ATP, Denmark’s biggest pension fund, increased the leverage on its return-seeking investment portfolio in the first half of this year, as the fund as a whole took a hit from a major longevity adjustment.

In its interim report, the statutory pension scheme reported a rise in total assets to DKK783.8bn (€105bn) at the end of June, from DKK768.6bn at the end of December.

Chief executive Christian Hyldahl told IPE that ATP had “increased risk by 10% in the first half” for the fund’s DKK100bn leveraged investment portfolio, which consists of reserves for bonus payments.

ATP increases the firepower of its investment portfolio by borrowing from its DKK683.9bn hedging portfolio at an interest rate of 3%, and on top of that by using derivatives.

Over the past two years, the leverage from the internal loan has increased to 3x from 2x, ATP said, with derivatives boosting the gearing on top of this.

Before tax and expenses, ATP said it made a 3.4% return, or DKK4.1bn, on its investment portfolio between January and June.

ATP’s return on total assets was 2.9%, according to the Danish regulator’s performance measure, designed to allow comparability between pension funds.

Private equity was ATP’s biggest contributor, returning DKK1.8bn, followed by infrastructure with a DKK1.5bn gain. Listed international equities made a DKK2.1bn loss in the period.

As announced at the end of June, ATP set aside an extra DKK20bn because of a change in its long-term forecast of life expectancy, transferring this amount from the bonus potential to the hedging portfolio.

After this update, ATP said its results for the first half were negative by DKK17.7bn.

Hyldahl said that despite this major adjustment to longevity provisions, he believed the pension fund would manage to keep up with future changes to expected lifespans.

“We make adjustments when we have new data coming in, and normally this is plus or minus one billion kroner – but what we have done just now was a major redesign,” he said.

In its interim report, ATP said the standards it used to estimate future pension liabilities are more conservative than both EIOPA’s yield curve and the Danish regulator’s life expectancy model.

If both of these external measures had been used, it said its guaranteed pensions would have been DKK67.7bn lower at the end of June – and the bonus potential correspondingly higher.

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