Denmark’s LD pension fund has stepped up its investment in corporate bonds by DKK1.8bn (€242m) to DKK9bn since December and is adding to this in the third quarter with a DKK1bn senior loan investment.

In its interim report, the pension fund said it was gradually changing its investment strategy to meet changing payment needs while creating an attractive return at the same time. 

Dorrit Vanglo, chief executive of the pension fund, said: “Over the course of the last three quarters of a year, we have placed almost DKK2bn in the corporate bond market, and we are continuing in the third quarter with a further DKK1bn in a senior loan.”

LD, which manages a non-contributory pension scheme based on cost-of-living allowances for workers granted in 1980, said its weighting to corporate bonds was now much heavier.

The fund has invested DKK1.8bn in the asset class since December 2013, with DKK1bn of this invested in the first half of 2014 in European credit funds holding investment-grade bonds, which were relatively safe, financing loans to businesses with good creditworthiness.

LD said that, in all, it had placed more than DKK9bn in corporate bonds with varying risk profiles.

Vanglo said LD was not blind to the risk the hunt for returns could in itself drive the market higher.

“But for us it is still attractive to invest in corporate bonds with good liquidity, which at the same time give us reasonable ongoing yield payments,” she said.

A concrete example of LD’s changing strategy was its investment in global corporate bond funds, she said.

“We are gradually changing to investing our assets more globally in securities that are easier to transform into liquid funds,” Vanglo said. 

“This is happening so we can meet members’ requests for payments at any time.”

Meanwhile, the pension fund – which receives no current contributions – has continued to grow despite making DKK1.5bn in payouts to members in the six-month period.

LD said it produced an investment return of DKK2.7bn between January and June, and total assets under management rose by DKK1.5bn to DKK54.5bn.

It said almost half of its assets belonged to members who had chosen to leave the money in LD, even though they had the right to withdraw it.

It reduced its exposure to gilt-edged bonds during the reporting period, and now held nearly DKK28bn in this type of bond, it said.

LD said it had overweighted equities in the half year compared with its benchmark index, but had at the same time cut its exposure to shares by DKK1bn to take profits.

It reduced quoted shares by more than DKK700m and lowered exposure to private equity by DKK300m.