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Denmark's ATP using interest-rate swaps to hedge risk

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DENMARK – The 283 billion-crown (38 billion-euro) Danish labour market scheme ATP says it is using interest-rate swaps to hedge market risk.

“ATP has concluded a number of interest-rate swap agreements in a bid to hedge against the market risk pertaining to guaranteed benefits,” the fund said in its first-quarter report.

“The return on interest-rate swaps, at 5.9 billion crowns, may be compared with the 7.17 billion crown increase in the market value of guaranteed benefits.” It added that in 2003, it “further narrowed the interest-rate sensitivity gap between assets and liabilities” with interest-rate swaps.

The fund has also decided to raise its equity exposure target from 15% at the end of 2003 to 20% in the course of the first half of this year. The strategic portfolio allocation target was gradually raised in the course of the first quarter, the fund said.

“At the end of the quarter, the exposure target for listed equities was increased to 17%, while the targets for bonds and other assets accounted for 75% and eight per cent, respectively.” The higher exposure to listed equities came through a cut in equity hedging.

The market return on investments in the first quarter was six percent, or 15.5 billion crowns, beating the benchmark by 2.2 percentage points, although the benchmark does include interest-rate swaps, private equity of real estate.

“The high return was achieved on the back of positive market developments, with rising equity prices in January and February and declining bond yields,” ATP said. “All asset classes produced positive returns.”

It added: “Based on the interest rate and price levels prevailing at the end of Q1, ATP has calculate an expected market return on investments of 10.4% for 2004.”

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