Denmark’s Council for Return Expectations – a trio of experts appointed by the pensions and banking sectors – has lowered the long-term return outlook for listed assets, and several other asset classes in its latest set of common assumptions for pension projections.

However, in the new set of return assumptions – which are established every six months as a basis for pension companies and financial institutions to calculate projections for their customers – expected returns for private equity, real estate and infrastructure remained largely unchanged from the predictions the the experts made in March.

Jesper Rangvid, chair of the Council for Return Expectations and professor of finance at Copenhagen Business School, told IPE: “Compared to our latest forecasts from late June, the main changes have been to listed assets, where we have lowered all expected returns.”

He said the reason was that the previous set of forecasts published in June had been based on market data on 31 March, whereas the numbers just released were founded on 30 June market data.

“In March, yields were high and credit spreads had widened due to the coronavirus crisis. During the spring, yields have come down and spreads narrowed, causing lower expected returns from fixed income classes,” he said.

Rangvid added that with equities prices having increased during the second quarter, expected returns going forward would now be lower.

The forecasts for alternatives, on the other hand, had not changed much, he said, with some slightly higher and others slightly lower.

Commenting on the new forecasts, industry association Insurance & Pension Denmark (IPD) said the figures underlined the necessity of communicating investment uncertainty to clients.

Kent Damsgaard, the lobby group’s CEO, said: “ it is important to tell customers about the uncertainty. Because of this, all pension firms should tell customers not only what they will receive as a pension if the investments go as expected, but also if they do better or worse than expected.”

In the new return assumptions, which are to be used by providers during the first half of 2021, government and mortgage bonds are marked with a negative annual return of 1.2% over a horizon of between one and five years, down from the assumed -0.3% return which firms are using as the basis for predictions in the second half of this year.

The assumed annual return for private equity, over the same horizon, is 0.2 percentage points higher in the latest set of figures compared to the previous set, at 8.7%.

In his blog on the latest figures, Rangvid wrote: “We (The Council for Return Expectations) expect that Danish investors will lose money – even before fees and inflation – if investing in safe assets over the next ten years.

“You can expect positive returns on other asset classes, but then you need to take on risks,” he wrote.

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