Another string to its bow

Judge’s comment: “Other schemes might identify the return source, fail to find a manager and give up. Not these guys. To set up their own programme is very innovative.”

With a sophisticated twist on the more typical approach using niche manages to run specialised mandates, the €15.2bn PenSam has established itself as a specialist manager itself by creating an internal management team to develop its direct lending strategy. This is to benefit from a gap in the market that has opened up as banks have become increasingly reluctant to lend to Danish companies looking for lines of credit lines to help them grow.

The first step was to hire between four and six senior portfolio managers with bank lending experience and bottom-up credit skills to build the new team. Next, the fund needed to define the strategy it would be implementing. It determined that direct lending to Danish companies would join the satellite component of its existing credit strategy. The core consists of investments in high-yield bonds, senior secured bank loans and mezzanine loans in US and Europe, and represents some 12% of PenSam’s overall assets. The new team joins the satellite segment that already comprises externally managed lending to privately owned residential real estate in Denmark, warehouse facilities and distressed credit, and which accounts for some 2% of the fund’s overall portfolio.

Initially, PenSam sought the co-operation of banks to help it build its portfolio. The idea was that it would take over the financial risk the banks were shying away from but allow the banks to retain control over related financial transactions and to originate the loans. PenSam saw this as a win-win situation for both parties, but banks were not interested in forming partnerships of this kind.

The solution was to build partnerships instead with Danish private equity and real estate developers that were experiencing similar problems with Danish financial institutions, but that had already begun screening the market for investment opportunities and filtering those that matched their profiles and objectives. This saved PenSam time and resources while giving it the opportunity to begin implementing its strategy more rapidly. The fund also stood to benefit from the operational skills of the private equity funds and developers, adding a layer of security against the risk of a company not being able to pay its debt.

The ability to undertake deep credit analysis of potential investments was essential. This entails a thorough understanding of the target asset’s business, its corporate strategy, its accounting practices and historical audits, and its capital structure, to determine the right structure of loan. PenSam also assesses the robustness of each target under different scenarios and mitigating circumstances to determine the risk it would pose. Factors include any covenants, potential to source capital injections, and collateral value in the event of a default.

PenSam’s direct lending programme offers both mezzanine and senior loans to almost all major sectors in the Danish economy. Real estate lending currently constitutes almost a third of the entire programme. Compared to the size of the sector this is a relative large quotient, reflecting the attractive opportunities currently offered by the property markets.

With target loans anywhere in the range of DKK50m to DKK500m, there are separate strategies for senior lending and mezzanine loans, with credit maturities ranging from five to seven years. Where the deals originate is paramount for PenSam. As a pension fund first and foremost, it has little experience of day-to-day business with thousands of companies. Hence, its direct lending programme is not a mass market company loan facility but a highly specialist and flexible source of capital for bespoke solutions for target investments that match its direct lending risk return profile.

2014 Essentials



Founded in 1986

Hybrid multi-employer pensions company


  • active: 174,000
  • retirees: 81,000
  • deferred: 216,000

Assets: €15.2bn


  • one year: 11.4%

Quick facts

  • Development of internal direct lending investment team
  • Collaborative programme involving private equity and real estate developers
  • Thorough analysis to build highly specialist portfolio


  • FRR France
  • SPK Sweden


  • Penny Green
  • Joseph Mariathasan
  • Peter Martin