Danish pension funds’ foreign asset weightings have grown over the last two years, according to new data from the sector’s lobby group, which highlighted the role pensions play in giving politicians freedom to steer economic policy.
Industry association Insurance & Pension Denmark (IPD) published new data on how assets are invested and managed by the country’s pension providers, which showed that almost two thirds – 65% – of Danes’ pensions were invested abroad in the first quarter of this year.
The data IPD has collected, which only goes as far back as 2018, shows that at the end of March 2021, of the sector’s DKK3.13trn in total assets, DKK2.04bn (€269m) was invested in foreign assets.
Just over two years earlier, at the end of 2018, those figures were DKK2.48trn and DKK1.44trn, respectively, with foreign assets on average making up 58% of portfolios at that point.
Andreas Østergaard Nielsen, the association’s head of analysis, said: “Danish pension wealth is so enormous that it is absolutely necessary to look beyond the country’s borders when investing the money.”
Risk had to be spread geographically to ensure robust returns, he said.
IPD said Danish pension savings made a significant contribution to the country’s total foreign wealth, with lower public debt and growing private savings having moved Denmark from a indebted country in a deep economic crisis in the 1980s to its current status as a nation with a positive figure for net wealth abroad.
The high level of foreign wealth provided a huge degree of freedom for economic policy, and also generated income for Denmark, the lobby group said.
Østergaard Nielsen said Denmark now owned DKK8.4trn of assets abroad, with the Nordic country’s net international investment position standing at around DKK1.76trn.
With Danish pension assets contributing more than DKK2trn to that positive balance, he said: “We often hear that our large industrial companies generate income for Denmark. But our pensions actually also act as an export engine for the entire Danish economy.”
IPD said much of the Danish pensions money invested abroad went into US equities, which accounted for around DKK650bn of all foreign investments in Denmark’s insurance and pension sector, including the statutory pension fund ATP.
This figure came from data from the central bank, Danmarks Nationalbank, the association said.
“The US is the world’s largest stock market, so it is only natural that the insurance and pension industry invests around 25% of all foreign investment in US equities,” he said, adding that the sector actually held more US than Danish shares.
The figures from IPD also show that market-rate pension products have a much higher weighting of foreign assets than do average-rate pensions, at 72% of assets compared with 58%, according to the data for the first quarter of this year.
While foreign allocations have increased for both types of portfolio since 2018, the geographical shift has been more pronounced for market-rate pensions, since market-rate pensions had 63% foreign weighting overall for the sector back then, compared with 53% figure for average-rate pensions, the IPD data showed.