DENMARK - Falling equity markets caused the DKK49.3bn (€6.6bn) Industriens Pension to report a loss of 3.3% for the first half of 2008.

Figures from the interim report showed the scheme received DKK2.97bn in contributions, however the result of investment business before tax was -DKK1.71bn, and net profit of -DKK1.45bn.

As a result of these losses, Industriens Pension confirmed it was "necessary" to use DKK2.3bn of the "collective bonus potential" to cover the negative earnings and profits and pay a bonus rate of 6.5% on members' savings.

However, the pension fund claimed its reserves increased in the first half of 2008, with its solvency coverage level increasing from 277% in June 2007 to 350% this year, which means it has "significant reserves to continue the active investment strategy".

The pension fund currently has over 50% of its portfolio in government bonds and Danish mortgage bonds, but returned -1.5%, however equities were the worst performer with Danish shares returning -7.5% and foreign shares -11.6%, although both asset classes outperformed the benchmarks which returned -10.1% and -14% respectively.

While unlisted shares returned 0.6%, the sector underperformed the benchmark by 3.6 percentage points, while absolute return strategies produced a positive performance of 2.1%, but this was also 0.9 percentage points lower than the 3% benchmark return.

In addition, infrastructure investments also performed poorly with a negative return of -10.9%, an underperformance of 13.9 percentage points, while property investments also struggled with a negative result of -1.6% against a benchmark of 3%.

Despite the poor investment returns, which were attributed to falling stock markets and rising interest rates, the scheme reported an increase in total assets from DKK46.7bn at the end of June 2007 to DKK49.3bn at 30 June 2008.

Jan Østergaard, investment director at Industriens Pension, said: "In light of the precarious conditions in financial markets, our equity continues to be under weighted, while we in turn will continue to have a predominance of Danish mortgage bonds."

However, the pension scheme warned if the negative trend in the financial markets continues, there might be a need to "adjust the interest rates account for 2009".

The scheme predicted the turbulence in the markets will continue in the second half of 2008 - following downward pressure on growth and upward pressure on inflation - but it claimed the high reserve levels means "there is room for a declining return on investment" while maintaining the current bonus policy, and admitted the return for 2008 as a whole is not expected to be "significantly improved" from the interim figures.

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