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ATP leverages domestic equities success with pan-Nordic strategy

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Denmark’s huge statutory pension fund ATP is expanding its successful domestic listed equities investment operation to neighbouring Nordic countries in a new strategy that it hopes will generate higher returns for its overall portfolio.

The DKK753bn (€101bn) pension fund, which provides all Danish workers with the labour-market supplementary pension, has also broadened its domestic equities investment into small caps in the past year and is increasing resources for this asset class as well as for the Nordic strategy.

Claus Wiinblad, senior vice president for Danish equities, told IPE: “Two examples of where we have expanded our coverage in the team over the past year are that we have increased our focus on small caps, with the members of the team actively pushing that agenda, and we are now in the process of building up the Nordic strategy, though in significantly smaller scale.”

Listed domestic equities are an important source of returns for ATP’s DKK100bn investment portfolio, which provides the pension fund’s bonus potential. The asset class returned 32% a year on average over the past four years.

However, it is hard to quantify ATP’s exposure to Danish listed equities in absolute terms since the pension fund uses a risk factor approach to portfolio construction.

The new drive to put more money into smaller listed companies in Denmark began about a year ago, Wiinblad said, while the Nordic strategy is currently getting going.

Wiinblad said his team would invest in all the other larger Nordic countries – Sweden, Norway, and Finland – within the new strategy eventually, but the main focus initially was Sweden.

“The idea is to take some of the approaches we have in the Danish equities strategy and expand on that,” he said. “The way we look at it is that the main focus of our equities investment should always be the core – which is Danish shares – so we are expanding to other areas, but we should not crowd out the Danish basis that we have.”

The rationale for the new sub-strategies was to leverage the proven skills in ATP’s domestic equities operation by putting them to work over a wider universe of securities.

“If you look at the results we have created over a very long period, it has been a quite successful strategy and we always work towards trying to improve it, such as expanding the area we invest in, as well as looking to see if there is anything we can do differently,” Wiinblad said.

ATP had already invested in some Swedish stocks, Wiinblad said, but to what level and speed the Nordic sub-portfolio would grow was yet to be seen.

“We have made a start and we will let it develop depending on how successful it is,” he said. “The size of it will also be influenced by our overall asset allocation strategy. We will try not to include Danish equities in our short-term asset allocation changes, because these domestic investments are long-term holdings.”

The expansion was aimed at generating extra returns, but also diversification, Wiinblad said: “The diversification aspect is an extra benefit, because you could say the cyclical nature of the Swedish market and the other Nordic markets actually works as quite a good diversifier to Danish market.”

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