Comment due to article in Realtime

Due to the article that was published in Realtid on 16 February 2022 with the headline “Several crashed high-risk products in the Kreditfonden”, we hereby wish to provide clarifying comments on the content of the article.

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First and foremost, it is important to point out that all the problem loans raised in the article are already reserved in the fund's NAV, where the fund has at least one - Trinitas - managed to get back parts or the entire loan via a mortgage and collateral. In other words, the events have not caused the fund's unit holders any major damage.

The article is strongly negatively angled and above all omits information that is important for understanding how the fund works with collateral and risk control. This is despite the fact that we have explained to the journalist how this is done and that the management of problem loans is part of the fund's ongoing management. It should be emphasized that the fund has delivered approximately 6 percent per year since start-up after fees, with provisions taken for feared and established credit losses in accordance with the international accounting standard IFRS 9. This is in line with set return targets and shows that the strategy works.

The journalist begins the article by saying that the fund is actively sold as a "high-yielding low-risk product".

To begin with, it must be clarified that the risk in the fund that we call low is the market risk, which is based on the fund's historical fluctuations or its standard deviation. It is also the standard deviation that forms the basis for the risk rating according to international standards stated in the KIID document (the fund has a second on a seven-point scale, where one is the lowest). In terms of market risk, the risk is considered low.

However, there are a number of other risks that we clearly highlight in the fund's information brochure, on the fund's website and in marketing materials. We are careful to point out that investors in the fund must above all take into account key risk factors such as credit risk and liquidity risk before making an investment.

You can see how the fund's risks are communicated via the website at this link:

That we sell the fund as a high-yielding low-risk product, we therefore believe is not in line with the truth.  

The article also mentions a number of so-called high-risk projects in which the fund has invested, and the journalist wonders why a fund with “low risk” invests in these.

In this context, it is important to emphasize that all the fund's loans are secured by seniority, which means that there are always collateral / pledges to use in the event of a default / default. It is the investment team's ability to structure the loans and, if necessary, run processes to get the money back in payment cancellations that form the core of the fund's investment strategy.

The fund has exposure to a small proportion of high-risk loans (currently about 10 percent of the portfolio), where we assess that there is a very attractive return to collect in relation to the risk we take in the commitments, given the collateral provided on the loans. However, the majority of the portfolio consists of loans that we consider to be of significantly lower risk.

In the limited part, which is high-risk bonds, it is natural that payment defaults / defaults sometimes occur. Then our task is to ensure that the fund does not suffer losses. These can be lengthy processes in some cases and it happens that we have to enter into legal processes against both companies and private individuals.

It is worth mentioning that the value of the collateral for loans by default can be far more valuable than the value of the underlying loan, for example if we succeed in restructuring a company where we have had a mortgage on shares and thus release significant values. The fund looks at risk from a vertical perspective where the scale consists of credit rating and horizontally where the volume is on the scale. By spreading the risk by rating and volume, the fund creates a high risk-adjusted return.

The article does not mention that the fund's loans are seniorly secured, but focuses only on selected legal processes where the value of the fund's collateral can be questioned. The article also does not clearly explain how the fund works on an ongoing basis with provisions that thereby affect the fund's NAV when feared or ascertained credit losses occur. 

As previously mentioned, provisions are made on an ongoing basis in accordance with the international accounting standard IFRS 9, which means that the feared or established credit losses mentioned in the article are already booked as provisions in the fund. In other words, it is unlikely that these holdings will have any major negative effect on the fund in the future.

The article further explains that Scandinavian Credit Fund I has “secret positions”, which makes it impossible for an investor to assess the risk in the fund.

We want to emphasize that we do not keep positions secret in order to be non-transparent to investors. The reason why we can not open the portfolio for public viewing is that according to the agreements with many of the fund's borrowers, we are not allowed to communicate the loans and their terms further.

With regard to the specific loans raised in the article, we would like to emphasize that these form a small part of the total portfolio. Of the more than 100 loans we have made in the fund since its inception, only one of these loans, Trinitas, has led to 100 % established credit losses for investors. In this case, the losses were caused by a fraud, which is difficult, if not impossible, to protect against. You can read about the damages process we are conducting against the organizer behind the Trinitas bond for the purpose of claiming damages, at the link below:

If you look overall at the proportion of problem loans in the fund since the fund's inception, write-downs and provisions amount to approximately 0.55 percent annually of the fund's total assets. This can be compared with the proportion of problem loans for Swedish banks, which according to SNL Financial amounted to 1.3 percent of the total loan stock in 2017, which is a low figure from an international perspective.

Finally, we would like to emphasize that in September last year, the fund entered into a guarantee agreement with the European investment fund EIF of SEK 3 billion, which is not stated in the article. That agreement was preceded by a very solid due diligence procedure from the EIF where, among other things, the fund's processes, bond holdings and risk control were cut down to the smallest detail. We see this as a great seal of quality and that the processes that form the basis for the fund's investments are of the very highest quality.

Emma Westerberg

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