Third-quarter profits down by 72% at Danish pension scheme ATP

EUROPE - Profit at Denmark's ATP pension fund dived 72% at the end of the third quarter, with the Danish-German interest rate differential costing the fund DKK8bn (€1bn).

The ATP Group posted a profit of DKK5.3bn for January to September, down from DKK18.9bn in the same period last year.

Investments produced a return of DKK15.7bn, or 4.2%, the group said.

The profit was satisfactory and had been achieved in the face of tumbling equity markets and record-low interest rates, ATP said.

Chief executive Lars Rohde added: "Once again, risk diversification, interest-rate hedging and hedging against steep price falls have proven their worth to ATP.

"Europe is in the grip of a double crisis: a sovereign debt crisis and a confidence crisis. This is, quite extraordinarily, sending Danish interest rates below German rates, detracting DKK8bn from results."

Four out of ATP's five investment categories, or risk classes, produced positive returns.

Interest rates generated 7.5% and credit returned 3.8%, while inflation and commodities produced returns of 4.6% and 0.9%, respectively.

Equities ended the period with a loss of 4.6%.

Overall, hedging activities produced a loss of DKK8bn.

The hedging designed to protect ATP pensions against interest-rate moves returned DKK80.4bn.

Pension provisions totalled DKK76.3bn, and tax amounted to DKK12.1bn.

The overall hedging loss was driven by Danish interest rates falling below German levels, which ATP said it had been unable to hedge.

Looking ahead, ATP said the handling of the European debt crisis would be key to financial market performance until the end of the year.

It added: "Prospects of weak growth and increased risk of a new recession make for a continuation of the highly challenging investment environment.

"The supervisory and executive boards find it important to maintain significant risk diversification of the portfolio to achieve positive returns - also for the remainder of the year."

At the end of the third quarter, ATP managed DKK554bn in assets for its pension savers, up from DKK516bn in the same period last year.

Reserves rose by DKK5.2bn, or 7.4%, to DKK75.2bn at the end of the third quarter.