$100 Billion ATP Fund Plans Asset Shift as Liquidity Sinks

  • Stendevad says record-low interest rates distorting markets
  • ATP has no intention to adjust fund's discount curve

One of Europe’s biggest pension funds is preparing to adjust its portfolio to avoid being caught out by sudden liquidity droughts in debt markets.

“We expect to be able to say more about this in a few months,” Carsten Stendevad, chief executive officer at ATP, said in an interview in Reykjavik. “It will all be a reflection of the fact that we’re responding to the liquidity situation, and adapting. We can’t just go around complaining and not react. So we’re acting.”

Denmark’s biggest pension fund posted a 0.2 percent loss on its investment portfolio last quarter after a global market selloff ate into its holdings of stocks, corporate bonds and commodities. It made money on private equity, infrastructure, real estate and long-term inflation hedges. ATP had 710 billion kroner ($104 billion) in total assets at the end of September.

Monitoring liquidity developments is key, Stendevad said. “Every quarter one sees signs in different corners,” he said. “If you look at the last few weeks of August, you saw an outflow from credit funds, both high yield and emerging market. There’s no doubt that some of those flows could have triggered some sort of liquidity event. Had the situation continued a week or two into September, then you’d have seen something big. Things have stabilized now.”

ATP posted its results a day after Norway’s $860 billion sovereign wealth fund revealed a $32 billion loss last quarter, its biggest in four years. The world’s largest wealth fund said an 8.6 percent drop in the value of its equity portfolio led the decline. It was the investor’s first back-to-back quarterly loss in six years.

Meanwhile, banks are adjusting their businesses to stay profitable in an environment of record-low rates and less liquid bond markets.

Danske Bank is trying to find new ways of squeezing its struggling fixed income, commodities and currency operations so they’re not a drag on financial targets. CEO Thomas Borgen said on Thursday Danske can’t afford to turn its back on the business, so it’s not firing bankers. Instead it will handle fewer securities to stay lean. Credit Suisse Group recently opted to stop making a market in government bonds across Europe as the stricter regulatory environment adds to the cost of doing so.

Stendevad said the climate of record-low interest rates continues to pose challenges.

“It’s a real risk and one that worries us,” he said. “Low rates are a facilitator but not a solution. It’s necessary to prop up the economy, but it distorts the financial markets. And that’s simply something we have to live with.”

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