Latvia’s pension fund managers are eyeing investment in a new €100m fund to provide financial support for large local businesses hit by the COVID-19 crisis.
The fund will provide equity and debt to around 30 companies.
A company’s shares are not required to be listed in order to be eligible for investment. But the company must take all necessary steps to get any bonds listed on the Nasdaq Riga regulated market or on the First North Bond List.
The fund has been approved by the European Commission under the state aid temporary framework, adopted earlier this year to permit support for members’ economies within EU rules, in the light of COVID-19.
The support comes with certain conditions, including a ban on dividends and bonus payments, as well as further measures to limit distortion of competition.
There is a €10m limit on investment in an individual company. Only companies not already considered to be having difficulties on 31 December 2019 are eligible for support.
The Latvian government will invest €50m in the new fund, with the other €50m intended to come from pension fund managers; the fund will also aim to attract private investors.
The fund will be managed by Altum, the state-owned development finance institution, on commercial terms. All entities backing the fund will invest on the same terms with respect to risk-sharing and remuneration.
Luminor Asset Management – part of the financial services group formed three years ago by the merger of the Baltic operations of Nordea and DNB – is planning to invest, and is already participating in the fund launch.
Atis Krumins, Baltics head of investment management at Luminor, told IPE: “We see two reasons to invest: the first is extending our alternative investments range, adding to our diversification in this space, while using the opportunities it gives us to earn a reasonable return, specifically given the low yield environment.”
Krumins added: “It is equally important for us to use locally accumulated capital, to invest in the local economy and support local businesses.”
SEB Investment Management, Latvia (SEBIML) is considering an investment on behalf of its client pension plans, though it has not made any final decision.
Jānis Rozenfelds, CEO of SEBIML, told IPE: “The Altum distressed asset fund might be a good fit in the pension plan portfolios because it would help increase exposure to the domestic economy. This is difficult to do through public markets.”
Rozenfelds added: “An investment in this fund should help improve expected return and diversify sources of alpha in the pension plan portfolios. The timing of the transaction is very good, and investors should be able to enter at attractive valuations in the post-COVID-19 environment.”