Denmark’s ATP, the country’s largest pension fund, saw investment returns boosted between July and September by strong profits on government and mortgage bonds, but the quarterly gains continued to shrink from a buoyant first quarter.

The return on the pension fund’s investment portfolio – which consisted at the beginning of July of the fund’s bonus potential of DKK119.5bn (€16bn), with borrowing from its much larger hedging portfolio bringing the market value to DKK337.3bn – was DKK7.3bn before expenses and tax. 

This was lower than the DKK9.6bn reported for the second quarter and DKK20bn in the first.

Asked to comment on the trend, ATP’s chief executive Bo Foged told IPE: “I guess it comes down to the macro outlook and the fear of recession, and that is why you are seeing returns slowing down.

“However, we have had a fantastic year, with great returns on all asset classes,” he said.

He also said the steepness of the falling trend was deceptive because the very high return in the first quarter had been partly due to a market bounce following sharp falls in prices in the last quarter of 2018.

CIO recruitment

Regarding ATP’s current CIO vacancy following the departure of Kasper Ahrndt Lorenzen in September, Foged said the pension fund had drawn up a short list of candidates.

“The process is still running and I hope we’ll be able to make an announcement in the next couple of months,” he said.

Overall, in the first three quarters of this year, ATP’s investment portfolio has made a 40% return relative to the bonus potential at the start of the year before costs and taxes, the fund announced.

But relative to its guaranteed benefits, the result for January to September before updating for life expectancy was 3.5%, which was higher than its five-year return ratio on this basis (2%).

ATP said it was primarily government and mortgage bonds, along with Danish and foreign listed equities that contributed to the historically high nine-month return on the investment portfolio. The asset classes produced returns of DKK19.5bn, DKK7bn, and DKK5bn, respectively in the nine-month period.

In the fund’s results announcement Foged said that ATP would “continue our disciplined approach to portfolio construction and risk management to safeguard the basic financial security for members in the longer term, particularly as we anticipate lower investment returns in future years and greater fluctuations”.

ATP’s business model has come in for some criticism recently.

“You should always be a bit worried in my position”

Bo Foged, ATP chief executive

Asked about the prospects for full-year returns, Foged said: “You should always be a bit worried in my position, especially when we have had a bull market for about 11 years, and fairly low volatility.

“I am keeping my hand on the steering wheel and an eye on our risk consumption,” he said, adding he was watching out specifically for any changes to short-term volatility that could be a warning sign for markets.

Risk levels in the investment portfolio had been reined in somewhat in the third quarter in relative terms, he said, in response to the market outlook.

The value of of ATP’s guaranteed pensions rose by DKK121.9bn between January and September – mainly because of falling interest rates for Danish and European government bonds with long residual maturity, the fund said – but added that at the same time, its hedging portfolio showed a positive return after tax of DKK122.8bn.

“Hedging thus worked as intended,” the fund said.

Including both the bonus potential and the guaranteed pensions of DKK809.8bn, ATP’s total assets rose to DKK933.6bn at the end of September from DKK785bn at the end of December 2018.

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