Danish FSA warns pension funds of weaker illiquid credit conditions | New


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Denmark’s financial watchdog has laid out his expectations for how the country’s pension companies should manage the heightened risks associated with illiquid credit, warning them to heed the pressure on credit premiums and an easing of debt. credit terms.

The Danish Financial Supervisory Authority (FSA, Finanstilsynet) outlined the priority areas of its scrutiny of the asset class in a report on the study it has carried out over the past few years on investing in credit illiquid realized by life insurance companies, side pension funds, ATP and LD Pensions.

This thematic study included a written survey of all pension funds and on-site inspections in four organizations selected between February and August 2019.

As a result, in recent months ATP, P + and Velliv have received various official instructions to correct some of their procedures relating to risk management around illiquid credit.

The FSA said: “The study showed that most pension companies had investments in illiquid credits and generally expected to maintain or increase their exposure.

“At the same time, pension companies have mentioned factors such as pressure on credit premiums and more lenient credit conditions,” he said.

The agency said it was important for companies to know they need to ensure their boards of directors establish a guiding risk profile for illiquid credit investments that is sufficient to allow for proper identification and oversight. risks in credit investments – including investments made through funds.

Another area of ​​review was, according to the FSA, that the models and data of pension companies used to measure risk, risk management and asset allocation should reflect the risks of the investments in question.

“The Danish Financial Supervisory Authority expects pension companies – as part of allocation considerations and analyzes, for example determining expected future returns and correlations between asset classes, etc.

Examples of these changes were the tendency to shift some loans from the banking sector to other investors and weaken loan terms, the watchdog said.

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