Icelandic pension funds: Silver lining becomes an illusion

The recent WSJ article on the Icelandic pension funds excellent 2008 performance is highly questionable and needs more scrutiny. 

The claim that the Icelandic pension funds were a top performer in 2008 with a fall in asset value of only 9.2% needs validation of an independent and reputable international audit firm.

The WSJ article states that 30% of the pension funds’ assets were invested abroad which presumably have fallen in value in 2008.  The remaining 70% were therefore invested in domestic assets of which equities have fallen 95% and bonds have suffered terribly as most Icelandic companies are insolvent.

Therefore this stellar international performance of the Icelandic pension funds must have come from currencies hedges involving the Icelandic krona.  But then the question arises where are these hedges booked and if they are still intact when and where will these pension funds collect on these hedges?  If these hedges are with the collapsed Icelandic banks then they are as valuable as hedges placed with Lehman Brothers! 

Unfortunately, this article raised more questions than it answers.  I am disappointed that WSJ has not applied more rigorous analytical probing into this matter before publication.  Some of the key questions WSJ needs to obtain answers to are:

• How are the Icelandic bonds and hedges that the pension funds hold, currently valued on their books?
• Where are the hedges that the funds claim to have made a killing on and can they be collected?
• What is the performance breakdown by asset classes?
• Who managed to get WSJ to publish this article?

 I am afraid that this “silver lining” is just another Icelandic illusion.

 

Þessi athugasemd var send á bloggsíðu WSJ og er birt hér á ensku með lítilsháttar breytingum.

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