Denmark’s largest commercial pensions provider PFA posted a 4.3% investment loss at group level for the first three months of this year, thanking inflation hedging and its large property portfolio for limiting the losses amid a “difficult” start to the year.

The firm said the loss had been partly driven by a 7.2% loss for its average-rate pensions segment, which suffered from rising interest rates, but said higher rates had the effect of reducing its life insurance obligations during the period.

PFA had total assets of DKK725bn (€97.4bn) at the end of 2021, but did not state a new figure in its interim results statement today.

Kasper Ahrndt Lorenzen, group chief investment officer at PFA, said: “It has been a difficult start to the year, as it has been made clear that we are faced with a changing world.”

PFA said the strong economic rebound expected to follow the pandemic quickly gave way to the war in Ukraine which had impacted the mood in the financial markets, while rising inflation, a developing energy crisis and rising interest rates had created “a bad cocktail,” particularly for the equity and bond markets.

Ahrndt Lorenzen said the financial markets were developing more unpredictably than the firm had been used to in recent years. “However, we have seen more positive signs, particularly in the equity markets, towards the end of the quarter and this makes us feel slightly optimistic,” he said.

PFA had been able to limit the losses by taking early precautionary measures in response to growing inflationary pressure, the CIO said.

The firm said it began to buy inflation-linked bonds in 2021, adding that its customers had benefited from its unlisted investments which helped protect savings during periods of market unrest.

“For many years we have been focused on creating a broad portfolio of unlisted investments that can supplement the returns from equities and bonds and diversify risk,” Ahrndt Lorenzen said.

PFA’s large property portfolio of over DKK75bn had generated positive returns of 3.6% in the quarter, while its alternative investments had incurred a minimal negative return of 0.2%, he said.

“These are also investments that offer some protection against the future we are facing with higher inflation and thus more demand for a tighter monetary policy,” the CIO said.

At the end of January – a month before Russia invaded Ukraine – PFA predicted equity returns would be positive for this year as a whole, despite markets having tumbled at the start of the year, but said many factors were causing uncertainty, pointing to the three interest rate hikes planned by the US Federal Reserve, among other factors.

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