The Danish pension fund for teachers, Lærernes Pension, is planning to more than double its investments in private markets over the next 10 years – as an increased strategic allocation to unlisted assets combines with the prospect of years of net positive contributions.
In an interview with IPE, chief investment officer Morten Malle said: “Our aim is to achieve a 35% allocation to private markets assets in five years’ time.”
The expansion of the unlisted segment of Lærernes Pension’s total portfolio of DKK190bn (€25.4bn), plus 15% leverage, will encompass private equity, private debt, infrastructure, real estate funds, and directly held Danish residential real estate, he said.
“We believe that we get a good diversification by investing more in private markets – we also expect good premiums for the illiquidity – while keeping the costs under control,” said Malle.
While the targeted 15 percentage point allocation boost for unlisted assets would be considerable in terms of the pension fund’s current assets, the CIO said that given expected expansion of total assets through net positive contributions and cumulative returns, the fund could have a DKK100bn allocation to private markets in its sights in 10 years’ time – up from around DKK50bn now.
“We’re in a position where we have this organic growth in our assets because our net premiums are positive,” he noted, adding: “On top of the growth from good returns, we also have positive premiums coming in because of the demographics of our membership.”
Lærernes Pension, which covers Danish teachers in primary schools, started in 1993 – later than some of the Nordic country’s labour market pension funds – because teachers were previously covered by government pensions.
“Our net premiums are about DKK4bn a year and they will stay positive for years to come,” Malle continued.
Minimising costs in the notoriously expensive world of private assets was about ticket sizes, he said, and about being “loyal” to the same GPs and coming back five or even six times.
“You get better terms and also, we do a lot of co-investments – which also keeps costs down – as well as investing through club structures,” he said.
Lærernes Pension’s current allocation to private markets stands at 27%.
“So we are actually having to keep a strong momentum going in our private markets investment activity. This year so far, we’ve committed close to DKK26bn in private equity, private debt, infrastructure, real estate funds and directly-owned Danish real estate,” he stated.
Most of Lærernes Pension’s private markets exposure is global, though not in emerging markets, while its directly-held residential real estate holdings are purely Danish.
“There’s quite a lot of pressure politically for institutional investors to allocate capital to critical infrastructure and growth companies – and what we have to do is to maximise the return for our members,” Malle said.
“The US accounts for much of our private markets exposure, but there are also pockets in our portfolio that are targeted towards European growth and European critical infrastructure,” he explained.
“It’s nice to deliver on that agenda at the same time as being prudent,” the CIO said.
