The head of Danish pension fund PFA has warned that economic fundamentals do not justify the strong financial market performance recorded in the first quarter of 2019, after it reported a profit of DKK27.3bn (€3.7bn) for the period.

PFA’s group chief executive Allan Polack said: “There are signs of a halt in growth in Europe and the US, and, consequently, many companies have revised their expectations downward when it comes to the future earnings.

“At the same time, the monetary latitude has become smaller, and, in Europe, Brexit as well as Italy’s budget problems are still causes for unrest. Fundamentally, nothing quite justifies the large increases we have witnessed.”

The fund warned that positive returns could also be a cause for concern as low interest rates and growth expectations had indicated a volatile market with weak returns. Equity markets seemed to be continuing their positive trends, PFA said, while disconnected from other asset classes and indicators.

PFA, Denmark’s biggest commercial pension fund, said that its own strong first-quarter returns had already made up for the losses experienced last year. A customer 20 years from retirement received a total return for 2018 and the first quarter of 2019 of around 3.7%, and 45% over the past five years, it said. 

PFA’s market-rate customers achieved returns of 6.7% on their savings in the first quarter, compared with the full-year loss of 3.3% in 2018, while the returns related to average-rate pensions amounted to 5.1%.

Within the fund’s asset allocation, listed equities returned 11.9%, alternative investments made 3.4%, property gained 1.8% and bonds returned 2.5%.

CEO Polack also said the concrete value of the fund’s large-scale, alternative investments was now showing through.

PFA said it had been building a larger portfolio of unlisted investments since 2016 in preparation for listed market volatility and low interest rates.

The portfolio was worth roughly DKK95bn at the end of March and included stakes in companies such as TDC, Nykredit, Danish Ship Finance and the world’s biggest offshore wind farms Walney Extension Offshore Wind Farm and Hornsea Project One.

“The concrete value creation of these investments is now becoming evident,” Polack said.

He added: “Active and long-term ownership is key to PFA as we in this way – together with our portfolio of listed investments – can help create solid long-term returns for our customers.”