DENMARK – Danish engineers' pension fund ISP has been told by the country's financial regulator to cut the valuations on a substantial portion of its property portfolio, as it said six properties were overvalued by DKK160m (€21m).
Pensionskassen for Teknikum og Diplomingeniører (ISP), the DKK15.1bn industry-wide pension fund for technical and BSc engineers, has now re-calculated the 2011 and 2012 value for its overall real estate holdings.
The fund cut its 2011 valuation to DKK1.45bn from the DKK1.61bn originally given in the annual report. For the end of 2012, the portfolio's value was changed to DKK1.40bn.
In a statement, regulator Finanstilsynet said: "Finanstilsynet estimates that the pension fund valuation in six out of the seven properties at the time of the study was too high and did not reflect fair value.
"The FSA also believes that the property depreciation occurred at an earlier stage than at the time of the FSA investigation," it said. This deterioration of value amounted to DKK161m, it said.
Commenting in its 2012 annual report on the watchdog's demand for re-valuation, ISP said simply that it had carried out the change.
"The pension fund's solvency situation has improved in the course of 2012 despite the write-down," it added.
The regulator said it had carried out an investigation between May and July 2012 into seven selected properties in ISP's real estate portfolio.
These properties constituted around two thirds of the fund's total portfolio at the end of 2011, it said, adding that they were chosen for inspection using a risk-based approach.
According to the executive order on financial reports for insurance companies and lateral pension funds, after the first entry investment properties have to be booked according to fair value, it said.
ISP had made an error both in its annual report for 2011 and the first half 2012 interim report, the regulator added.
This failure to revalue the properties had affected the fund's own capital significantly in both annual and interim reports, as well as affecting its profit and investment return in the annual report, it said.
It told ISP to correct the mistake in its 2012 report in accordance with the executive order.