The chief risk officer of Denmark’s biggest pension fund ATP said that although the coronavirus-triggered market turmoil has hit its investment portfolio, its much larger DKK760bn (€102bn) hedging portfolio is nevertheless working well.
Kim Johansen, ATP’s CRO, told IPE: “Even in these stressed times in the financial markets the hedging portfolio fulfils its objectives making it possible for our 5.2 million members to be confident that our guarantees remain in force.”
Johansen said the purpose of ATP’s hedging portfolio, which accounts for 80% of contributions, is to safeguard its guaranteed-rate pensions, ensuring its ability to deliver on the guarantees issued to members.
The investment portfolio, meanwhile, covering 20% of contributions, was invested in a risk-balanced portfolio including equities, alternative assets and rates, he said.
“This portfolio is naturally affected by the financial market turbulence,” he said, in response to questions from IPE about how ATP was managing generally in the pandemic crisis.
Over the course of 2019, ATP’s bonus potential increased to DKK126bn from 2018’s DKK92bn. The investment portfolio consists of these assets plus leverage in the form of borrowing from the pension fund’s hedging portfolio.
Commenting on ATP’s organisational preparedness, Johansen said that contingency plans and processes in place to manage the COVID-19 situation were functioning effectively.
Measures taken included limiting the number of employees working on its sites to the absolute minimum, he said.
“These plans and processes are working well, even when we are separated physically, based on a dynamic IT setup, virtual meetings, etc,” he said, adding that the organisation had followed the national guidelines and would take the necessary precautions issued by Danish authorities on an ongoing basis.
The statement on how the statutory pension fund’s business model and hedging approach is holding up in the current crisis comes months after ATP’s set up drew particular criticism in Denmark.
Lecturer at Copenhagen Business School (CBS) and former chief executive officer of Danica Pension Henrik Ramlau-Hansen said last autumn that a range of factors were putting ATP under pressure, including low interest rates, increased longevity, limited regulation of the fund’s contributions and limited bonus potential.
His colleague, CBS professor Jesper Rangvid, said the fund’s set-up sent too much money into low and negative-yielding fixed income investments while free capital was being invested with a high level of risk.