ATP, which runs Denmark’s labour-market supplementary pension fund, announced the new long-term guidelines for its investment portfolio and said that while the change was not radical, the new mix was less weighted to rates and inflation factors and more towards alternative risk premia.
The DKK705bn (€94bn) pension fund has set the guideline as part of its portfolio construction overhaul, which focuses on a set of four underlying risk factors that assets represent, rather than grouping each of those assets into one of five risk classes.
The guideline only concerns ATP’s investment portfolio, or the return-seeking part of its overall assets, which consists of its bonus reserves worth approximately DKK100bn.
The bulk of the pension fund’s assets are held in its hedging portfolio, designed to back the pension guarantees it gives.
The new long-term guideline for the investment portfolio allocates 35% of its investment risk to each of the “equity” and “interest-rate” factors, and 15% each to the “inflation factor” and “other factors” groupings, according to information in the pension fund’s annual report.
It said the guideline should be seen as a long-term anchor for risk allocation, and that the actual portfolio allocation might deviate from the guideline at any given time due to market conditions.
Carsten Stendevad, chief executive at ATP, told IPE: “While the portfolio construction approach is new, the changes in relative risk weights are not dramatically different.
“Compared with the old guidelines, it means less risk weights to interest rates and inflation factors, about the same to equity, and more to other premiums, which includes illiquidity premiums and liquid alternative risk premiums.”
Emphasising that the guideline did not have to be adhered to in the short term, he said ATP was actually deviating from the guideline by quite some distance at the moment.
“Right now, we have 22% of our risk in the interest-rate factor and half in equity,” he said.
“In a normal market environment, we would expect to be much closer to the guidelines, but, given where rates are now, this is where we are.”
The new guideline represents risk weighting and thus cannot be seen in terms of traditional asset allocation percentages, and does not indicate proportions of capital, he said.
As an example, he pointed out that equities were four times riskier than bonds.
Stendevad first unveiled details of the new investment strategy during his keynote speech at last year’s IPE Conference & Awards in Barcelona.