Pension funds in Denmark more than doubled the losses they suffered on global equities in the second quarter of this year compared with the first three months, an analysis from industry association Insurance & Pension Denmark (IPD) shows.
The lobby group this morning published detailed figures on the average asset allocation of its pension provider members and returns from different types of investment, after a period when the firms themselves have reported steep losses.
Across both main types of pension product offered – average-rate and market-rate pensions – Danish pension funds lost 12.6% on their developed markets global equity holdings between April and June 2022, after losing 5.9% on them between January and March, according to IPD.
Collectively, this asset category was the highest weighted by pension funds, with the sector having DKK915bn (€123bn) invested in developed markets global equity in the second quarter.
Meanwhile, the second-biggest asset class, government and mortgage bonds – in which the pension funds had DKK801.3bn invested – made an 8.2% dent in portfolios in Q2, following a 6.3% loss in the first quarter, the data showed.
Andreas Østergaard Nielsen, deputy director at IPD, said: “Rising inflation, the war in Ukraine and higher interest rates have been a toxic cocktail for pension savings through 2022.”
This had been particularly bad, he said, because the return on both stocks and bonds had fallen simultaneously in the first and second quarters.
“Price losses on bonds in line with rising interest rates and falling stock markets have meant that the pension companies have had difficulty covering losses, because there has been nowhere to turn,” he said.
Earlier this week, Danish labour market pension provider P+ announced it was extending its use of an emergency withdrawal-penalty measure – known as kursværn (price protection) – after the market value of the invested assets fell below the value of the members’ total pension deposits.
Asked whether the authority expected to see more pension firms to impose withdrawal penalties, given the fall in share prices on stock markets, an FSA spokesman said: “The Danish Financial Supervisory Authority expects that other pensions providers will introduce price protection.
“But it depends on how much funds each pension provider has in their collective bonus potential/buffers, which is used to cover losses,” he said.
However, Østergaard Nielsen pointed to a positive aspect of the slump in bond prices.
“The pension companies have collected large losses on the bond portfolio this year, but with the higher interest rates we are now seeing, there is the opposite prospect – that, in the future, bonds can once again give a positive return and at the same time be a safe investment in a turbulent time,” he said.
At the end of August, the largest commercial pension provider, PFA, reported a 10.9% loss for market-rate products and 3.3% for average-rate products.
The following day, Denmark’s biggest pension fund overall – the statutory scheme ATP – revealed a loss of 36.4% on its geared investment portfolio, which makes up the scheme’s bonus potential and contains 20% of contribution.
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