Danish pension and insurance providers continued to expand their allocations to unlisted investments in the first half of this year, with those assets now accounting for more than a quarter of all portfolios, according to new statistics from the bank central part of the country.
At the end of June, the average allocation to unlisted investments for pension and insurance activities stood at 27%, up from 23% at the start of 2018, according to figures from Danmarks Nationalbank.
“The low interest rates on bonds in recent years have helped the insurance and pensions industry to invest more pension savings in unlisted assets,” Danmarks Nationalbank commented in the statistical statement.
In the second quarter of this year, the industry invested an additional DKK 8 billion (€ 1 billion) in unlisted assets, and for the entire January to June, the sum stood at 45 billion DKK.
Since the start of 2018, the bank said the industry has invested DKK 206 billion in unlisted investments.
The increases are due in part to investors putting more money into unlisted assets, he said, but also to changes in asset values.
The bank said unlisted assets may have a higher yield than their listed counterparts, in part because they are often less liquid than listed investments and therefore may be more difficult to sell in the short term.
“Insurance and pension companies interested in long-term investments can thus reap a liquidity premium when they invest in unlisted assets,” the bank said.
The overall figures for investments in unlisted assets were broken down into four categories, with the bulk of recorded investments being made through vehicles such as trusts, which the bank said included hedge funds, funds of venture capital and capital as well as private equity firms.
New investments by the pension and insurance sector in these vehicles amounted to DKK 11 billion in the second quarter, bringing the total held by investors to DKK 588 billion.
In contrast, the cumulative future of the category of unlisted credit investments made by the sector declined in the second quarter by DKK 3 billion.
This investment category mainly includes real estate and business credit, trusts and business services, the bank said.
New real estate investments made in the second quarter – directly or through companies – amounted to DKK 3 billion between April and June, according to statistics.
In the last category of “other” unlisted investments, DKK 2 billion of assets were sold in the second quarter, according to the figures.
Pension funds in Denmark and elsewhere have viewed unlisted or alternative assets as a key part of their return strategy amid historically low bond yields.
Denmark’s largest commercial pension provider, PFA, said earlier this year that after increasing the weighting of its alternatives in recent years, it still has the ability to expand it further.
At the same time, the Danish Financial Supervisory Authority is examining the pension industry’s assessments of alternatives in light of sharp price swings in financial markets and in June called on pension funds to explain their valuation methods. relating to real estate, private equity, infrastructure and illiquid credit investments. .