DENMARK – The eight pension funds managed by industry-wide pension provider PKA posted an average investment return of 18.4% in 2005.

The performance was only exceeded by the lawyers’ and economists’ industry-wide pension fund JOP, which reported a return of 21.5%.

It outperformed the sector by revaluing its real estate portfolio to market value so that it posted a return of 91% after undervaluing it in the past, according to Danish financial newspaper Børsen.

Three other pension funds have reported 2005 returns, with Industriens Pension posting 16.7%, Pen Sam 15.5% and Komunernes Pension 14.9%.

PKA chief investment officer Michael Nellemann Pedersen said that Danish equities posted a return of 47%, foreign equities 27.6%, bonds including derivatives 14.3%, emerging market bonds 11.6% and real estate 14.8%.

The Børsen report highlighted PKA’s use of derivatives to cover future obligations regarding the interest rate guarantees offered by most Danish industry-wide pension funds.

JOP chief investment officer Henrik Franck confirmed the 91% return by JOP’s real estate portfolio and told IPE that his fund had reassessed its real estate holdings and the value had increased “quite significantly”.

He added: “But it is not the only reason why we had a very good return. We also had very good returns on our equities and a very good equity allocation.”

Franck said that listed equities posted a return of 32.2%, unlisted equities 20.5%, strategic interest coverage 32%, Danish long-bond portfolio 5.1% and emerging market and high yield bonds 9.1%.

“Its absolutely true that real estate was a component but the return from listed equities was much more important contributor to our total return than was real estate,” said Franck. “We calculated what the result would have been if we had not invested money in real estate but invested it as the rest of the portfolio and our return would have been in the vicinity of 16% or 17%, which would still have been a very good return.”