Falling global stock prices are being blamed for a rare quarterly loss reported by the $125.8 billion Danish pension fund ATP, which saw its investment portfolio lose DKK1.1 billion ($179.5 million), or 1%, in the first quarter of 2018. It is the first negative quarter for the fund since the third quarter of 2015, and only its third in five years.
“In a difficult market, a negative return of 1% for the first quarter of the year was satisfactory in light of the very high returns realized in 2017,” ATP CEO Christian Hyldahl said in a release. “The result indicates that returns are about to be normalized as central banks place a tighter hold on liquidity and ramp up interest rates.”
While the negative return was attributed to falling foreign-listed equities and state bonds, the fund said investments in unlisted equities, infrastructure, and real estate contributed positively to quarterly returns.
Over the previous five years, ATP’s average investment portfolio returns have been 3.9% per quarter, and it has reported positive returns in 17 of the previous 20 quarters.
“We have been blessed with exceptionally high returns in recent years,” said Hyldahl. “Our strategy remains to invest and to take risks in order to create returns in spite of the increasing market uncertainties. We do have the margin to do this, but we also keep a keen eye on our risks and the portfolio composition.”
ATP allocates the risk and risk spread associated with each investment on the basis of four different risk factors: equity factor, interest rate factor, inflation factor, and other factors. The fund says the factor framework gives a shared risk understanding, enabling uniform management of all investment activities and a comparison of returns and risks across various asset classes.
The fund also said that due to moderate interest rate drops for European state bonds with long residual maturity, the value of guaranteed pensions increased in Q1, and its hedging portfolio saw a positive return.
ATP is a mandatory pension scheme with more than 5.1 million members, and approximately 40% of all Danish pensioners have no other pension income than ATP, and the state-funded old-age pension.