Well functioning financial markets and institutions are prerequisites for growth and value creation in any society. At the same time, the financial markets and structure of institutions reflect the culture, values and economic conditions that exist at any given time.

From an outside perspective, the Danish financial market can look somewhat peculiar as the stock market is relatively small considering the size of the economy. Many companies are owned by foundations or by the families of the founder and tend to be less transparent than those in public ownership. On the other hand, the Danish bond market is one of the largest and most efficient bond markets in the world.

The infrastructure of the banking sector is extremely efficient, both meeting and surpassing international standards. The use of services such as home banking, credit cards and electronic payments is comparable with or higher than in other markets.

Despite its somewhat odd appearance, the Danish financial sector ranks among the best in international comparisons.

In face of increasing internationalisation, the Danish financial sector has managed to keep many of its unique and special features. This partly reflects the fact that Denmark is a small country with its own currency and a unique tax system – factors which have sheltered it from excessive external pressure. But the Danish system’s success is also a reflection of its inherent efficiency and price competitiveness.

THE FINANCIAL MARKETS TODAY
The Danish financial market has most of the features of a modern liberalised European market. It largely resembles the continental European model where banks are the central source of finance, in contrast with the Anglo-Saxon model, where the stock market plays a major role.

The financial market in Denmark is also characterised by a high degree of bank borrowing due to a general reluctance by company founders to relinquish ownership. However, this latter feature does not preclude a generally positive attitude towards private equity.

MANY LARGE PRIVATE COMPANIES
While increasing globalisation and the establishment of free capital markets in the EU has triggered much harmonisation, several particularly Danish features remain intact.
      Key among these are share structure and ownership: Many of the larger Danish companies are family owned, for example: Lego, Velux, Danfoss and Grundfos while co-operatives such as Arla and Danish Crown are also significant.
      Meanwhile, many of the largest public companies like A.P. Møller, Carlsberg, Novo Nordisk, Lundbeck and Rockwool are controlled by foundations. The practice of having two classes of shares – A and B-Shares and vesting majority voting rights in tightly-held A-Shares, has enabled the families and foundations to maintain control. This model of foundation-controlled companies combined with stock market listings has generally worked very well. On the one hand, it has ensured stability and allowed companies to be steered with a longterm perspective. At the same time, management has been answerable to shareholders thereby ensuring that businesses strive for optimal financial results.

Although the A- and B-Shares structure reflects a general reluctance to cede influence and ownership and acts as a protection against unfriendly takeovers, it has not prevented a number of hostile takeovers and delistings in recent years. The emergence of a stronger equity culture together with a general increase in competitiveness and a need for change have put pressure on management and boards to be more focused on performance. There has also been a drive to encourage more professional boards and information in order to comply with growing demand for sound corporate governance.

Trading in Danish shares has never been greater. In 2005, the value of share trading was DKK 937 billion, more than twice the turnover in 2000, when the IT bubble was at its highest and six times greater than just 10 years ago.

VERY LARGE AND ADVANCED MORTGAGE SYSTEM
Despite a population of just 5.4 million people, the Danish mortgage markets rank among the largest in the world. Mortgage bonds are issued by mortgage institutions based on collateral in residential property and listed on the stock exchange.

The market is dominated by two institutions, Nykredit and Realkredit Danmark which together account for some 80 per cent of the market. Despite nearly being a duopoly the Danish mortgage market is very efficient and price competitive when compared to other countries.

PRIVATE OWNERSHIP OF EQUITIES
This imbalance in the size of the stock and mortgage market is also reflected in private households. In general, retail investors hold relatively few individual stocks in their portfolios.

And although only 24 per cent of Danes own shares directly, most Danes own shares in public companies indirectly via their pension funds. Pension funds such as LD and ATP jointly own up to 20 per cent of many public companies in Denmark.

Employee ownership of shares is also relatively high and rising in Denmark, reflecting the co-operative attitude that exists within many companies.

STRONG DANISH INFRASTRUCTURE
Danish financial institutions have often chosen to pool resources when designing and building infrastructure. The resultant common infrastructure has helped provide an effective and cost efficient system, despite the small size of the country.
      A common platform also forces market participants to be innovative and introduce new products in order to gain a competitive edge.

Danes’ willingness to adopt new technology is high. Denmark ranks globally as number four in spending per head on Information Technology, and Danes have widespread access to broadband technology. A homogeneous, wealthy and highly educated population has made Denmark an interesting testing lab for many producers of new products.

At the same time, a generally high degree of trust has accelerated the take-up of new technology by the general public. Such acceptance of the paperless society through the use of internet home banking, credit card transactions and electronic payment systems is among the highest in the world.

DENMARK AS A PRIVATE EQUITY MARKET
From a private equity perceptive Denmark again surprises most observers. Despite the small stock market, Denmark holds many interesting small and mediumsized companies that are market leaders in their niche area. And despite a general reluctance to give up control and ownership, Danes have relatively easily accepted private equity funds. And unlike some of the larger European countries where nationalism often sparks protectionism, state interference in take over battles has never been on the Danish agenda.

A FAIRY TALE LAND?
According to many Danes “they live in their own duckling farm” closed from outside dominances.

One could say that the Danish financial markets at the first glance seem to be an ugly duckling but after closer inspection, particularly in recent years, in many ways the market more resembles a beautiful swan.

The Danish financial system is a testimony to the fact that special features are not necessarily a disadvantage as long as the system is consistent. The Danish financial markets, in a nutshell are effective, transparent, price efficient and well-functioning and thus extremely accessible to foreigners.

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