Good performance in Danish equities has helped the country’s pension scheme ATP to register returns of 17%, or €2.2 billion, in 2015, the largest absolute change since 2011.
In its annual report, the €95 billion ATP, which is Denmark’s mandatory pension scheme, said the return was primarily driven by returns in equities and inflation risk classes.
‘Danish equities, in particular, contributed significantly with DKK 7.5 billion (€1 billion), corresponding to a return of 48%,' it stated.
Conversely, commodities lost €200,000 primarily due to plunging oil prices and the asset class had the largest negative impact on returns. However, the fund added as its investments are hedged against currency fluctuations in Danish kroner and euros, the global currency fluctuations past year had no ‘appreciable’ impact on the return.
Commenting on the results, ATP CEO Carsten Stendevad, said: ‘We are very pleased with our investment return. Our Danish equity portfolio performed exceptionally well, and in addition, our private equity portfolio, our real estate and our infrastructure investments delivered solid returns.’
‘2015 was a good year for ATP. We generated a healthy investment return, cut our administration expenses and increased pensions for current pensioners.’
Changing approach to risk
ATP said the outcome of the financial crisis - especially historically low interest rates and limited market liquidity in Europe - has led the pension fund to redesign its approach to investing and risk.
It has therefore been reorganising its investment processes and risk management. Since 2006 ATP has allocated risk in into five risk classes. These being: equities, interest rates, credit, inflation and commodities.
ATP is now changing the approach in order to focus on exposure to four risk factors: interest rate risk factor, equity risk factor, inflation risk factor and other risk factors.
‘This risk factor approach offers a number of advantages in that it strengthens the understanding of the underlying risks. All these changes result in increased investment flexibility and reduced interest rate exposure.’
Earlier in February, ATP, together with five other large institutional investors, pledged an initial $2 billion to funds tracking the newly-launched S&P LTVC Global Index.