Denmark’s largest commercial pension fund said it increased its exposure to alternatives significantly in 2017, making large private equity and infrastructure deals as part of consortia and doubling its assets in its sub-portfolio to DKK26bn (€3.5bn).
Releasing its 2017 financial results, the pension fund reported a profit of DKK247m after tax, up from DKK219m in 2016, and a total investment return of DKK26.3m, which was little changed from the previous year.
Allan Polack, PFA’s group chief executive, said: “We aim to generate the best long-term returns, and, in order to ensure high stable returns, we increased our exposure to alternative investments significantly in 2017.”
The pensions provider did this by using its position in the market to make “a number of historical and attractive investments”, he said.
“We have great expectations for all the investments as they also establish PFA as an attractive business partner on the international stage,” he said.
In 2017, PFA said it invested DKK13.5bn in alternatives — a grouping which includes private equity and debt and infrastructure.
In its annual report, PFA’s said its alternatives portfolio ended the year with a value of DKK26bn.
These investments included leading the consortium that bought 16.9% of shares in Danish bank Nykredit in a private equity deal.
Other alternatives investments were PFA’s acquisition of 25% of major UK offshore wind farm Walney Extension, and its takeover — as part of a small group of international investors — of US infrastructure company Interpark.
Increasing its exposure to alternative investments is part of the company’s aims in its Strategy2020 long-term business plan, PFA said.
PFA’s 2017 investment return overall was primarily attributable to solid returns on equities, and quoted shares in particular, the company said. Alternative investments and real estate had also contributed, it added.
Alternatives returned 7.1% after currency hedging, while real estate generated 8.0%.
The pensions provider said its customers would receive DKK2.2bn through its CustomerCapital model of passing profits back to customers, with this amount made possible because the company ended 2017 in a stronger position.
“When we consider the intensified competition and added government regulation, economies of scale become increasingly more important for us as market leader to maintain our position as the commercial company with the lowest costs and best long-term return,” Polack said.
In 2017, PFA generated returns to its customers of between 5.3% and 13.5% including CustomerCapital, depending on investment profile, compared with a range of 6.5% and 8.2% the previous year.
The return on average-rate pension plans fell to 1.5% from 2.2%.
PFA’s total customer funds grew to DKK472bn at the end of December from DKK439bn.
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