Denmark’s PenSam is to expand its in-house asset management team, after internal equity portfolios outperformed those overseen by third-party managers.

Benny Burchardt Andersen, CIO at the DKK100bn (€13.4bn) pension provider for employees of Danish municipalities, said a decision reached in 2010 to increase the level of internal active management of equities had paid off – both in absolute and relative returns.

He told IPE’s How We Run Our Money that the provider’s current approach to external equity managers was “close to being a passive strategy”, albeit with an enhanced mandate.

“In other words, while the external managers are tracking companies, PenSam uses internal tactical management as a second layer incorporating its views on different regions, sectors and derivatives to generate alpha,” he said.

“We have a strong view on what constitutes alpha and what constitutes beta in the equity portfolio, and, over the last few years, the estimated 1.5% outperformance, as opposed to the 1% generated by the best external managers between 2010 and 2013, was mainly a result of internal management decisions.”

He said the outperformance had resulted in the decision to increase the size of its in-house management team.

“We will add to the number of people working in active management both on a strategic and tactical level,” Buchardt Andersen said.

“We will have to be extremely focused on creating outperformance in the future because, after two good years in equity markets, future returns and consequently pensions are going to be lower. In short, for us, active management equals outperformance.”

Burchardt Andersen said internal staffing levels had already been increased in the area of direct lending, and that the high-yield bond team was also likely to grow.

“The board needs to approve it first, but the risk is fair now, which is why we are moving into illiquid credit and investment-grade bonds,” he said.

For more on PenSam, see How We Run Our Money in the current issue of IPE.