Alecta CEO Calls $2 Billion US Bank Foray ‘a Big Failure’

The chief executive officer of Sweden’s biggest pension fund, , admitted its $2.1 billion bet on three niche US banks tied to Silicon Valley Bank’s collapse was “a big failure”.

“Obviously it’s a big failure for us as an investor,” Magnus Billing said in an interview on Bloomberg TV on Tuesday. “We need to learn something from that and take actions based on the lessons learned.”

The CEO’s comments come a day after Alecta said it would probably write off its entire holding in SVB and Signature Bank at a cost of about $1.1 billion. Those losses could rise given the fund invested a total of $915 million in First Republic Bank. 

SVB Financial Group’s Silicon Valley Bank collapsed last week after succumbing to a bank run and Signature Bank was taken into receivership Sunday. 

EXPLAINER: What SVB’s Failure Means for the Bank and Its Clients

Alecta’s loss has sparked an outcry in Sweden, given it had exited stakes in two local lenders, Svenska Handelsbanken AB and Swedbank AB, betting that returns would be better in the US niche banks, with SVB predominantly catering to the startup community and Signature serving the crypto community.

Billing said he “doesn’t expect any value from SVB or Signature Bank,” while “First Republic is very volatile but we haven’t taken major decisions with regard to that bank.”

The soured bets sparked a crisis meeting at Stockholm-based Alecta on Monday. Neither Sweden’s governmentthe central bank see a risk to the country’s financial stability from the fallout, but both said they are monitoring the situation closely. Sweden’s financial watchdog summoned Alecta on Monday, requesting it provide an explanation on how and why the investments were made.

The fund, managing the money of 2.6 million private savers in Sweden, said its investments in the niche banks go back to the 2017 to 2019 period, with allocation grown over the years. 

“The initial years were good for us, but then what happened was a failure,” Billing said. The fund had engaged SVB in a discussion in during the fall as central banks were raising borrowing costs and the bank’s startup clients were using more cash, depleting its liquidity.

SVB was “transparent” about its action plan and “we thought it was well thought through,” the CEO said. “Then last week the company acted not in accordance with the action plan we had discussed — that surprised us and I think it was a big mistake” by SVB.

Still, the failed US investments equate to about 1% of total assets under management at Alecta, the CEO said, adding that the pensions systems in Sweden and the Nordic region are “very robust.”

Asked whether central banks should continue jacking up borrowing costs in response to inflation given the turmoil their tightening is having on the market, Billing said that while stemming further acceleration in price growth “is the long-term number one focus for all market participants,” policymakers should balance their actions.

“I do think that we in the market space today see a de-facto tightening,” Billing said. “I’m a little bit concerned that we’re breaking the markets if we’re too aggressive.”

— With assistance by Christopher Jungstedt, Anton Wilen, Tom Keene, Jonathan Ferro and Lisa Abramowicz