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ATP: Brexit makes things 'considerably worse' for European economy

As Danish pension funds consider the implications of the UK’s vote to leave the European Union (EU), the largest of them, ATP, says the result of the referendum adds to the weakness in European growth and employment.

Carsten Stendevad, chief executive of the DKK705bn (€94.8bn) statutory pension fund ATP, told IPE: “This is making things considerably worse for the European economy.

“All this just adds to the considerable weakness we already have in European growth and employment, and to the issues of the refugee crisis and geopolitical risk.”

But he added that, for those investors that were well prepared, now was not the time to adjust their portfolios. 

“This is something we have worked on in good time, and we are positioned with a robust and agile portfolio,” Stendevad said, adding that the pension fund was, and would be, able to meet the strong guarantees given to its members.

He said it was possible the Danish kroner could come under pressure in these circumstances but that ATP had complete confidence in the country’s central bankers in standing up to this.

“We are absolutely convinced the Danish central bank will hold the peg, and you can see in our quarterly reports that our euro and Danish kroner exposure has been stable,” he said.

Meanwhile, Henrik Olejasz Larsen, CIO at Sampension, said the initial market reaction to the referendum result primarily reflected an increase in the risk premia required in investment – not a substantial fundamental negative impact on growth outside the UK. 

“Thus, we will not reduce investment risks but may take advantage of relative mis-pricing as evaluated against long-term fundamentals,” he told IPE.

Olejasz Larsen said Sampension had seen noticeable upwards pressure on the kroner. 

“However, we do not think the peg to the euro is at risk and will rather opportunistically take advantage in moving against such a pressure – thus likely alongside the Danish central bank – either in currency or in relative interest rates,” he said.

In the short term, the pension fund’s investment team will react to Brexit by evaluating opportunities in relative pricing to take advantage of any mis-pricings, he said.

“In the longer term, I’m sure we will devote even more attention to the development in European political discourse and integration, for example, with an eye to risks in relation to the structurally weaker European countries currently supported by the [European Central Bank] and the willingness of other EU countries to lend credibility,” he said.

Ahead of Friday’s Brexit news, Sampension had a balanced and measured level of risk in its investment portfolio, said Olejasz Larsen.

“But, as always, we would have acted differently if we in advance had known the outcome with certainty,” he said.

Looking ahead, Olejasz Larsen said: “We hope the UK and EU will work constructively to keep trade and other economic transactions between the two unions as free of transaction costs and regulatory burdens as possible.” 

At PenSam, investment director Benny Buchardt Andersen told IPE the fund’s investment strategy had been allocated neutrally before the referendum, due to the high level of uncertainty about the outcome.

It also reserved risk budget or capacity to enable it to increase investment risk tactically, he said.

“We are in control and sticking to the long-term investment strategy,” he said. “So far, we have no conclusions on the tactical view.”

Looking ahead, Buchardt Andersen said PenSam would consider its investment construction as the UK moved towards an EU exit.

“In this change, where the UK will leave the EU over the next two years, we will need to look into the fundamental building blocks of how we construct our investment,” he said.

For example, he said, the fund would need to consider whether euro swaps were still a proxy hedge for Danish kroner rates, and so on.

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