DENMARK - ATP Group, Denmark's largest pension fund provider, suffered a loss of DKK 25.7bn (€3.4bn) in 2008, though the firm's hedging strategy prevented a need to draw on reserves in what it was described as a "challenging year".

ATP revealed in its preliminary 2008 financial statement falling interest rates meant the firm had to allow for a further DKK76.2bn for future pensions, although returns on its hedging portfolio had stopped ATP from needing to draw on its reserves.

The figures showed the Group lost DKK17.8bn, before bonus additions of DKK 8bn, resulting in total assets of DKK 724.7bn, while the overall result for the group's investment activities was a fall of DKK 29.7bn after tax.

It also revealed the investment portfolio - excluding the hedge portfolio - of the ATP pension decreased by DKK12.1bn, equivalent to a -3.2% return, as the yields on both domestic and foreign equities lowered performance, although the total value of its portfolio - split between alpha and beta - increased slightly to DKK 355.6bn.

Despite the reported losses, ATP claimed its strategy of diversifying the investment portfolio and using financial instruments "shielded" its investments, as three out of five asset classes reported a profit.

In particular, it noted yields on government and mortgage bonds "bolstered returns", as its 'nominal interest-rate risk class' returned 6.3%, while investments in inflation-related assets yielded 0.9% and oil also produced a positive contribution of DKK 700m, while and the hedging portfolio achieved a DKK 93.5bn return before tax.

Bjarne Graven Larsen, chief investment officer at ATP, said because of the "huge gains" from the hedging portfolio ATP had "not suffered in any way from decreasing interest rates". 

He claimed, if anything, the fund was "over-hedged on interest rates" as it achieved a "net plus" when the investment portfolio's interest-rate risk assets yielded DKK 11.7bn, while the hedge portfolio produced a neutral effect, offsetting the DKK 76.2bn increase in liabilities.

On the downside, investments in the 'equity-related risk class' returned -31.3%, or DKK22.5bn, while credit risk - which consists of high yield bonds and loans to credit institutions and funds - returned -6.5%.

However Larsen, told IPE the decision to reduce exposure to equities 18 months ago and to buy a form of equity protection meant the losses were limited and "the diversifcation and protection of the tail risk has been very helpful".

The financial statementssaid  ATP paid pension benefits to more than 711,000 pensioners in 2008, an increase of 35,000 from the previous year, but while the value of benefits rose 0.8% to DKK8.4bn the firm received contributions of DKK7.2bn.

Meanwhile, the Special Pension Savings scheme (SP), which is run by ATP but stopped receiving contributions in 2004, posted a negative investment return in 2008 of DKK9.3bn - equivalent to a negative rate of return of 17.6% - to leave the SP worth DKK42.9bn.

Lars Rohde, chief executive of ATP, said: "In terms of investment, 2008 was unparalleled in modern history. We have been hit - like everyone else. If I were to point out something positive about the crisis, it would be that ATP's risk management safeguards our reserves. Had we not taken the necessary steps back in 2007, we could have fared much worse.

"Our risk management and targeted use of financial instruments have protected our freedom of investment. The use of oil and equity options contributed DKK14bn to results. Accordingly, we are well-positioned to pursue the opportunities offered by the crisis," he added.

The results also highlighted ATP's decisions to invest DKK50bn in the new 30-year domestic government bonds and to deposit DKK40bn in Danish banks in response to the economic crisis, while it also DKK 80bn of foreign currency. (See earlier IPE article: Schemes snap up Danish 30-year bond).

However, although ATP Group admitted 2008 had been a "challenging year" following dramatic equity falls and an "incipient recession in the world economy", it confirmed that lifelong pensions for both current and future pensioners would increase by 2% as of 1 January 2009. (See earlier IPE article: ATP posts 1.4% negative return)

ATP confirmed it remains "well-consolidated" with reserve funds of DKK 47.5bn, equivalent to 13.1% of guarnteed benefits, but admitted "given the outlook for relatively modest results in 2009, pensions are not expected to be increased in 2010".

The results stated: "In order to meet the objective for 2009, the return requirement is DKK 8bn. In view of the general economic crisis, the Supervisory and Executive Boards consider it uncertain whether the objective can be met for 2009."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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