Denmark’s ATP reported a 6.7% return from its investment portfolio for the first half of this year, representing a big leap from the meagre 0.4% it was able to generate in the first quarter after it was boosted by a one-off profit from its private equity investment in DONG Energy.

In its interim report for January to June, the statutory pension fund said its total assets had now increased to DKK800bn (€107billion) from DKK705bn at the end of December.

Carsten Stendevad, chief executive of ATP, said: “ATP’s investment portfolio posted a strong return in 2016, driven mainly by bonds, alternative investments and private equity, including the investment in DONG Energy.”

In absolute terms, the return on the investment portfolio was DKK6.9bn, with DKK2.9bn of this relating to the return ATP made on its investment in the Danish energy firm. 

In the second quarter alone, ATP said returns from the investment portfolio stood at DKK6.4bn.

DONG Energy’s June IPO yielded a big profit for ATP on the investment it initially made in 2014. The pension fund said it had made and aggregate return of around DKK4.0bn on the private equity investment, including the DKK2.9bn relating to 2016.

ATP’s assets are divided between an investment portfolio which consists of the fund’s bonus reserves and is invested on an absolute return basis, and a much larger hedging portfolio composed on long-dated fixed-income instruments, designed to back the pension guarantees it makes.

Despite the return it made in the first half, the investment portfolio shrank by the end of the first half to DKK96.9bn from DKK101.2bn at the end of December, largely because DKK9.9bn was transferred from the portfolio to the hedging portfolio in provisions for a greater-than-expected increase in life expectancy.

The transfer is almost three times as much as the DKK3.7bn of extra provisioning the pension fund made during the whole of 2015 as part of its life expectancy update.

The hedging portfolio grew to DKK703.2bn at the end of June from DKK604.0bn at the end of December.

This was despite the portfolio of long-term hedging strategies used to protect against inflation increases, which consists of swaptions, suffering the biggest loss in the investment portfolio in the first half, losing DKK3.5bn. 

ATP said this was due to long-dated European swap rates having finished the reporting period lower than they had started it.

In the first half of 2015, ATP made a 12% return on its investment portfolio, and went on to produce a 17.2% return for the full year 2015.

In the first half, the hedging portfolio generated a return of DKK92.3bn after tax, while due to falling interest rates in the period, ATP’s provisions for its guaranteed pensions, rose by DKK93bn, the pension fund said.

The result of the hedging portfolio in total, therefore, was a loss of DKK700m, ATP said, adding that this was “considered satisfactory” given that it was less than 0.1% of the guaranteed pensions.

Within the investment portfolio, bonds generated a return of DKK3.9bn, listed Danish equities made a loss of DKK100m, listed international equities lost DKK700m, and private equity produced a return of DKK3.0bn.

Credit investments returned DKK1.5bn, ATP said.

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