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‘It’s a big failure for us.’ Sweden’s largest pension fund invested in both Silicon Valley Bank and Signature Bank before they failed

By Will Daniel,

2023-03-14

Sweden’s largest pension fund, Alecta, is under fire this week for investments it made into now-defunct U.S. regional banks. After the collapse of the tech-startup-focused Silicon Valley Bank (SVB) on Friday and the crypto-focused Signature Bank on Sunday—the second- and third-largest bank failures in American history, respectively—the private pension manager for 2.6 million Swedes is facing over $1 billion in losses.

“Obviously with what’s happened last week we think that it’s a big failure for us as an investor,” CEO Magnus Billing told Bloomberg Tuesday. “And we need to learn something from that and take actions based upon the lessons learned.”

Alecta began buying shares of Signature Bank and Silicon Valley Bank’s parent company, SVB Financial, as well as the regional bank First Republic Bank in 2017, and increased their allocation over the following two years. By the end of 2022, Alecta was the fourth-largest shareholder of SVB Financial, the sixth-largest of Signature Bank, and the fifth-largest shareholder of First Republic Bank—which saw its stock plummet nearly 70% alongside other regional banks Monday.

First Republic managed a more than 50% recovery as of publication on Tuesday after a massive sell-off on Monday. The company disclosed over the weekend that it had arranged a $70 billion credit facility from JP Morgan and “additional borrowing capacity” from the Federal Reserve, but shares are still down over 60% year-to-date. Alecta’s total stake in these three failed or struggling U.S. regional banks amounted to 21 billion Swedish Krona ($2.1 billion).

Billing sought to reassure his Swedish clients on Tuesday after U.S. banks’ dark start to the week, noting that Alecta’s investments in the three regional banks amount to just 1% of its total capital.

“From a customer point of view, this does not have a material impact at all. It will not impact the pensions that we are committing to our customers,” he said, calling the Swedish pension system “very robust.”

Sweden’s Financial Supervisory Authority said this week that it also believes the local financial system won’t be affected by U.S. regional banks’ issues, arguing it has “significant resilience,” The Financial Times reported Tuesday.

Billing said Tuesday that he “doesn’t expect any value” from his firm’s $1.1 billion investment into SVB and Signature Bank, but in a Swedish radio interview Monday he argued First Republic is in a better position than its peers.

"An important parameter here is the confidence in the bank. My judgment is that the confidence is much stronger in First Republic Bank compared to SVB and Signature Bank. I believe that First Republic will manage this," he said, according to MarketWatch .

On Tuesday, Billing added that the situation for First Republic Bank is still “very volatile,” and he hasn’t made any “major decisions.”

Sweden’s financial regulator also summoned Alecta's executive team to a meeting to discuss its investments in Silicon Valley Bank, Signature Bank, and First Republic Bank this week.

Billing and his team are facing pressure after they sold more conservative Swedish banks— including shares in the largest bank in the country, Svenska Handelsbanken—to buy high-flying tech, start-up, and crypto-focused banks in the U.S. The CEO argued Tuesday that the sale of the Swedish bank was a “separate issue” and explained why Alecta first invested in SVB, Signature, and First Republic.

“What we liked about them was their market position. They’re position when it comes to transformation in the digital space. And the U.S. market, generally speaking, the depth of that and the size of it,” he said.

Billing went on to say that he was aware of problems at SVB last week before the bank’s collapse and had discussions with management who put in place an action plan to turn things around.

“We thought that the action plan that the company had was—they were transparent about that—and we thought it was well thought through,” he said. “Then last week the company acted not in accordance with the action plan we had talked with them about and had been presented to us and that surprised us. I think that was a big mistake from the company’s side.”

This story was originally featured on Fortune.com

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