Why is the Danes' greatest wealth managed without an external benchmark?

Why is the Danes' greatest wealth managed without an external benchmark?

Since MiFID II came into force in 2018, investment funds and private equity funds have faced stricter transparency requirements towards retail clients. In practice, this means that their returns must be assessable against a relevant benchmark that reflects their investment strategy.

This makes good sense. It is difficult to assess whether a return of 5%, 10% or 12% is "good". Conversely, a company should not be held accountable for losing 5% if the market fell by 12% in the same year. Benchmarks provide context and protect the client.

It therefore puzzles me that we do not impose the same requirements on the pension sector, which manages the Danes' greatest wealth.

I often hear: "My pension company must be doing well – they gave me 15% last year." Or: "Why did I not get the same as my wife? Is there something wrong with company Y?" Both questions are impossible to answer meaningfully. Pension companies operate with different risk profiles and portfolio compositions, even for clients of the same age. Without an accepted benchmark, there is no way of knowing whether the money is in safe hands.

It took a professor, an associate professor and two MSc graduates from CBS just to get part of the way – and the conclusion was not encouraging: In the period 2015-2024, the companies underperformed by -0.7% per year before costs and -1.4% after. Only one company beat the benchmarks compiled by the researchers – and that was before costs.

The pension companies themselves claim they are performing well compared to their own internal benchmarks – and that external benchmarks for the entire portfolio are too difficult to construct. It may be true that obvious benchmarks do not exist for all asset classes. But that cannot be the answer. This is precisely the challenge the sector should solve – not conclude that transparency is too difficult and therefore abandon it.

The sector needs an external benchmark. Introduce benchmarks so that Danes can see what return they should have received. Without them, we are driving blind with the Danes' greatest wealth – and only a handful of CBS researchers can determine whether our money is in safe hands.