Investing in alternatives such as unlisted companies (private equity), property and infrastructure is a complex matter. These investments are typically resource-intensive to manage, and as they are not traded on a stock exchange, they can be difficult to value. However, investment in alternatives is expected to boost long-term returns. That is why LD Pensions is now exploring new avenues to incorporate alternative investments into its portfolio.
In our efforts to find a model for alternative investments that suits our size and business, we have chosen to invest through listed investment companies specialising in alternative investments. The market is growing and presents an obvious opportunity for us, as we are looking to invest up to DKK 2 billion.
There are currently around 400–500 publicly listed alternative investment firms worldwide.
The new model for alternative investments fits within the operational framework already in place at LD Pensions. The model also has the advantage that daily market prices provide information which LD Pensions can use to value its alternative assets.
Helps to diversify the risk in the holiday allowance funds’ portfolio
LD Pensions manages two funds – The Cost-of-Living Allowance Fund and The Holiday Allowance Fund. It is within the Holiday Allowance Fund that the new investment model is to be implemented. This is partly because it has a longer investment horizon than the cost-of-living allowance funds.
“The new model for investing in alternative assets is designed to ensure that our members with frozen holiday allowance funds can share in the long-term return potential of alternative investments and achieve even better risk diversification. In the long term, the hope is, of course, that we can offer our members an even better return,” says Kristoffer Fabricius Birch.
Close collaboration with an investment adviser is set to pave the way forward
In order to create the best framework for the new model for alternative investments, LD Pensions put an investment mandate out to public tender within the EU just before the summer. The deadline for submitting bids has just passed, and there has been considerable interest.
“We have received 12 serious bids, which we are now looking forward to examining in detail. As the market is still developing, we were keen to see whether we could find the right partner. Fortunately, things are looking promising,” says Kristoffer Fabricius Birch.
The investment adviser that LD Pensions ultimately chooses will help to build up the portfolio of investment companies. Initially, the focus will be on unlisted companies, but other alternative investments may also be considered at a later stage.
Key facts about LD Pensions and the Employees' Holiday Allowance Fund
- LD Pensions manages both the Cost-of-Living Allowance Fund and the Holiday Allowance Fund, and has total assets of DKK 46 billion.
- The Holiday Allowance Fund comprises employees' frozen holiday allowance in connection with the transition to the new Holiday Act, which came into force on 1 September 2020.
- The investment portfolio of the Employees' Holiday Allowance Fund has been under development since 2021. A very cautious strategy was required initially, partly as a result of two rounds of early payouts.
- The Holiday Allowance Fund comprises an investment portfolio of financial assets and a receivable from employers who have retained holiday allowance within their companies. The holiday allowance currently accounts for 33 per cent of total assets, but this figure is being reduced as companies make their payments.
Key facts about listed investment companies
- Listed investment companies are so-called closed-ended funds, which issue a fixed number of shares to raise capital for their investments. As a rule, it is not possible to inject further funds into the company or to reduce the number of shares issued. The investment company’s shares are listed and traded on a stock exchange.
- Listed investment companies can invest in various asset classes. A large and growing proportion of listed investment companies are investing in alternative assets, including private equity, property and infrastructure.
