Occupying a unique position as an investor in its domestic equities market, Denmark’s giant pension fund ATP – the fourth largest in Europe with DKK753bn (€101bn) of assets – has had to carve its own path as a return-seeking owner of local businesses.
Its strategy has generated returns of more than 30% a year on average since 2013 from listed Danish shares, which made up roughly 13% of the fund’s investment portfolio at the end of June. In the first half of 2017 this allocation was the best performer in the portfolio, generating DKK4.1bn – more than a quarter of ATP’s H1 2017 investment return.
Claus Wiinblad, the pension fund’s domestic equities chief, attributes this success to ATP’s deep knowledge of the companies in which it invests, coupled with its active ownership stance.
Wiinblad describes ATP’s approach as “an old-fashioned long-only stock-picking fundamental strategy”.
While it is an actively managed portfolio, some stocks have been in the portfolio “for more or less the entire lifetime of ATP”, Wiinblad tells IPE.
“I don’t recall a time when we didn’t have Novo Nordisk stocks, but even though the size of the position has varied significantly over time, it is a long-term portfolio so the turnover is not as high as it might be,” he says.
It should be noted that because ATP’s reported returns are based on its DKK100bn investment portfolio — which is only around a seventh of its total assets – there is a certain leveraging effect which makes these returns hard to compare with those produced by other pension funds.
Nevertheless, the recent contribution from the domestic allocation is remarkable.
“We have a heritage as the largest Danish institutional investor, and we have always had very good relationships with the different companies that we invest in and have been building on that over a long period of time,” Wiinblad says. “I think the basis of the strategy is to combine the traditional research-driven bottom-up approach of looking at the individual companies and getting to know them, with being an active owner.”
Active ownership is an increasingly important aspect of being an institutional investor. ATP has a variety of methods of getting involved in the companies it owns, Wiinblad says, including voting at annual general meetings (AGMs), bilateral meetings with management, and even through the press.
“If we can actually move the companies to take what we think is the right approach, then that’s fantastic, but in the process we also get to know the companies better and can use that knowledge,” he adds.
As an investor that is closely involved with many companies on its relatively small patch of home turf, does ATP’s knowledge of a company ever tip over into insider information?
“It’s something we have to consider every time we meet up with people at a company – is there any knowledge we have gained here that crosses the line?” he says.
There are numerous occasions when that knowledge does indeed cross the line. ATP’s compliance team has to keep a list of companies where that is the case, Wiinblad explains, and all staff are then forbidden from trading in those securities.
“There are mostly one or two names on that list on an ongoing basis where we have become an insider,” he says.
Even when possession of insider information is not at issue, could there be a danger of excessive loyalty to companies or their staff inhibiting ATP from acting as an independent investor?
Wiinblad is clear: “Our first priority is the return to our members.”
“That being said, we are fully aware and conscious that our investment strategy is different from that of a hedge fund, which might do a raid on a company and then be out three months later,” he says. “They don’t have a problem if they are in bad standing with the company, but we do take into account that we are long-term shareholders, and if there is a conflict, then we have to manage that conflict.”
ATP announced a new policy of active ownership and voting on all listed equities in its latest annual report. It also updated its long-term policy and laid down certain principles and processes. In a new initiative in 2016, the pension fund said it voted at general meetings in all companies globally in which it holds listed equities.
The fund’s presence and comments at AGMs in Denmark earlier this year were reported several times in the local media, but Wiinblad says the pension fund has not become more active as an owner.
“It’s typical that we will try to express our opinion on remuneration, governance and strategic matters, and we have a list of topics on which we will express our views on an ongoing basis,” he says.
“It also sends a signal to other companies that we are explicit about our position.
“But our level of dialogue varies according to a particular company’s behaviour and results,” he says, concluding: “We don’t have to be active just for the sake of it.”