Bankpension to hedge guaranteed profile
DENMARK - Bankpension, the Danish pension fund for employees in the financial sector, has confirmed it intends to change the asset distribution in its unconditional guarantee 'investment profile' in response to the market turmoil.
All new members of the €1.5bn Bankpension are automatically placed into investment profile 2, which is broadly 50% in bonds and 50% in shares, with up to a third of the portfolio invested in 'alternative' assets - which includes emerging market shares and bonds, private equity and property.
Members can choose to switch to investment profile three, which is one-fifth in shares and four-fifths in bonds with up to a quarter of the assets in alternatives, or to investment profile four, which is the riskiest profile with two-thirds of the assets in shares, one-third in bonds and up to half in alternatives.
However, investment profile one, which is not available to new members, has the same asset allocation as profile two but includes an unconditional guarantee.
The other three profiles have a conditional warranty that can be affected by changes in the base rate and increased longevity.
Bankpension has now warned "negative development" in financial markets has led to a greater need for the profile to have "secure fixed-rate long-term" returns, so the fund is altering the distribution of assets.
That said, Bankpension confirmed its goal is to maintain the existing proportion and distribution of bond investments, but revealed this would be supplemented by interest-rate hedging to help guard against losses if long-term interest rates fall.
The pension fund pointed out investors in profile one would still expect a lower return than profile two, as they have to pay for the protection of the unconditional guarantee, but added members would now spend a smaller proportion of their funds to buy 'insurance' covering interest rate falls.
The pension scheme admitted it also expects to make "further adjustments" to investment profile one in the first half of 2009 once new rules on bonuses and solvency requirements are published.
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