LHV pension funds entering the big league

Tõnis Oja
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Photo: Peeter Langovits / Postimees

With five fund managers currently operating on the pension funds market, it's four soon in all likelihood. To the knowledge of Postimees, Estonian branch of Danske Bank is intending to sell its subsidiary Danske Capital, a pension fund manager. The deal ought to be finalized within a month.

Danske Bank, among the largest in Scandinavia, said at the beginning of last February it was exiting retail banking in Estonia and other Baltics to focus on corporate banking and private banking i.e. servicing the wealthier clients mainly.  

While publicly claiming it was not giving up pensions biz, in the selfsame February Danske proposed to asset managers operating on the market to take over its funds.  

Even in May, then CEO of Danske Bank Aivar Rehe maintained they were not about to exit the pension funds business.

«Danske Capital will be servicing its clients,» Mr Rehe assured Postimees.

According to a source well versed in the banking market, the topic faded for a while but in the fall Danske’s urge to sell again became pressing and it is said the deal will be done during the month to come.  

As half-baked deals are rarely commented, neither LHV nor Danske Bank declined to do so. After Postimees covered the planned deal in its web portal, LHV issued a stock market release claiming that neither LHV Group nor its subsidiaries have entered any transaction to purchase a fund manager.

«We are able to confirm that the bank has not entered into any such contract,» also affirmed Danske Bank communication manager Tõnu Talinurm.

To the knowledge of Postimees it is not Danske’s pension funds that are for sale, but Danske Capital as a company. In addition to managing pension funds, Danske Capital manages securities portfolios for other investment funds and institutional and private clients, while lion’s share of the business are still pension funds.

The takeover of Danske’s pension funds would be the second such deal in the past two years. In 2014, Nordea took over Ergo’s pension funds which were merged into the corresponding Nordea funds. That left the local market with one biggie (Swedbank), two mid-sized (LHV and SEB) and two small fund managers (Danske and Nordea).

After Danske’s pension funds are taken over, only four would be left. Swedbank would continue as the largest with second pension pillar portfolios total volume of €1.1bn. While LHV volume currently stands at half of what Swedbank holds, after the takeover it would rise to be a serious competitor with total volume of funds at about €780m.

What of Danske pension fund clients? Unless they so desire, nothing will change for them.

Pension funds management fee depends on the size of the fund – the larger its total volume, the lower the management fee. Having taken over Danske’s pension funds, LHV second pillar volume goes up by a third and the service fees for clients ought to drop.  

Still the issue arises if Danske’s pension funds clients can change their fund as usual  (to swap funds, a person pays one percent as administration fee) or is it possible to exit the fund for free after the merger during some period of time.

Nordea bank says that as Ergo’s funds were joined to theirs, clients were offered the option to move their assets into another fund for free if investment strategies varied between the funds. With some funds, that was indeed the case.

For LHV, takeover of Danske’s pension funds would not be the first such transaction. In 2004, LHV took over the pension funds of Seesam. At the time, LHV had two and Seesam had three second pension pillar funds. All still operate under LHV management.

Nordea merged the Ergo funds which it took over with its own.