Denmark’s largest commercial pension fund PFA is now working on the assumption that a downturn in private market assets is almost inevitable, and is positioning its portfolio to protect value.

Henrik Nøhr Poulsen, CIO of equities and alternatives at PFA Asset Management, told IPE Real Assets: “When we look at private transactions, we haven’t seen any price corrections yet – in real estate, for example.

“Listed equities have been through a correction, but private markets have not, and that is a bit of a warning sign.”

The situation raises the question of whether investors are factoring in all the risks in private markets, he said.

It was almost inevitable that private markets — including those for real estate, infrastructure and equities — would soon weaken, Nøhr Poulsen said.

“If listed equity markets were to recover, and economic growth return to previous trend levels, then it could be fine, but otherwise, it will be reflected in the private markets,” he said.

“Our main scenario is that there will be a slowdown in trades, and you could see that spilling over in the price drops.”

PFA is positioning its portfolio in response, although Nøhr Poulsen said it would continue to invest.

“We are still investing actively,” he said. “We still look at opportunities but it has to be at lower risk levels.

“We are pleased with the assets we have got on board, but in the listed portfolio we have been taking risk down.”

PFA, which had total assets of DKK582bn (€77.9bn) at the end of June and has been increasing its allocation to alternatives steadily in recent years, is not under pressure to invest more in private markets at the moment, Nøhr Poulsen said.

“Last year we invested DKK17bn in alternatives and the year before was DKK17bn or DKK18bn as well,” he said.

“Given that we expected to invest DKK10bn to DKK15bn a year, we’ve been ahead of the curve. So we don’t have any pressure to invest now and can therefore be very selective.”

Last autumn, PFA had around 17% of its total assets in unlisted assets. It is aiming to increase this to 25%.