PFA, Denmark’s largest pension fund bar the statutory ATP scheme, revealed a DKK214m (€28.8m) business loss for January to June due to plummeting financial markets, but also said its broad alternatives portfolio – asset types it has built up steeply over the last few years – had a positive impact on returns.
In interim results published today, the commercial mutual occupational pension provider said it ended the first half with a pre-tax result of -DKK214m compared with DKK93m in the same period last year.
The Copenhagen-based firm said: “The development in results is mainly driven by the historic unrest and volatility in the financial markets, which are characterised by high inflation, rising interest rates and major price declines in equities and bonds.”
Total assets declined to DKK708.2bn by the end of June from DKK725.4bn at the end of 2021, according to the report.
The return related to market-rate products was a loss of 10.9%, while for average-rate products, PFA posted a loss of 3.3%.
Mads Kaagaard, interim group chief executive officer of PFA, said the result should be seen in the light of “historic challenges” in the financial markets.
“With high inflation and the continually rising interest rates and the growing risk of a recession, we have felt the impact across our business,” said the temporary CEO, who is leading PFA until Ole Krogh Petersen – former CEO of Danica Pension – starts work as the new CEO on 1 December.
“At the end of the first half year, however, we continue to see a stable development in the underlying operations at PFA, and we are consolidating our solid position in the market for commercial pension companies with increasing payments and a net growth of 419 corporate and organisational customers,” Kaagaard said.
On the market-rate side of the pensions business, PFA said the return of -DKK43.5bn corresponded to negative returns ranging from -6.5% to -13.1% in PFA Plus – and negative returns from -7.0% to -15.8 % in its more environmentally-focused product PFA Climate Plus.
“In the same period, PFA’s broad portfolio of alternative investments and properties in the market-rate environment has generated returns of, respectively, -0.3% and 4.7%, and has thus performed significantly better than the market in general and this has had a positive impact on the returns,” the firm said in the report.
Kaagaard said: “For many years, we have built up a solid portfolio of unlisted investments, including properties.
“This makes our investment portfolio more diverse, and it has helped to cushion the worst of the price declines together with a defensive equity portfolio management and targeted risk management,” he said.
Yesterday, announcing a series of orders to correct procedures around PFA’s management of alternatives – such as private equity, credit and infrastructure, but not property – the Danish FSA said the weighting of this part of the portfolio had grown to 7.7% by the end of 2020 from 2.8% five years before.
In the interim report released today, Kaagaard said it had been a difficult year for returns so far, but added that nearly a third of the returns which were lost in the first half had been regained at the end of August.
However, the CEO also said PFA did not expect current developments in the financial markets to reverse into a positive trend in the short run.
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