Denmark’s huge statutory pension fund ATP reported a return of just 0.4% on its investment portfolio in the first three months of this year.

The result contrasts with the 17.2% full-year return it posted for 2015, as equities and strategies against rising inflation made losses.

In absolute terms, the return on the investment portfolio – which consists of ATP’s bonus reserves – was DKK418m (€56.1m), bringing the bonus potential up to DKK101.5bn at the end of March, according to the scheme’s interim report.

The much larger hedging portfolio, however, performed well and protected pension guarantees against the significant drop in interest rates that happened in the first quarter, ATP said.

Across the two portfolios, total assets grew to DKK757.8bn at the end of March, from DKK705.1bn at the end of 2015.

With the quarter marked by falling interest rates and losses in equity markets, ATP said that, within the investment portfolio, the largest positive return came from the bond portfolio, with DKK2.5bn, while alternative investments and commodities also provided positive returns. 

But equities suffered a DKK1bn loss, and long-term hedging strategies against rising inflation produced a negative return of DKK2.1bn.

Chief executive Carsten Stendevad said: “ATP’s investment portfolio proved robust in an unstable financial market.”

Falling interest rates and inflation were signs the global economy was still weak, “despite ever-intensified monetary policy injections,” he said.

“Given a difficult market environment in Q1, we are very pleased to have navigated through this quarter without sustaining losses.”

The hedging portfolio generated a positive return after tax of DKK54bn, ATP said, adding that this meant it had been successful in protecting pension guarantees, even though hedging activity results were negative in all, by DKK0.3bn, which it said was less than 0.1% of its DKK656.3bn of guaranteed pensions.

Stendevad told IPE the relatively strong performance this quarter from bonds in the investment portfolio was mostly reflective of market developments rather than a particular strategy the pension fund has adopted.

“It is a fairly plain-vanilla, long-dated bond portfolio, with exposure particularly to US bonds,” he said.

Declining to give a view on how equity markets might develop this year following the weak start, Stendevad said ATP was happy with the new strategy surrounding its risk-factor-based investment portfolio construction.

“It’s an all-weather strategy, and the first quarter has been a good example of how we have had several years when risky assets have helped us through, and now it’s the reverse this quarter,” he said.

He said ATP expected the environment of very low interest rates to continue for some time, and that the pension fund had prepared itself well for this.

“If you’re a pension scheme, your job is to produce a future income stream, so being in a negative interest rate situation is almost surreal,” he said.

“But we are in a comfortable situation where we can live up to all our promises and even more.”

He said ATP has made a number of changes to deal with very low and negative prevailing interest rates, including reducing its interest rate sensitivity and increasing its investment flexibility.

“All of this,” Stendevad said, “gives us the tools to be in an environment like this for a long time.”