DENMARK - PensionDanmark, the €10bn pension fund, will change its asset allocation over the coming months and reduce in its allocation to fixed income and diversifying assets.
Torben Möger Pedersen, managing director and chief executive of PensionDanmark,told delegates at the IMN Scandinavian Institutional Investors Summit in Copenhagen, Denmark, the impact of the credit crunch has made certain diversifying assets, such as timber, real estate and infrastructure, less attractive as a re-pricing of the market has yet to occur.
Pedersen said the fund intends to increase exposure to "certain credit products" but would move away from structured products which may not be easily understood towards other credit products such as high yield loans.
He argued pension funds will also increase their allocation to equities and the corporate credit markets over the next 6-12 months, but this will in turn be offset by a reduction in allocations to both domestic government and mortgage bonds.
In his presentation, Pedersen also warned the recent weakness of the US dollar could lead many pension funds to reconsider their currency hedging strategy, while also looking at possible methods to hedge against a potential acceleration in inflation, such as swaps or commodities.
He revealed the new target allocation for PensionDanmark will therefore be 25% in fixed income, down from 41% at the end of 2007, along with a small increase in equity exposure from 32% to 36%, while "real-assets" such as real-estate, infrastructure, and index-linked bonds is allocated 20% and "credit investment" increases from 6% to 15%.
He also admitted while PensionDanmark does not currently have a tactical currency strategy it may be something it "explores in the future", and highlighted the revised target allocation is likely to be the "average picture of Danish pension funds".
Pedersen also confirmed it is seeking one or two providers to outsource the increased corporate governance responsibilities related to becoming a signatory of the UN Principles of Responsible Investment (UNPRI).
He confirmed the board of the pension fund had decided it will sign up to the UNPRI either later this year or early in 2009.
That said, the Board is still discussing the increased responsibilities required to comply with the principles - such as proxy voting and more active engagement rather than exclusion - and admitted the fund is looking for "one or two providers to outsource the care" of active voting and corporate governance activities, he added.
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