European Pensions and Sovereign Wealth Hit by Silicon Valley Bank Fallout
Posted on 03/15/2023
The demise of Silicon Valley Bank (SVB) is a cautionary tale for asset owners including European pension plans and sovereign wealth funds. Many of these European investors are big into environmental, social, and governance (ESG) investing, giving greater investment allocation to adopters of such standards. For example, index provider MSCI rated Silicon Valley Bank an “A” stock in terms of ESG. Blackrock appears to own SVB under its Article 8 funds. Earlier, MSCI ESG Research modified some of its assessments of Adani Group entities, after the Indian conglomerate lost a massive amount of market capitalization after a short-selling blowup in late January 2023. Some banks were more focused on climate change-related goals, while overlooking basic risk management on the liabilities’ side of the balance sheet. The fall of SVB exposes the risk of organization’s shifting focus on solvency toward social and environmental goals. The board of directors of SVB did not have many experienced banking professionals or risk management officials on its board. Furthermore, ESG-focused investors were drawn to SVB over its lending to renewable energy companies. In August 2022, SVB announced its commitment to provide at least US$ 5 billion by 2027 in loans, investments, and other financing to support clients’ sustainability businesses. Silicon Valley Bank was a key lender of U.S. tech startups and biotech firms backed by venture capital funds. In 2021, SVB’s asset base almost doubled from US$ 115 billion to US$ 211 billion.
Norway Government Pension Fund Global, managed by Norges Bank Investment Management (NBIM) had exposure to both Silicon Valley Bank and New York-based Signature Bank. The sovereign wealth fund had an estimated US$ 263 million in SVB and Signature Bank.
Losing Around 1 Percent of Managed Capital
Sweden’s largest pension fund Alecta has a relatively concentrated equities portfolio, awarding companies that have strong ESG principles incorporated into his processes. Alecta said its equities investment strategy covers 40% of total managed capital. The European investor says this strategy is based on a long-term perspective and a concentration on approximately 100 companies, in which the firm was a significant owner. Alecta was the fourth largest equity shareholder in Alecta. Alecta started investing in Silicon Valley Bank shares in June 2019 and made its final investment in November 2022 – having a total of SEK 8.9 billion invested. Alecta started investing in Signature Bank shares in January 2016 and made its final investment in July 2022 – having a total of SEK 3.2 billion invested. In all, Alecta’s losses on SVB, Signature Bank, and First Republic Bank amount to SEK 14.5 billion or €1.27 billion, according to a March statement. Alecta essentially lost approximately 1% of its total managed capital after writing down its holdings in SVB and Signature Bank to zero. This is after the U.S. Federal Deposit Insurance Corporation (FDIC) took control of SVB and Signature Bank.
Dutch civil service scheme Stichting Pensioenfonds (ABP) has a much larger exposure to Silicon Valley Bank than other pension funds in the Netherlands. ABP had €130 million invested in SVB at the start of March 2023. At the end of September 2022, ABP had exposure to €173 million in SVB. ABP invested in First Republic Bank as well. ABP’s loss could have been larger in SVB, but the investor sold off investments in SVB in 2022. The other four largest Dutch schemes invest less than €100 million in Silicon Valley Bank and First Republic Bank. Dutch construction scheme BpfBOUW sold a large part of its SVB holding in 2022. ABP and BpfBOUW are managed by APG Asset Management.
On the other hand, the largest pension fund in the U.S. – California Public Employees’ Retirement System (CalPERS) had around US$ 67 million of exposure to Silicon Valley Bank and around US$ 11 million of exposure to Signature Bank. On March 13, 2023, CalPERS disclosed plans to more than double the number of companies in its equity portfolio that it will hold accountable for reducing greenhouse gas emissions to 350 from 165. In the 2022 proxy season, CalPERS voted against 95 directors at 26 Climate Action 100 Plus companies for climate risk oversight issues.
The Securities and Exchange Commission (SEC) and the U.S. Justice Department are investigating how Silicon Valley Bank are separately probing Silicon Valley Bank and its failure. The government is also looking into stock sales that SVB executives conducted ahead of the bank’s collapse. The Northern District of California has the lead on the Justice Department’s investigation.
Keywords: SVB Financial Group. California Public Employees Retirement System.