DENMARK – An analysis of figures from 42 Danish pension funds conducted by statutory pension fund ATP has concluded there is no link between investment returns and the costs incurred to produce them.

The DKK600bn-plus (€80bn) fund said new information published by pension funds meant it was now possible to get an overview of the funds' total investment costs.

Ole Beier Sørensen, chief analyst at ATP, said: "No matter what people may have previously believed about investment costs, the figures do not show a clear pattern. There seems to be no clear connection between costs and return."

But while some of the country's pension funds reacted positively to the research, Lægernes Pensionskasse branded ATP's work "academically useless" and warned that the pensions giant faced big losses when bond yields inevitably started to rise.

The ATP research, which names pension funds individually and only concerns investment behind with-profits pensions, reveals that at one end of the scale, pension funds spent 0.2% of total assets managing investments while at the other end, some spent 1.2% – six times as much.

If there is any link between investment costs and return, it is a negative one, ATP said, since those companies with very low investment costs reaped the highest returns.

ATP itself comes out well in the research, with total investment costs of 0.33% for 2011, compared with an average pre-tax return of 12.2% between 2007 and 2011.

Labour-market fund Sampension also appears to offer good value, according to the study, with investment costs of 0.36% and an average return of 7.1%.

For others, the figures appear less favourable, with Skandia Link Livsforsikring having investment costs of 1.09% compared with a return of 1.1%, and Nykredit Livsforsikring with 1.19% costs against a 4.7% return.

Up to now, ATP said, it had only been possible to compare pension funds based on their administrative costs.

But this has now changed because, from this year onwards, the institutions are publishing statements on their total investment costs, including indirect ones, such as those of external managers, ATP said.

However, the Danish Consumer Council (Forbrugerrådet) said it was dissatisfied with the level of comparison now possible.

Morten Bruun Pedersen, senior economist at the organisation, as quoted in ATP's report, said: "We would like to see a system created at the industry level to ensure different figures are directly comparable.

"When different companies have different returns, that is to do with the fact they are taking different risks – among other things.

"So one thing we are calling for is a risk-adjusted return measure – that doesn't exist today."

Lægernes Pensionskasse, the pension fund for doctors, said that even though the ATP research ranked it as number 10, the analysis itself was of no use from an academic point of view.

Niels Lihn Jørgensen, director of the pension fund, said: "ATP's comparison is based on widely differing pension products, which require completely different investment strategies.

"Companies with guaranteed pensions have had to invest in interest-rate insurance to be sure they can deliver those guaranteed pensions."

And interest-rate insurance had produced very big profits in the last few years, he added.

Apart from ATP, pension companies had been in the process of phasing out guaranteed pensions and selling their interest-rate protection, realising profits by doing this, he said.

"Those, such as ATP, that have not phased out guaranteed pensions and have therefore had to hold onto interest rate insurance will make a big loss when interest rates rise – which will happen sooner or later," he said.

Skandia also pointed out that the ATP analysis focused only on one pension product.

"If the analysis had been more complete and had included all the companies' products, the picture would have been completely different," it said.

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