An Investing Giant Tells Denmark Its FX-Peg Demands Are Unfair

Jul 17, 2017 1:55 am ET

(Bloomberg) -- When Denmark’s currency peg was hit by the biggest attack in its history, the central bank warned domestic pension funds not to join the bet. Two years later, the country’s largest commercial pension fund is questioning the demands made on his industry.

“I love my country but I can’t have a special policy,” said Allan Polack, chief executive officer of Copenhagen-based PFA Pension A/S, which has $95 billion under management. If one of Denmark’s biggest companies were to collapse and the fund was asked, “ ‘Couldn’t you go in and do something?’ No, we cannot.”

After Switzerland sent its franc into a free float in January 2015, speculators turned to AAA-rated Denmark, betting its krone was too strong to stay pegged to the euro. But they were soon overtaken by the country’s own pension funds, which put even more pressure on the peg.

Central bank Governor Lars Rohde recalled that “cold and dull Thursday in January,” in a July 3 speech at a seminar organized by the Swiss parliament’s finance committees. He says domestic investors, led by pension funds, eventually were responsible for two-thirds of the inflow.

Polack says his industry had no choice. “We have an obligation to maximize returns the best way we can, not to save the Danish currency, or whatever,” he said. “We cannot really do any particular protection of a currency or a particular asset.”

Denmark has pegged its currency to the euro since 1999, and before that to the German mark. The fixed-exchange rate policy helped rescue the country from huge deficits more than 30 years ago and now enables businesses and institutional investors to move about in most of Europe’s markets without the hassle of costly currency hedges.

There’s no immediate threat to the peg and Polack says it wouldn’t make investing sense now to bet against the regime.

“I am quite convinced that it will be a waste of money to start to hedge that currency risk for us,” Polack said. “I think the central bank was very firm in its policy and in its acting, so I think the speculation will not start.”

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