Danica Pension, Denmark’s second-biggest commercial pension provider, said it started to see the results of its new investment strategy showing through in 2016 investment returns, which it described as “satisfactory and attractive”.
Reporting some early 2016 return figures, Danica Pension said customers with its market-rate products typically received a return of between 5.2% and 8.8% in 2016, depending on their risk profile in the lifecycle product Danica Balance.
Anders Hjælmsø Svennesen, Danica Pension’s CIO, said: “We have delivered a satisfactory and attractive return at Danica Pension in 2016.
“It is pleasing we have really started to see the results of the new strategy within investment, and that it has benefited our many customers in 2016 in the form of an attractive return.”
The pension provider, which manages DKK380bn (€51bn) of assets, said its recommended medium-risk product produced a return of 7.5% for people with 15 years to retirement.
In 2015, the non-guaranteed products Danica Balance and Danica Link was between 3.1% and 10.3%, depending on the age of customers.
Svennesen explained that, in the new version of the Danica Balance product, it introduced a third “mix” fund, with medium risk and markedly more investment flexibility.
“It gives us better opportunities to target investments to all customers regardless of the risk profile they choose, as well as providing a much more dynamic placement of our assets, and this is a big part of the reason we have had an attractive return in 2016,” he said.
He said the high level of political, as well as financial market, turbulence last year had meant portfolios had to be adjusted continually.
“And given this, we are satisfied the portfolios were not particularly affected by market swings but at the same time did produce good returns,” he said.
The “mix” fund was first available to customers at the beginning of last year, after Danica Pension redesigned the basis of Danica Balance, its key unguaranteed market-rate pension product to allow it it to broaden the range of possible investment instruments.
The company first talked about its new investment strategy of increasing direct investments in businesses in 2014.
Danica Pension said increased its alternative investments further in 2016 – investments in unlisted equities or bonds.
“We are focusing on these types of investment because they have the potential for high and attractive long-term returns in relation to the risk, and we have built up the necessary skills to be able to exploit our strong market position,” Svennesen said.
He said direct investments had already borne fruit in Danica Pension’s market-rate product in 2016 with a return of more than 15%.
The provider said it generated a high return on bond markets despite the low level of interest rates, thanks to falling interest rates and dynamic adjustment of the bond portfolio.
Customers with low risk and 15 years to retirement received an average 6.6% return in 2016.
Equity markets ended the year with good, positive returns, Danica said, but added that there had been a very wide variation in returns during the course of the year.
“Tactical allocation throughout the year, as well as investments in alternative assets and direct lending to well-run Nordic businesses, helped create the good return,” it said.
Customers with a high-risk level in their pension product and 15 years to retirement saw average returns of 8.6% last year.