effects of the (coronavirus) crisis on the economy. It is a balancing act that requires balanced assessments,” he said.

As far as dividends were concerned, he said, it was important to assess from company to company whether these were appropriate.

If a company needed – or could be expected to need – state support due to the crisis, Billing said it was then not appropriate to distribute capital to the shareholders.

State pension buffer fund AP4 also said the issue of whether dividend distribution was appropriate had to be assessed on a case-by-case basis.

“We believe that there is a very great understanding of the boards that choose to propose reduced or completely retained dividends in order to safeguard the company’s liquidity at a time of very great uncertainty,” Per Colleen, the pension fund’s head of fundamental equities told IPE.

Across the border in Norway, municipal pensions giant KLP said it encouraged all its portfolio companies to be proactive and conservative regarding upcoming dividend payments and other shareholder distributions, given the current market uncertainty.

“KLP trusts that boards evaluate all aspects of their respective market outlooks, and take these into consideration with regards to shareholder distributions,” portfolio manager Synnøve Gjønnes told IPE, adding that in particular, this included the need for government aid.

“We further highlight the opportunity for boards to postpone dividends, rather than suspending them, providing some flexibility in terms of shareholder distributions,” she said.