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ATP sees 4.7% investment return, but suffers losses from revised longevity

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DENMARK – Gains from domestic equities helped Danish pensions giant ATP produce a 4.7% investment return in the first half of the year, as the fund warned that looming market risks meant its strategy had to be cautious.

The fund’s annual update to members’ life expectancy caused pension activities to end with a DKK1.2bn (€161m) loss, the state supplementary labour-market pension fund added as it released its half-yearly results.

Total profit in the January to June period fell to DKK1.3bn, amounting to only a third of the sum garnered in the same period the year before of DKK3.9bn, but nonetheless allowed the fund to increase its reserves to DKK85.3bn.

Carsten Stendevad, chief executive of ATP, noted that its mission was deliver “stable and secure” pensions for the country’s population.

The first half results were satisfactory,he added, given the fact that the pension fund was pursuing a “prudent and relatively cautious” investment strategy because of the uncertain global economic environment.

ATP’s investment activity resulted in gains of DKK4.0bn, equating to a return of 4.7%. Investment results were slightly lower than the same period in 2012, when they came to DKK4.4bn.

Stendevad, who joined the organisation earlier this year after predecessor Lars Rohde became the governor of Denmrk’s central bank, warned of the big potential risks markets were now facing.

Financial markets were clearly benefiting from the support of expansive global monetary policy, he said.

“This in our view carries significant potential risk and our investment approach is calibrated accordingly,” he said.

Three out of five of ATP’s risk classes produced a positive return in the first half.

The interest rate risk class returned DKK582m in the first half, ending June with a portfolio value of DKK116.8bn, equities produced DKK4.04bn to end at DKK45.8bn, and inflation produced DKK372.3m to end at DKK39.8bn.

Of the two risk classes making a loss, credit ended the period with a DKK52.9m loss to stand at DKK49.6bn, and commodities made a heavy loss of DKK138.1m, leaving the portfolio with DKK200m.

The commodity risk class, which makes up just 0.1% of the investment portfolio, consists entirely of oil-in¬dexed bonds, and ATP noted that the first half loss reflected the fall in oil prices over the period.

A DKK1.2bn loss for pension activities and a DKK1.5bn loss on hedging activities reduced ATP’s total reported gains this time.

The pension activities’ loss was mainly due to the annual update of ATP members’ life expectancy, which added DKK2.5bn to provisions, the fund reported.

Among results leading to the overall hedging activities loss, the return on the hedging portfolio ended the period with a loss of DKK31.7bn, down from a profit of DKK23.6bn in January to June 2012.

The change in guaranteed benefits provided by ATP produced a profit of DKK25.4bn this time, up from a loss of DKK18.7bn in the same period a year earlier.

Added to this, tax on pension-savings return gave a profit of DKK4.8bn this time, compared with a DKK3.6bn loss in the year-earlier period.

However, ATP pointed out that over time, hedging-activity results were expected to hover around zero, producing a profit in some years and a loss in others.

The hedging programme is meant to protect guaranteed pensions against fluctuations in interest rates, and is designed to match the value of the fund’s guaranteed pensions, which are currently worth DKK 516bn.

Total assets fell to DKK723.4bn by the end of June, down from DKK794bn at the end of December 2012.

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