Denmark’s $118 Billion ATP Fund Braces for Lower Returns

  • ATP had a 12.3% return on its investment portfolio in 9 months
  • Fund made money on private equity, lost on inflation hedges

The man running Denmark’s biggest pension fund says the outlook for returns is darkening as extreme monetary policies and an under-capitalized bank industry in Europe cloud the investment horizon.

“We have a 12.3 percent return; that’s above expectations but we don’t think that’s a level we can expect going forward,” Carsten Stendevad, 43, said in an interview in Copenhagen on Tuesday. “I’m happy about the high returns but it would have been nicer to get those high returns in a normal environment as opposed to one fueled by central bank policies.”

“The point is that we’ve had to work much harder and make a lot of changes to get that” return, he said. “The cash flow hasn’t changed, so all that happened is valuations went up due to demand and everybody buying. I should be happy, having owned the assets to begin with. But it does give you cause for concern.”

The fund returned 5.8 percent on its investments in the third quarter, it said earlier in the day. For the first nine months, ATP’s investment portfolio returned 12.5 billion kroner. It made 5.3 billion kroner on private equity, with bonds, real estate, infrastructure and credit instruments adding to the return. But it lost 3.7 billion kroner on inflation hedges.

‘Hard Brexit’

ATP plans to keep the hedges in place to protect the purchasing power of pension savers. While ATP expects price growth to stay low for years, the recent rise in U.K. inflation expectations, following the decision to leave the European Union, is a reminder that “inflation developments aren’t always very stable and predictable,” Stendevad said.

The CEO, who is planning to leave the fund by the end of the year to spend more time with his family, said there are several reasons why the returns ATP has delivered so far in 2016 probably aren’t sustainable. In addition to negative yields affecting half of Europe’s government debt, “the prospects of a hard Brexit” are adding to the hurdles that institutional investors face, he said.

ATP, which had total assets of 806 billion kroner, or about $118 billion, at the end of September, divides its investments into two categories: a so-called hedging portfolio, which is by far the larger of the two and designed to guarantee pensions. ATP’s investment portfolio tries to boost the fund’s returns to top up Danes’ pensions.

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