Denmark’s statutory pension fund ATP reported a narrow loss on its return-seeking investment portfolio for 2024, with factors including a surge in US bond yields late in the year having wiped out its year-to-date returns in the final quarter.
According to annual results published today, ATP’s total assets edged up to the end of 2024 at DKK718bn (€96.2bn) from DKK712bn a year before, with “total value creation” stated at just 1.8% over the year.
However, within that, the leveraged investment portfolio – which consists of ATP’s bonus potential and not the bulk of assets tied up in the hedging portfolio backing pension guarantees – ended the year with a -0.6% loss after costs, with the bonus potential standing at DKK104.8bn.
Back at the end of October, ATP had reported a 9.7% return on the investment portfolio for the first nine months of the year, with the bonus potential having grown to DKK114.5bn.
Martin Præstegaard, ATP’s chief executive officer, said today: “Although it was a good year overall for equities, the interest rate development in 2024 is the fundamental reason why we ended the year with a negative return.”
The investment portfolio was exposed to bonds, he said, and was therefore affected by interest-rate increases, especially in the US, which had resulted in a negative return.
Of the asset classes in the investment portfolio, ATP said that in 2024, the biggest positive returns had come from listed foreign and Danish equities, contributing gains of DKK7.5bn and DKK2.2bn, respectively, while government and mortgage bonds had detracted by minus DKK9.2bn and private equity to the tune of minus DKK2.9bn.
Struggling Swedish battery company Northvolt – in which ATP invested DKK2.3bn – and ailing Danish renewables firm Better Energy were among the unlisted equity investments in the investment portfolio to result in losses in 2024.
Along with its larger proportion of illiquid assets and higher allocation to bonds, ATP also blamed its full hedging of the US dollar for weaker returns on foreign equities in its risk-parity-based investment portfolio than might have been expected in the same period from a traditional portfolio.
At the end of a year characterised by strong market gains for large US technology stocks, ATP said: “Due to the risk spread, ATP’s liquid stocks portfolio has not had large exposures to specific companies, and the return on ATP’s US stocks is less than a corresponding return in the S&P 500.”
Præstegaard said the loss on the investment portfolio “is not considered satisfactory”.
“Due to our risk diversification, our returns risk periodically being negatively impacted, even if individual asset classes seen separately yield higher returns,” he noted.
Referring to ATP’s risk-parity approach in the asset allocation of its investment portfolio, he added: “As a long-term investor and guaranteed pension provider, we fundamentally believe in balanced risk diversification, and 2024 will not change that.”
ATP said its task was to ensure that the lifelong and guaranteed pensions for its members could be paid out at all times, which was done by hedging the interest rate risk on pensions, and that its hedging strategy had worked as intended throughout 2024.
“Even without a positive result in the investment portfolio, the year ended with a bonus capacity at the same level as after 2023,” it said.
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