Technology investments are seen as part of the recipe to escape record low interest rates as Denmark’s two largest pension funds deepen their cooperation.
Henrik Noehr Poulsen, chief investment officer for PFA Asset Management, said in an interview that the privately run fund will join with government-backed ATP in investing directly in Nordic companies. PFA oversees about $83 billion in assets, while ATP manages about $120 billion for the Danish pension system.
The plan extends an agreement, announced Monday, that PFA will match a 499-million-krone ($75 million) contribution by ATP to a private equity fund that will invest in Nordic technology companies.
“We do expect there will be significant co-investments,” Poulsen said. “With low interest rates, we are actively looking for areas where we can put our money.”
Negative yields on government bonds and flailing stock markets, and now added turmoil after the U.K.’s decision to leave the European Union, are forcing the pension and insurance industry to reexamine how it operates and where it invests.
PFA Chief Executive Officer Allan Polack said already in December that the Copenhagen-based fund was considering pooling resources with other pension funds and banks to invest into new industries and geographic regions.
Some pension funds are simply giving up. Last month, PFA took over Bankpension, a deal the smaller peer said would “future-proof” pension coverage.
The pressure to generate high enough returns to meet pension obligations in such difficult market conditions has raised concerns among regulators. Denmark’s Systemic Risk Council earlier this year warned funds need to be sufficiently capitalized to absorb losses in case markets turn abruptly and “fire sales” ensue.
The extraordinary low rates are forcing funds to take bigger risks to generate returns, Denmark’s Financial Supervisory Authority last week. Even the return to normal levels carries with it risks, as asset prices are now tied tightly to rate levels, the Copenhagen-based agency said.
Poulsen said PFA decided to join ATP in investing in technology because it can tap into the expertise of Via Venture Partners, which will oversee the new venture and already manages two funds for ATP.
“You have to have deep insight into the eco system to see if there’s a new technology coming that will be superior to the one you’re looking at today,” Poulsen said. “The effort you need to put into understanding the companies and making a good investment is so much higher than with a traditional, mature company.”
PFA already is in discussions with ATP and Via Venture about direct investments, Poulsen said.
“If they come across an opportunity that’s beyond the range of the fund, we’re ready to inject money directly into companies, in a co-investment,” he said. “The Nordic region is a very innovative region when it comes to tech in general, so we expect to see a lot of interesting opportunities.”