Denmark to oversee pensions’ alternatives programmes

Inspections by the Danish financial services authorities will become more frequent following ‘concerns’ about the alternatives investment skills of pension funds.

The Danish parliament has approved government proposals for greater oversight of pension fund investments in alternatives after the Danish Financial Supervisory Authority (Finanstilsynet) outlined concerns over the process.

After plans were first detailed by Denmark’s Business Minister Brian Mikkelsen in March, the Parliamentary Finance Committee has granted a total of DKr 13 million ($2 million; €1.7 million) to Finanstilsynet to help strengthen the controls of the body, with part of the added responsibility also allocated to strengthening cyber security efforts in the financial services sector.

The new measures come amid a significant growth in alternative investments from Danish pension funds. The proportion of alternative investments in pension funds’ portfolios increased from 7 percent at the end of 2012 to 9.3 percent at the end of Q3 2016, according to Finanstilsynet, with infrastructure seeing an increase from about 5 percent to just over 8 percent. This, the authorities say, has brought substantial extra risks to the pension fund portfolios.

“[Finanstilsynet] has on numerous occasions expressed its concern about the general level of the necessary skills in the pension funds in relation to due diligence, risk management and ongoing management of the investment as well as valuation, when it comes to alternative investments,” a spokesman for the body told Infrastructure Investor.

“It has been granted additional funding to intensify, amongst others, the supervisory activities in this field. This will materialise in more frequent on-site inspections with a focus on alternative investments in Danish pension funds.”

Finanstilsynet added that such inspections will focus on meetings between inspectors and the financial company’s senior staff, a format it says is regularly used by the body.

The PensionDanmark fund, one of the country's largest, declined to comment.