DENMARK - Industriens Pension, the €8.3bn pension fund, has diversified its equity holdings a fraction to tap potential opportunities linked to dividend income.

Danske Capital has been appointed to manage a €50m high dividends equity mandate though this sum could gradually increase over time depending on the money flowing into the Industriens scheme, according to pension fund officials, and performance of the asset selection.

Henrik Nøhr Poulsen, head of equities at Industriens, said this new allocation is part of the fund's wider diversification and alpha generation which officials feel they can take thanks to the strong performance seen last year in comparison to other European pension funds.

Industriens was one of only a handful of pension funds to generate a positive return in 2008, according to annual results released in March, but did so at the time thanks to the interest rate hedging strategy and because it cut its holdings in equities early into the financial market crisis. (See earlier IPE article: Interest rate hedging pays off at Industriens)

Since then, the fund has been slowly increasing its equity holdings from 17% in October last year - though Paulson acknowledges that may have been a little early given market conditions at that stage - to 21% at the end of 2008, and again to 26% today. The fund's "natural weighting" is to hold 30% equities, said Poulsen, and "equities are standing at a valuation level that appear attractive and will continue to do well".

Its remaining asset allocation at the end of last year was 59% bonds, 11% cash - which has been drawn on recently to fund equity increases - 6% in unlisted investments and 1% each in real estate, infrastructure and absolute returns.

While Industriens is not willing to take wild risks with its asset allocation, it is able to consider alpha-generating opportunities as they arise because it does not require the permission of regulators, as some other Danish pension funds do.

Paulsen said this investment was selected because it is viewed as having a "good performance but a focused portfolio", a solid track record and team which has been in place since the strategy was created six years ago, and a low turnover of stocks.

The high dividend mandate acts as a "mix of safety and opportunity" according to Henrik Bak, head of equities at Danske, as the strategy invests in 35-40 equity positions and has a tracking error of 3-6% against beta of 0.9, but is expected to yield approximately 6% this year compared with 7% last year.

"When markets decline, it does well. And when the market moves out, it does reasonably well," said Bak.

The strategy looks for high-yielding dividends as just one of three components for asset selection, said Bak, but the qualitative screening eventually stocks based on fair stock price and returns potential.

The RFP issued by Industriens is understood to have been first issued through IPE-Quest.

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