“A big failure”, that’s how the CEO of the largest pension fund in Sweden, Magnus Billing, called the investment bet of 2.1 billion dollars in the three American banks Silicon Valley, Signature and First Republic, in an interview he gave to “Bloomberg” today (Tuesday). Elekta manages the pension investments of 2.6 million of the country’s citizens.
● Employees who bought shares of an American bank lost 500 thousand dollars in three days
“Obviously this is a big failure for us as investors,” admitted Billing. According to him, Electa reviewed its investment strategy and focused on identifying new opportunities that would provide better returns to its shareholders: “We need to learn something from this and take actions based on the lessons learned,” he said in an interview.
Yesterday the fund announced that it will likely sell all of its holdings in Silicon Valley Signature Bank, which amount to $1.1 billion. Electa’s loss may increase if First Republic also gets into trouble, since it invested $915 million in it.
Is the investment strategy flawed?
The losses caused an uproar in Sweden in light of the company’s decision to sell its investments in two Swedish banks – Svenska Handelsbanken AB and Swedbank AB – and invest in US sectorial banks, SVB and Signature Bank.
The criticism stems from the fact that Elekta made the decision betting that the American banks would generate better returns, and sold its investments in two established Swedish banks. However, US banks have turned to sectoral markets, such as startups and crypto, which may be subject to higher volatility and risks.
In an interview, Billing said he “doesn’t expect any value from Silicon Valley or Signature Bank,” while “First Republic is very volatile but we haven’t made any significant decisions about that bank.”
The fund’s investments in American banks began back in 2017, and the allocation has increased over the years. With the beginning of the crisis, the fund held discussions with Silicon Valley regarding its situation, while interest rates in the US rose, the bank’s clients, many of them startups, had to withdraw funds from it and the bank had a large holding of mortgage-backed bonds that decreased in value.
“Silicon Valley has been transparent about their plan of action and we thought it was well thought out,” Billing said. “Then last week the company did not act in accordance with the action plan we talked about – which surprised us, and I think it was a big mistake on the bank’s part.”
Still, it should be noted that the failed investments in the US are equal to about 1% of the total assets managed at Elekta, reassured the CEO, adding that the pension systems in Sweden and the Nordic region are “very immune”.
At the same time, the Swedish Financial Supervisory Authority (FI) announced that it is organizing an extraordinary meeting between insurance and occupational pension companies and banks. Its purpose is to find out the exposures that the banks in the US may have and the extent of the possible spillover of the crisis to the Swedish banking system. The Swedish financial sector is not affected by this, as it has considerable resilience.”