Denmark’s ATP reported a significant increase in the size of its bonus potential after making one of its highest-ever quarterly fixed income returns.
The labour-market supplementary pension fund’s bonus pool swelled to DKK120bn (€16bn) at the end of June, the fund reported this morning. This compared to DKK109bn at the end of March and DKK92bn at the end of December 2018.
Including the fund’s DKK766bn hedging portfolio, which backs ATP’s pension guarantees, the fund’s overall assets grew to DKK880bn at the end of the first half from DKK785bn six months before.
Assets in the investment portfolio – which consists of the bonus potential plus borrowing from the hedging portfolio – stood at DKK337bn at the end of June.
More than half of the DKK24.9bn return generated by the investment portfolio in the period came from government and mortgage bonds, which produced DKK14.4bn. ATP said this was one of the highest quarterly returns it had ever made on fixed income investments.
In its interim report, the pension fund said: ”The government bond portfolio, which included exposure to European and American government bonds, returned DKK12.6bn, primarily as a result of positive contributions from European and American government bonds as a result of falling European and American interest rates.”
Other strong returns came from listed international equities, which produced DKK5.9bn, and Danish equities, which added DKK4.4bn.
The bonus potential also benefited from a transfer of DKK3.2bn from the fund’s guaranteed benefits pot in the second quarter of this year, after ATP adjusted its long-term life expectancy development prognosis after a small drop in life expectancy in Denmark.
Data published by ATP showed that, within the investment portfolio, risk increased slightly over the first half of 2019 in absolute terms.
However, in relative terms, risk levels fell down over the period as the portfolio’s asset values increased.
Bo Foged, chief executive of ATP, told IPE: “We are being a bit more prudent in the current macro environment, where the economic cycle is at at late stage and so the likelihood of a recession is increased.”
ATP said in its interim report that during the first half of the year nearly all assets classes had produced positive returns in the investment portfolio. “This is exceptional and a development that ATP is keeping a close eye on,” the fund said.
Only inflation-linked instruments made a loss in the period, declining by DKK2.7bn.
Foged said the pension fund was making progress in its search for a new CIO following the announcement in June that Kasper Ahrndt Lorenzen was set to join PFA Pension next month.
“We have started the process and we have drafted the brief, and now we are looking for a long list of candidates,” he said.