November 2021 – Carsten Grohn, Head of Alternative Investments, PenSam

Carsten, thank you for making time to join us on Private Capital Call.

1. Private Capital – PenSam is a labor market pension fund with an AUM of USD 30 billion, responsible for managing and growing retirement assets on behalf of workers across Denmark. How does private capital play a role in your investment objectives? 

PenSam has a net growth of USD 1 billion per year. Private Capital and Real Assets have for a number of years been the preferred allocation objective for reinvestments and new capital. That is expected to continue in our search for long stable risk adjusted returns. In general, we consider private capital to be a strong environment for developing new investment product to benefit the guaranteed returns for our beneficiaries. Even though private equity trades at high multiples, we still see strong deal flow and good opportunities in the market. However private credit is considered to be our growth area as this asset class seems more attractive from a risk/return perspective. The ability to provide large tickets on a repeatable scale to the unlisted market is a trade-off for a solid position in the capital stack. Also, a full covenant package and collateralized loans is quite attractive for an investor like us compared to what the listed loan/bond market is offering. Like other investors we currently are considering to reposition part of our investment grade portfolio in the private credit bucket – based on the fact that our liquidity is strong and we foresee the scenario on interest rates to be low for long.

2. Manager Selection – As a diversified pension scheme investing across asset classes and geographies, manager selection is crucial for PenSam. What do you look for specifically when selecting a manager who allocates to private capital?

With regards to diversification our investment approach is based on a portfolio perspective. The risk correlation combined with risk/return lays the path for our portfolio composition and we consider each asset class as contributors. All investment activity outside Denmark is done in collaboration with a trusted partner/manager. We look for a win/win situation in a true partnership. Mainstream products seldom fit our schedule.

3. Pandemic Response – How have you addressed or responded to the market uncertainty that COVID-19 created?

We do not consider COVID to be a permanent event. We try together with our partners to identify and utilize the opportunity-set in a volatile market the best way possible.

Has your approach to making investments changed during this time?

No, I can’t say it has. We continue to position our portfolio based on a long-term perspective. That said we try to take advantage of tactical positions in a volatile market. Like other investors we started to turn our unlisted portfolio towards lower risk in 2018 which positioned us to rebalance our position in the March 2020 dip on leverage finance. Buying stranded hotel project in Copenhagen, to cite one example.

4. U.S. Market Opportunity – What do you find most attractive about the U.S. market today?

To my knowledge the US market is the largest illiquid market in the world with a strong financial infrastructure used for financing growth in the mid market. Despite the hedging costs we still see a lot of potential in the US private credit market.

Why do you continue to allocate to the space?

Because we have a solid platform with our partners that continues to provide us access to attractive deals in the US market.

5. Future Outlook – What future opportunities does PenSam see in private market asset classes?

Primarily private credit.

Do you expect your allocations to private capital to continue growing over time?  

Most certainly.

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