Shuttering of Investment Funds Triggers Probe in Denmark

(Bloomberg) -- Denmark will review its investment fund industry after some clients were prevented from redeeming their money.

Jesper Berg, director general of the Financial Supervisory Authority in Copenhagen, said he’s “afraid for the long-term reputation of the industry.”

Until this month, Danes were plowing money into funds, particularly after banks began passing on negative central bank rates to depositors. Flows into the industry in January and February were almost equivalent to the total for 2019.

But the retail funds, which manage around 915 billion kroner ($135 billion), have come under severe pressure, after underlying prices for stocks and bonds plunged during the global sell-off that started mid-February. The industry needs to balance between maintaining liquidity and ensuring investors who exit first don’t leave those behind at a disadvantage, Berg said.

Funds shouldn’t “redeem investors at favorable prices compared to those who stay in,” he said. Halting redemptions “is an instrument they can use, but it shouldn’t be used lightly. We will look into how it has been used.”

In neighboring Sweden, more than 30 bond funds temporarily suspended trading in March. In Denmark, Jyske Bank also suspended trading of some of its investment funds. Other Danish funds that were suspended include those run by Formuepleje, Sparinvest, Alm. Brand Invest and PFA Invest.

©2020 Bloomberg L.P.

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