Stockholm (NordSIP) – Following over two years of investigation into Alecta’s 2023 risk management practices and its exposure to Silicon Valley Bank, First Republic Bank and Signature Bank and their downfall, Sweden’s financial services authority (FSA) (Finansinpektionen, FI) has cleared the pension fund of any wrongdoing.
“It is clear that Alecta suffered large losses as a result of these investments, but we cannot conclude that Alecta has violated the regulations,” says Leonard Weber Landgren, Executive Director of Insurance at FI. According to the regulator, the investigation has focused on whether Alecta has fulfilled the requirements for measuring and valuing risks in listed shares and did not reveal any violations of the rules in Alecta’s risk management system for valuing investment risks.
With this announcement, Alecta only has one of the two investigations FI launched in 2023 left.
Alecta’s Troubles
2023 was a difficult year for Alecta, Sweden’s largest pension fund. Trouble at Alecta started brewing in the aftermath of the bankruptcy of Silicon Valley Bank (SVB) during the first quarter of 2023. Alecta reported an exposure to SVB of just under SEK9 billion, equivalent to 1.8% of its SEK500 billion equity portfolio at the time.
There were concerns that Alecta’s investment strategy had failed and that the company had suffered from its inability to deal with the fact that its CIO, Henrik Gade Jepsen, had been on long-term sick leave due to complications from a COVID infection. Reacting to this chaos, FI announced it had opened an investigation into Alecta’s investments in Silicon Valley Bank, First Republic Bank and Signature Bank, on May 4th 2023.
“Our task is to prevent and remedy problems in the financial market. We will now investigate whether Alecta has had control over its risks in the way that the regulations require. Basically, it is about securing and protecting pension savers’ money,” Ellinor Samuelsson, Head of the Risk Supervision Insurance Department at FI, said on that occasion.
Overhauling Alecta
In reaction to this shock, Alecta underwent a significant management change focused on overhauling its governance structure.
On April 4th, Alecta’s Head of Equities, Liselott Ledin, was replaced by Ann Grevelius, the former CIO of SEB. By April 11th, it was the turn of CEO Magnus Billing to leave, replaced in June by Peder Hasslev. To turn a page, Alecta also hired Pablo Bernengo as its new CIO at the start of August, followed by the appointment of Magnus Tell as Head of Equities one month later. By October 2023, it was the turn of Alecta’s Board’s Chair, Ingrid Bonde, to leave, starting a search for a new Chairperson, which culminated in the hiring of Carina Akerstrom. A month later, William McKechnie, General Counsel and Head of Legal, Purchasing and Sustainability was also let go.
Independently, and in parallel to FI’s investigation, Alecta also opened an internal investigation. The internal audit, published in Alecta’s 2023 Annual Report, found that Alecta executives and Board were not personally liable for the losses experienced in 2023.
Reacting to FI’s present decision, Alecta highlighted its initiative in making these changes. “Independently of FI’s investigation, we initiated work in 2023 to assess whether we needed to implement improvements in our organisation, given what happened in the US banks and the situation with Heimstaden Bostad,” Alecta said in a press release (translated).
“The work made it clear that we needed to improve and strengthen our asset management, which resulted in an ambitious and comprehensive improvement program with a focus on governance, risk management and competence,” Alecta added. “The improvement program has been implemented, which has made Alecta stronger and safer for our customers,” says Peder Hasslev, CEO of Alecta (translated).
One More Investigation to Go
The downfall of the three American banks was not the only trouble Alecta faced in 2023. During the years of low-interest rates following the Great Recession 2007-09, investors were forced to consider investment opportunities that had been heretofore unexplored. Real estate offered very appealing returns, so many investors turned to this sector.
Alecta was no exception and invested SEK49 billion (4% of Alecta’s total assets under management) in Heimstaden, a Nordic real estate company. However, with the rise of interest rates, since the start of the war in Ukraine and the associated rise in inflation, real estate companies which tend to be leveraged or exposed to indebted homeowners, found themselves struggling.
By September 2023, Alecta’s CEO noted that the return on these investments had stopped being competitive and the Swedish financial services authority, FI began investigating Alecta’s investments in Heimstaden.
In its latest announcement clearing Alecta of any wrongdoing in its investment into Silicon Valley Bank, First Republic Bank and Signature Bank, FI was clear that this decision does not cover its investigation into the investments in Heimstaden Bostad, which is still ongoing.
