DENMARK – Denmark's DKK600bn (€80.5bn) supplementary labour-market pension fund ATP is now planning to reach beyond its borders once more and build up foreign equity holdings after two years of purely domestic listed equities investment.

CIO Henrik Gade Jepsen told IPE: "In the longer term, we will be focusing on building up foreign equity exposure again."

Low yields on bonds and slim return prospects for many other investments, coupled with concerns about economic weakness in Europe, have spurred the fund to look to other countries.

"When you are in a world of low expected returns, you need to look at investment opportunities globally," Gade Jepsen said.

However, he added that did not mean the pension fund would be in any rush to place large amounts of its money abroad.

As things stand, the listed equity portion of ATP's investment portfolio is invested entirely in Danish shares, though its unlisted equity is invested globally.

This is the result of a decision in the second quarter of 2011 – when the euro crisis was getting worse – to de-risk the portfolio across asset classes.

ATP did this by selling off the most liquid elements in its portfolio.

This meant offloading foreign equities, since the Danish equities market is not particularly liquid, while the private equity it held was not liquid at all, Gade Jepsen explained.

"In down markets, all markets tend to fall in sync, so it's not so important where you own equities, but rather how many you own," he said.

"But we were also sure that at some point we would take on more risk again, and at that point we would build the foreign portfolio back up."

In the meantime, the lack of geographical diversification in its equities exposure has done ATP no harm at all, he said, noting that Danish equities have delivered superior returns in that period.

"It was a very good decision to be in Danish equities, as they have performed much better than a diversified foreign portfolio," Gade Jepsen said.

In 2011, ATP's equities ended the year making a 4.2% loss, with gains on private equity holdings cushioning the pension fund from most of the 21.6% loss on domestic listed equities.

In 2012, its equity holdings produced a 9.3% return, with Danish equities contributing almost 24%.

In the Danish equities market, ATP has the advantage of being an active investor that knows its individual investments quite well, Gade Jepsen said.

But he is cautious about the prospects for future investment returns in general.

"You should probably not expect very high returns going forward – obviously not in the bond market – but at the same time you could argue that risk is still elevated," he said.

"If returns are lower than expected and risk is higher, then you should probably be a bit careful," he added.

But ATP has plenty of time to look before it leaps.

"Our advantage is that we can be fairly patient – we have a very liquid portfolio, we can look at opportunities and we can act quickly," he said.

"Europe is the main worry in our view, especially the situation in Southern Europe.

"The macro-economic situation is not improving the way you would hope, and the likelihood that this will continue for some time is quite high."

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