Danica Pension has redesigned the basis of its key unguaranteed market-rate pension product to enable it to broaden the range of investment instruments it can use.

The Danske-bank subsidiary said the move would result in higher returns and boost the company’s own competitive position in the pensions market.

It added that the new version of its Danica Balance pension product, called Danica Balance Mix, was first made available to customers in the middle of January.

It is based on funds held on Danica Pension’s own books rather than on mutual funds, as was the case with the old product, which means it can be invested in instruments such as derivatives, as well as traditional investments like bonds and shares.

Anders Svennesen, CIO at Danica Pension, told IPE: “We really believe it’s a much better product, as we can target investments with the most attractive risk/reward to all risk profiles, and because we now have much more investment flexibility.”

The product contains a defensive fund (bonds), a middle risk fund (mix of bonds and equities) and an aggressive fund (equities), and offers customers three risk profiles, which are a combination of the three.

Danica Pension – Denmark’s second-largest commercial pension provider, with approximately DKK327bn (€43.8bn) in assets under management – has been particularly busy over the last year in hiring investment staff and re-designing its investment strategy in a bid to improve returns and win customers.

Svennesen said he had no doubt the new products would be better performers.

“Because in this new set-up, we are able to make sure that, no matter what risk profile you have, you get the best return for the risk, and we couldn’t do that before,” he said.

When he took up his post at Danica Pension a year ago, having been co-CIO at statutory pension fund ATP, Svennesen said he tried to work out why Danica Pension had been underperforming in the Danish pensions sector, and identified some “systematic issues”.

“Some of the profiles of Danica had much lower risk than competitors in the market, so, when markets were rising, we were lagging behind,” he said. “When markets were falling, then we would actually do better, but it was not because of the internal management – it was a matter of how much risk we had.”

One of problems he saw was the way the Danica Balance product was implemented.

“It was implemented in the mutual funds division, Danske Invest, and with mutual funds, it is very limited what you can do,” he said. “You can’t trade financial instruments such as derivatives, for example.”

To have the investment flexibility necessary in the current environment, the Danica Balance funds had to be on Danica Pension’s own balance sheet, he said.

“Then we have flexibility, we have all the agreements, all the documentation for trading all these instruments, and we can share alternative investments agreements between our different pension accounts such as the market products and the guaranteed products,” he said.