Biggest Danish Pension Fund Girds for End to Crisis Stimulus

Denmark’s biggest pension fund said investors need to brace themselves for potential disruptions once central banks start withdrawing the measures that have been propping up the global economy.

“When the time for normalization of the monetary policy stance comes, investors may be faced with huge challenges,” ATP, based north of Copenhagen, said today in a statement on its website. “It is important to maintain a patient and flexible investment strategy in order to achieve positive returns.”

Unprecedented stimulus from the world’s biggest central banks has supported prices in “risky” markets, including equities, ATP said. The fund, which had a total of 705 billion kroner ($130 billion) in assets at the end of the third quarter, warned that monetary policy isn’t a long-term solution to economic weakness and that central banks can only “buy time” as governments, companies and households adjust.

The investor reaction to the U.S. Federal Reserve’s decision to shelve a tapering of stimulus it had signaled might come as early as September showed how fragile markets remain, ATP said.

“Central banks have been buoying financial markets,” the fund said.

Oil Fund

ATP isn’t the first large institutional investor in Scandinavia to warn that asset prices may be artificially high because of extraordinary stimulus. Norway’s $810 billion sovereign wealth fund, the world’s biggest, said last week it is bracing itself for a “correction” in stock prices after equities soared last quarter.

The MSCI World Index of stocks rose 7.7 percent last quarter and has surged a further 12.9 percent since the end of June. That puts the gauge on course for its biggest quarterly gain since the third quarter of 2010, when it rose 13.2 percent, according to data compiled by Bloomberg.

ATP said the uncertain investment environment, and its effect on inflation and interest rates, is forcing it to cut its target. The fund predicts it will reach 9.7 billion kroner this year from its hedging and investment business, according to its third-quarter report released today. At the end of June, the target was 10.8 billion kroner.

“This is still considered an ambitious target,” ATP said.

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