Danish pensions giant ATP made a DKK1.2bn (€161m) loss on its investment portfolio in the first quarter of this year, after its government and mortgage bond exposure was punished by interest-rate rises, according to its interim report.

Bo Foged, ATP’s chief executive officer, said: “ATP’s current investment strategy is relatively heavily exposed to interest rates, and this makes it sensitive to the rising interest rates that we saw in the first quarter.”

This loss is for ATP’s investment portfolio, which, containing DKK144.2bn of ATP’s assets at the end of March, makes up about only around 16% of the statutory pension fund’s DKK906.6bn of total assets.

However, alongside the scheme’s bonus potential, the investment portfolio also includes substantial leverage in the form of borrowing from the larger hedging portfolio.

This swelled the investment portfolio’s total market value at the end of March to DKK399.6bn, or 44% of ATP’s overall assets.

Foged said in the Q1 statement released this morning that seen from a longer-term perspective, the interest rate-dependent strategy had served ATP’s members well.

“This can be seen from the annual returns, which over the past five years have been close to 20%,” he said.

The investment portfolio’s Q1 loss amounts to 0.9% of the bonus potential before tax, ATP said, though it also reported that according to the Danish FSA’s N1 standardised measure for returns on average-rate pensions – which allows ATP’s return to be compared to those of other pension providers – the loss in the three-month period was 6.1%.

“It was particularly investments in government and mortgage bonds that generated negative returns due to the rising interest rates,” the pension fund said in the interim report.

“Virtually all other asset classes contributed with positive returns, particularly the equity investments,” it said.

ATP’s total assets decreased to DKK906.6bn at the end of March, from DKK959.8bn at the end of last year.

Mainly because of rising interest rates, ATP said, the value of its guaranteed pensions fell by DKK50.6bn in the first quarter, adding that its DKK762.4bn hedging portfolio had generated negative returns of exactly the same amount – with hedging having thus worked as intended.

“As a fundamental part of the Danish pension system, it is critical that Danes can count on ATP,” said Foged.

“We provide a guaranteed and lifelong product, and in this quarter we again saw that our hedging against interest rate risks protected our guarantees, ensuring that ATP’s members can be paid exactly what we have promised them,” he said.

Changes to ATP’s business model, which has been criticised for providing limited potential for investment returns, are currently being discussed by parliamentarians in Denmark as part of a revised ATP Act set to take effect in July.

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