DENMARK – The 27 billion-euro statutory pension provision fund, ATP, is in the process of selecting asset managers as it enters the US mortgage-backed bond market.
The move comes amid a wider debate taking place in the media about the outlook for the scheme.
Henrik Gade Jepsen, head of fixed income, said the fund would use US mortgage-backed bonds to diversify its fixed income portfolio, which was previously “rather domestically oriented”.
ATP invests about seven billion euros in Danish mortgage-backed bonds.
In the US, ATP will pursue its usual “cautious approach” Jepsen said. For the time being, the fund has decided to invest “hundred of millions” in the new asset class, but “definitely not one billion”.
Jepsen explained the decision to outsource saying: “We felt that an asset manager close to the market can extract additional return.
The share allocated to US mortgage-backed bonds could increase if the fund is satisfied with initial performance, he said, adding a manager would be appointed by the end of the year.
As well as managing the first pillar‘s contribution, ATP also manages the resources of its defined contribution scheme known as SP, to which workers pay one percent of their annual wages.
From January 2005 members will be able to leave their savings with ATP, which according to the Danish Insurance Association controls 16.2% of pension assets, transfer the money to another pension provider or choose UCITS providers via an internet-linked platform.
“So far 170 funds have announced that they have established themselves on this virtual market place,” ATP’s chief executive Lars Rohde told IPE.
It has also been suggested in the media that ATP could be allowed in the future to accept extra contribution from its members, effectively competing with the second pillar.
A spokesman for the Danish ministry of economic and business told IPE the government was not preparing any change of law but a few members of the parliament’s business committee have called the idea of changing ATP “interesting”.
A spokeswoman for the Danish Insurance Association, which includes insurance companies and industry wide pension funds said: “At the moment there is even a debate as whether ATP belongs to the first or the second pillar, but these debates are more in the press than anywhere else.”
“We are of the opinion that ATP has a special role in the statutory system. It would be difficult to create the framework of fair competition,” she added.
ATP’s Rohde commented: “There are some people who find that we have done quite a good job and would like us to manage a larger part of their pensions.”